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UNITED STATES

SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Persuant to Section 13 or 15(d)of

the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2006

Commission file number
0-18121

___________________________

MAF BANCORP, INC.

(Exact name of
registrant as specified in its charter)

|                                  |                                                   
|--------------------------------- | --------------------------------------------------
|Delaware
(State of Incorporation) | 36-3664868
  (I.R.S. Employer
 Identification No.)
|                                  |                                                   
|                                  |                                                   
|                                  |                                                   
|                                  |                                                   

55th Street & Holmes Avenue, Clarendon Hills, Illinois 60514-1500Telephone Number (630) 325-7300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.

Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Exchange Act.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendments to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).

Based opon closing price of the registrant's common stock as of June 30, 2006,
the aggregate market value of the voting stock held by non affiliates of the reistrant was $1.3 billion. *

The number of shares of Common Stock outstanding as of February 23, 2007: 32,926,938

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Document Incorporated by Reference

PART III - Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on May 16, 2007 are incorporated by reference into Part III hereof.

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*Solely for purposes of this calculation, all executive officers and directors of the registrant are considered
to be affiliates.  Except to the extent shares have been allocated to the plan accounts of directors and executive officers, the affiliate holdings do not include shares held in certain
employee benefit plans administered by plan committees the include executive officers.

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MAF BANCORP, INC. AND SUBSIDIARIES

FORM 10-K

Page

PART I.

|           |                                                                                                                   |    
|---------- | ----------------------------------------------------------------------------------------------------------------- | ---
|Item 1.    | Business                                                                                                          | 2  
|Item 1A.   | Risk Factors                                                                                                      | 28 
|Item 1B.   | Unresolved Staff Comments                                                                                         | 31 
|Item 2.    | Properties                                                                                                        | 31 
|Item 3.    | Legal Proceedings                                                                                                 | 31 
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                               | 31 
|           | PART II                                                                                                           |    
|           |                                                                                                                   |    
|Item 5.    | Market for the Registrant's Common Equity, Related Stockholder Matters  and Issuer Purchases of Equity Securities | 31 
|Item 6.    | Selected Financial Data                                                                                           | 33 
|Item 7.    | Management's Discussion and Analysis of Financial Conditionand Results of Operations                              | 37 
|Item 7A.   | Quantitative and Qualitative Disclosures about Market Risk                                                        | 55 
|Item 8.    | Financial Statements and Supplementary Data                                                                       | 59 
|Item 9.    | Changes in and Disagreements with Accountants on Accountingand Financial Disclosure                               | 99 
|Item 9A.   | Controls and Procedures                                                                                           | 99 
|Item 9B.   | Other Informtion                                                                                                  | 99 
|           | PART III                                                                                                          |    
|           |                                                                                                                   |    
|Item 10.   | Directors, Executive Officers and Corporate Governance                                                            | 99 
|Item 11.   | Executive Compensation                                                                                            | 100
|Item 12.   | Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters                     | 100
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence                                         | 100
|Item 14.   | Principle Accountant Fees and Services                                                                            | 101
|           | PART IV                                                                                                           |    
|Item 15.   | Exhibits and Financial Statements Schedules                                                                       | 101
|SIGNATURES |                                                                                                                   | 105

i

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# PART I

# Item 1. Business

# General

MAF
Bancorp, Inc. was incorporated under the laws of the state of Delaware in 1989, as the
holding company for Mid America Bank, fsb (Bank), our banking subsidiary. The
Bank, which was organized as a mutual savings and loan association and has been operating
in the Chicago area since 1922, formed the holding company in connection with its
conversion from a mutual to stock savings institution. Over the last five years, the Bank
has grown from 32 branches and $5.60 billion in total assets at December 31, 2001 to 82
branches and $11.12 billion in assets at December 31, 2006. Today, the Bank is one of the
largest community-oriented financial institutions in the Chicago and Milwaukee
metropolitan areas, serving both retail and business banking customers. We also engage in
residential real estate land development through our subsidiary, MAF Developments, Inc.,
or MAFD, a business we have been active in for over 30 years.

The
Companys executive offices are located at 55th Street and Holmes Avenue, Clarendon
Hills, Illinois 60514-1500. The Companys telephone number is (630) 325-7300.

We
have grown our franchise through de novo branching, as well as acquisitions of other
financial institutions and branch acquisitions. We have opened 13 denovo branches in the
past five years. The table below summarizes information regarding the acquisitions we have
completed during the past five years.

|Acquired Company                | Number of
Branches | Market Area | AcquisitionDate | Total Assets atClosing | Total Deposits atClosing
|------------------------------- | ------------------ | ----------- | --------------- | ---------------------- | ------------------------
|
|EFC Bancorp, Inc.               |                    |             |                 | 7                      |                         
|Chesterfield Financial Corp     |                    |             |                 | 3                      |                         
|St. Francis Capital Corporation |                    |             |                 | 23                     |                         
|Fidelity Bancorp, Inc.          |                    |             |                 | 4                      |                         

We
may continue to consider selective acquisition opportunities to strengthen our market
share in the greater Chicago and Milwaukee metropolitan areas or to pursue strategic
growth opportunities in other attractive markets.

As
we have grown, we have successfully transitioned our business from a traditional savings
and loan engaged primarily in one- to four-family residential mortgage lending to a more
diversified community bank, servicing both consumer and business customers, while
retaining our emphasis on relationship-driven, responsive customer service. We offer a
wide variety of checking, savings and other deposit accounts as well as investment
services and securities brokerage, general insurance services and other financial services
targeted to individuals, families and small- to medium-sized businesses in our primary
market areas. All of our locations are full-service branches, many of which offer
customers the convenience of drive-up facilities.

We
launched our Business Banking unit in 2001 and have steadily grown commercial deposits and
business banking loans over the past six years. We have also emphasized home equity
lending in recent years as part of our strategy to diversify our loan portfolio with
higher-yielding loan categories. We continue to originate, and to a lesser extent
purchase, residential one- to four-family mortgage loans primarily in our market areas
through our residential loan origination platform. While we expect to keep more of our
adjustable rate mortgage originations in our portfolio, we have migrated to more of an
originate-and-sell model in our mortgage business. The acquisitions of Fidelity,
St. Francis and EFC Bancorp contributed significantly to the change in our asset mix,
increasing our multi-family mortgages, home equity loans, commercial real estate and
business loans and reducing the concentration of one- to four-family mortgage loans in our
total loan portfolio. At December 31, 2006, 54% of total loans were comprised of one-
to four-family mortgages compared to 79% at December 31, 2002.

For
segment information regarding the Companys two lines of business (banking and land
development), see Note 18. Segment Information to the audited
consolidated financial statements of the Company included in Item 8. Financial
Statements and Supplementary Data.

2

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# Lending Activities

Loan
Portfolio Composition. The following table sets forth the composition of
the Banks loan portfolio by loan type at the dates indicated. The table reflects the
change in the loan portfolio mix over the last four years resulting from increased
emphasis on equity lines of credit, the successful growth of our Business Banking unit and
the impact from acquisitions.

|                       | At December 31, | 
|---------------------- | --------------- | 
|
|
|
|One- to four-family    |                 | 
|Equity lines of credit |                 | 
|and home equity loans  |                 | 
|Multi-family           |                 | 
|Commercial real        |                 | 
|estate                 |                 | 
|Construction           |                 | 
|Land                   |                 | 
|Commercial             |                 | 
|business loans         |                 | 
|Consumer               |                 | 
|                       |                 | 
|                       |                 | 
|                       |                 | 

The
following table shows the breakdown of fixed-rate and adjustable-rate loans in our
portfolio for loan categories other than our residential lending categories as of the
dates indicated:

|                           | At December 31, | 
|-------------------------- | --------------- | 
|
|
|
|Multi-family:              |                 | 
|Adjustable-rate            |                 | 
|Fixed-rate                 |                 | 
|                           |                 | 
|Total multi-family         |                 | 
|                           |                 | 
|Commercial real estate:    |                 | 
|Adjustable-rate            |                 | 
|Fixed-rate                 |                 | 
|                           |                 | 
|Total commercial           |                 | 
|real estate                |                 | 
|                           |                 | 
|Construction and Land:     |                 | 
|Adjustable-rate            |                 | 
|Fixed-rate                 |                 | 
|                           |                 | 
|Total construction         |                 | 
|and land                   |                 | 
|                           |                 | 
|Commercial business loans: |                 | 
|Adjustable-rate            |                 | 
|Fixed-rate                 |                 | 
|                           |                 | 
|Total commercial           |                 | 
|business                   |                 | 
|                           |                 | 

Loan
Maturity. The following table shows the principal amount of loans for loan
categories other than one- to four-family mortgages, home equity lines of credit, home
equity loans, and consumer loans by contractual final maturity at December 31, 2006.
This table is not indicative of the timing of expected repayments on these loans.

|                          | At December 31, 2006 |  |   |         | 
|------------------------- | -------------------- |  | - | ------- | 
|
|
|Multi-family              |                      |  | $ | 12,720  | 
|Commercial real estate    |                      |  |   | 52,797  | 
|Construction              |                      |  |   | 101,959 | 
|Land                      |                      |  |   | 115,513 | 
|Commercial business loans |                      |  |   | 111,647 | 
|                          |                      |  |   |         | 
|Total                     |                      |  | $ | 394,636 | 
|                          |                      |  |   |         | 

Of
the $1.73 billion of loans shown in the table above with contractual final maturities
after one year, $1.17 billion, or 67%, are adjustable rate loans and $568.8 million or
33%, are fixed rate loans.

Residential
Lending.At December 31, 2006, we had approximately $4.01 billion of
one- to four-family mortgage loans in our loan portfolio. We sell the majority of our one-
to four-family fixed rate

3

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mortgage production into the secondary market, as well as a
significant portion of our conforming and Alt-A adjustable-rate loan originations. For
this reason, we generally underwrite our residential loans to investor criteria and
typically price our loans to secondary market rates. We have developed a broad base of
investors to include not only Fannie Mae, Freddie Mac and the Federal Home Loan Bank
Mortgage Finance Partnership program (MPF), but also commercial and investment
banks and other private investors, to provide outlets for most of our products. This
allows us to limit liquidity risk and interest rate risk.

We
currently attract most of our residential mortgage loan customers through commissioned
loan officers and cross-selling to banking customers. We are working to expand our
telemarketing and web-based offerings in an effort to attract more business through
alternative channels. We also offer subprime loans for prospective borrowers with
substandard credit through a small group of specialized officers, and we have broker and
correspondent lending relationships with other mortgage companies who purchase the
subprime loans that we originate through these programs. Our policy is not to retain these
loans in portfolio.

We
offer ARM loans with 30- and 40-year amortization terms with initial rates that are fixed
for a period of one to ten years, with annual adjustments (and periodic and lifetime caps)
thereafter, to the extent they do not refinance. At December 31, 2006, $3.13 billion, or
78% of our one- to four-family portfolio were adjustable rate loans, including $1.14
billion of 3/1 ARMs, $1.62 billion of 5/1 ARMs, and $377.0 million of 7/1 and 10/1 ARMs.
At December 31, 2006 the ARM loan portfolio included $625.9 million of loans with 40-year
amortization terms. Despite the benefits of ARM loans for asset/liability management
purposes, particularly those with shorter initial fixed-rate periods, adjustable rate
loans do pose potentially greater credit risks than fixed rate loans, since as interest
rates rise, the underlying payment requirements of the borrower rise, increasing the
potential risk of default.

For
traditional mortgage loans with loan-to-value ratios (LTVs) in excess of 80%, to better manage
our credit risk we generally require that a customer maintain private
mortgage insurance (PMI), and/or we obtain lender paid private mortgage insurance. In
situations where we believe the credit risks associated with higher LTV loans are
mitigated by the borrowers FICO score, we may self insure. If the customer does not
obtain PMI, we charge the customer a higher interest rate on the loan to compensate us for
the cost of insurance we pay or the greater risk of the loan. For loans with PMI, the Bank
has a mortgage reinsurance subsidiary that shares in a portion of insurance premiums
earned by various private mortgage insurance companies on loans originated by the Bank, in
return for assuming a second-tier layer of risk on insured portions of these loans. To
date, the Bank has experienced no losses through our assumed risk layers. For the years
ended December 31, 2006, 2005 and 2004 this activity generated pre-tax income of $2.5
million, $2.3 million and $1.9 million, respectively. We have also invested in various
debt instruments issued by one of the PMI companies where the interest rate earned on the
note is based on the performance and loss experience of the underlying pool of insured
loans. During the years ended December 31, 2006, 2005 and 2004, we received interest
income of $630,000, $985,000 and $1.4 million, respectively, on these instruments.

Over
the past few years, we have expanded our offerings of non-traditional mortgage products to
include a variety of interest-only products for primary residences, investment properties
and vacation homes. We also offer products for up to 100% combined LTVs that use
alternative underwriting standards without relying on standard income verifications. We
have developed a particular niche originating no-income-verification loans for homeowners
in ethnic communities. We have not offered payment- option-ARMs or other loans involving
negative amortization. Interest-only loans accounted for approximately
24% of our 2006 originations and comprised approximately 12% of our residential mortgage
portfolio at year end. While non-traditional mortgages, particularly high LTV
interest-only loans, may pose a higher risk of loss than conventional one- to four-family
loans, we generally earn a higher interest rate on these loans to compensate us for the
risk.

An
important part of our business strategy is our commitment to community lending
initiatives. We offer various innovative and flexible home mortgage products and
participate in or actively support many special lending programs designed to promote
affordable homeownership and address the needs of underserved communities in the markets
we serve. These programs include single and multi-family home mortgage loans in
low-to-moderate income census tracts, loans in predominantly minority communities, and
loans to borrowers whose income is below 80% of median income. Many loans we make in our
community lending programs tend to have higher LTVs.

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Home
Equity Lending.Home equity lending totaled $1.30 billion, or 17.5% of our
loan portfolio. Several years ago, we made a strategic decision to expand our level of
equity line activity in an effort to capitalize on our penetration of residential lending
production in our primary market areas, diversify our asset mix and reduce our interest
rate risk exposure, as home equity lines are variable rate products generally tied to the
Prime rate. At December 31, 2006, the average utilization rate on our equity line
portfolio was 51.5% compared to 53.8% at December 31, 2005 and 55.7% at December 31, 2004.
The rising interest rates over the past year made growth in this portfolio more
challenging as consumers repaid balances or refinanced into fixed rate mortgage products.
We underwrite our home equity loans similarly to our one- to four-family production, by
evaluating a customers ability to repay the loan, including FICO score, and by
reviewing the combined loan-to-value ratio (CLTVs) of the loan taking into account any
first mortgage loan. Our underwriting procedures limit the combined loan-to-value ratio to
100% or less. We generally determine the rate on an equity line of credit using a tiered
pricing schedule based on a combination of a customers FICO score and CLTV ratios.
Under applicable regulatory guidelines, we maintain higher capital levels to support
second lien home equity lines of credit than are required for first lien residential
mortgages, taking into account the entire approved amount of the equity line, not just the
amount drawn at any given time. We do not normally obtain PMI insurance on home equity
products. As part of our originate- and-sell strategy in residential lending, in 2005 and
2006 we sold some of our home equity-line production to generate gain on sale income. We have considered home equity line sales from time to time when market pricing has been attractive relative to
our prepayment speed projections, and to reduce credit risk exposure on higher CLTV
product. In these transactions, we have endeavored to select for sale loans we have made
to single-service customers whose business relationships with the Bank are
limited to their home equity lines.

Multi-family
Lending. Our multi-family real estate loans totaled $801.9 million at
December 31, 2006, or 10.8% of our loan portfolio. We originate multi-family residential
mortgage loans in our market areas. These residential mortgage loans are generally ARM
loans having interest rates with initial fixed rate terms of three to ten years,
amortization periods of up to 25 years and balloon maturity dates of five to ten years.
Our underwriting standards for these loans generally require a loan-to-value ratio not
greater than 80% and net operating income to debt service coverage ratio that is not less
than 1.0 for loans secured by less than 24 units and 1.15 for loans secured by more than
24 units. In cases where the debt service ratios are lower, we may charge a higher yield,
require additional collateral, require a lower LTV or verify the overall cash flow of the
borrower or guarantor to cover any debt service shortfall. The multi-family loans
typically carry more risk than single family loans as the loan balances are larger and the
repayment of loans is dependent in part on the cash flow of the property securing the
loan.

To
a lesser extent, we also offer equity lines secured by multi-family properties, which
permit equity borrowing up to 80% LTV.

Commercial
Real Estate Lending.Our commercial real estate loans totaled $629.0
million at December 31, 2006, or 8.4% of our loan portfolio. We lend on various commercial
properties, including small office buildings, warehouses, industrial/manufacturing
buildings, land acquisition and development, and other improved residential and
non-residential properties. Commercial real estate loans that are adjustable-rate in
nature have floating interest rates that are generally tied to Prime or LIBOR. Payments on
loans secured by commercial real estate properties are often dependent on the successful
operation or management of the properties or their primary tenants, and as such, repayment
of such loans may be subject to adverse conditions in the real estate market or the
economy. We seek to minimize these risks by lending primarily to experienced developers,
or existing income-producing properties and generally restrict such loans to properties in
our market areas.

Commercial
real estate loans tend to be much larger than our average residential loan, and involve a
greater degree of risk than residential mortgage loans with respect to the determination
of the market value of the collateral and underlying cash flow assumptions. This increased
risk is a result of several factors, including the concentration of principal in a limited
number of loans and borrowers, the effects of general economic conditions, and the
increased difficulty of evaluating and monitoring these loans.  Furthermore, the
repayment of loans secured by non-residential property is typically dependent upon the
successful operation of the related real estate project.  If the cash flow from the
project is reduced, the borrowers ability to repay the loan may be impaired. See
Business  Delinquent, Non-performing and Classified Assets.

Our
underwriting of commercial real estate loans is a robust process and is less homogeneous
than generally found in our residential loan underwriting. We use a combination of inside
and outside

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appraisers with pertinent expertise to appraise our commercial real estate
properties. Our credit analysis includes a review of the propertys ability to
service debt, the capacity of the borrower to generate income elsewhere and where
applicable, the strength of any personal guarantor(s). We generally seek a net operating
income to debt coverage ratio that is not less than 1.20, exclusive of other outside
income. In instances where the coverage ratio is lower, we seek a higher rate of interest
or collect additional fees to compensate us for the increased level of risk or require
other compensating factors such as additional collateral, personal guarantees or strong
overall cash flow from borrowers and guarantors.

Construction
and Land Lending. Our commercial real estate construction, single-family
construction and land loans totaled $498.9 million at December 31, 2006, or 6.7% of our
loan portfolio. Our construction and land lending are both focused primarily on one- to
four-family residences and residential land developments in our market areas. This lending
focuses on construction of properties where qualified contractors are involved, and loans
are structured to be repaid or converted to permanent loans at the end of the construction
phase. Our construction loans tend to be adjustable-rate, with interest-only payments
during the construction phase.

The
maximum loan-to-value during construction is generally limited to 80% LTV. Loan proceeds
are disbursed in increments as construction progresses, inspections are completed and lien
waivers obtained. Our land lending includes loans to developers for the initial purchase
and land development for residential subdivisions in our market area, as well as loans to
builders and individuals. Under our policy, the loan-to-value ratio for development loans
may not exceed 80%. The majority of these loans are floating rate based on the Prime rate
or LIBOR. We require an appraisal of the property, and feasibility studies may also be
required to determine the profit potential of the development project.

Construction
and land development loans involve higher risks than residential mortgages because the
uncertainties inherent in estimating construction costs, as well as variations in the
market value of the completed project and the effects of local governmental regulation of
real property, make it relatively difficult to precisely estimate the total funds required
to complete a project and the related loan-to-value ratio. Construction and land
development lending often involves the disbursement of substantial funds with repayment
dependent, in part, on the success of the ultimate project rather than the ability of the
borrower or guarantor to repay principal and interest. If we have to foreclose on a
project, especially if prior to completion, we may have difficulty recovering all of the
unpaid balance of and accrued interest on the loan, as well as related foreclosure and
holding costs. In addition, we may be required to fund additional amounts to complete the
project and may have to hold the property for an unspecified period of time. We have
attempted to address these risks through our underwriting procedures and monitoring of
construction lending on multi-family and commercial real estate properties.

Commercial
Business Lending. Our commercial business loans totaled $198.9 million at
December 31, 2006, or 2.7% of our loan portfolio. We originate a variety of commercial
business loans, including working capital financing, equipment loans, and selected
personal loans for executives, professionals and entrepreneurs with floating interest
rates typically tied to Prime or LIBOR and fixed rates indexed to Treasury rates or LIBOR.
Supporting collateral can take many forms, such as accounts receivable, inventory
equipment and other business or personal assets, or in some cases loans may be unsecured.
Typically, we target small-to medium-sized, privately held businesses in our primary
market areas and seek to establish full service commercial loan and deposit relationships.
Growing our commercial lending portfolio is key to the success of our asset
diversification strategy, since this type of lending typically provides higher yield
opportunities than residential loans and is an important component in achieving a more
balanced loan portfolio.

Loans
to commercial business entities involve risk factors unique to the business of each
borrower. In order to mitigate these risks, we seek to gain an understanding of the
business of each borrower; understand the cash flow generated by the business, place
appropriate value on collateral taken and structure the loan properly to make sure that
collateral values and financial conditions are maintained while loans are outstanding.
Appropriate documentation of commercial business loans is also important to protect our
interests. Our credit approval process for commercial loans is comprehensive and our
underwriting process includes an evaluation of the borrowers historical and
projected balance sheet, income statement, liquidity and cash flow as well as the strength
of the collateral to determine the level of creditworthiness of the borrower. We typically
review the current and future cash needs of the borrower, its business strategy,
managements ability to execute the strategies, and the strength of any guarantors.
While our loan policy has guidelines for advances on different types of collateral, we
establish eligible asset values on a case-by-case basis for each borrower. Generally, the
commercial business loans are

6

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secured by a first priority security interest in all the
assets of the borrower and also include the personal guarantees of business owners. The
repayment of a commercial business loan depends primarily on the ability of the borrower
to generate cash and the creditworthiness of the borrower, since liquidation of collateral
is often a secondary and potentially insufficient source of repayment due to inventory or
assets being obsolete, or accounts receivable becoming uncollectible.

We
may also provide letter of credit services to certain borrowers on a case-by-case basis.
Underwriting, structuring and collateralization of letters of credit are similar to that
used in other commercial loans.

Lending
Concentrations. Our largest lending relationship at December 31, 2006,
involved $68.4 million of credit exposure, the majority of which is comprised of
construction and land loans relating to residential developments. Aggregate credit
exposure to our ten largest lending relationships at December 31, 2006, was approximately
$373 million. The majority of our loans are made in our Chicago and Milwaukee market
areas. Of our total loan portfolio at December 31, 2006, 76.3% are loans secured by
property located in Illinois and 20.2% by property located in Wisconsin.

Environmental
Issues. We encounter certain environmental risks in our lending activities.
Under federal and state environmental laws, and in certain circumstances, lenders may
become liable for the costs of cleaning up hazardous materials found on security property.
To mitigate environmental related risks to us, our loan policies call for management to
consider all relevant factors in order to determine whether an environmental review is
needed and, if so, the scope and detail, prior to our origination of commercial and
multi-family loans. Although environmental risks are usually associated with industrial
and commercial loans, there are also risks for residential lenders like us if
environmental contamination makes the collateral property unsuitable or has an adverse
effect on nearby property values.

No
assurance can be given that the values of properties securing loans in our portfolio will
not be adversely affected by unforeseen environmental risks, although we are unaware of
any such environmental issues which subject us to potential material liability at this
time.

# Secondary Market and
Loan Servicing Activities

Originations,
Purchases and Sales of Mortgage Loans. Our mortgage origination volumes,
and the mix of fixed-rate and ARM products in our originations, are significantly
dependent on the interest rate environment, consumer preferences and the expected level of
future interest rates. We originate the majority of our production, through our internal
sales force of commissioned loan originators. In addition, in the past several years we
have worked to establish relationships with a number of selected mortgage brokers
operating in our market areas from whom we purchase loans, primarily home equity products,
based on our published rate sheets and in conformity with our underwriting guidelines and
usually in whole loan transactions where we assume the servicing.

Our
strategy regarding loan sales is dependent on a number of factors and varies from time to
time depending on the impact of these factors on our operations. We consider the profit
margin on sale compared to the spread income expected to be earned on a loan in
determining whether we sell certain production. We also sell loans as a means of managing
our overall level of interest-rate risk as well as the credit risk profile of our
residential loan portfolio. We may also sell loans as a means of providing liquidity to
our operations. In managing our interest-rate and liquidity risks, we generally sell most
of our fixed-rate residential mortgage originations, and tend to sell more ARM
originations when the yield curve is flatter. During 2006, we sold a larger percentage of our ARM loan production as part of
our strategy to limit portfolio growth in the inverted yield curve environment, intended
to mitigate net interest margin pressure. Based on our current interest rate outlook, we
may retain more of our ARM loan production in portfolio in 2007 as we work to grow
interest earning assets at acceptable spreads.

We began selling home equity loans on a
servicing-released basis two years ago, selling $139.3 million in 2005 and $114.5 million
in 2006. We sold home equity loans to realize the attractive gain on sale margins
available in the secondary market for this product. In addition, the sales were used to
help manage our credit risk by selling more of the higher loan-to-value production,
particularly in 2006 as we started to see negative asset quality trends and higher loss
experience on these loans due to the weakening housing market conditions. We expect to continue this strategy in 2007.

7

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The
following table shows the Banks one- to four-family mortgage and home equity
originations and purchases and loan sale activity for the periods indicated:

|                                                | At or For the Year Ended December 31, | 
|----------------------------------------------- | ------------------------------------- | 
|
|
|
|One- to Four-Family Originations and Purchases: |                                       | 
|                                                |                                       | 
|Fixed-rate                                      |                                       | 
|Adjustable-rate                                 |                                       | 
|                                                |                                       | 
|Total                                           |                                       | 
|                                                |                                       | 
|Equity lines of credit(1)                       |                                       | 
|Home equity loans                               |                                       | 
|Loans Sales:                                    |                                       | 
|One- to four-family loans:                      |                                       | 
|Fixed-rate(2)                                   |                                       | 
|Adjustable-rate(2)                              |                                       | 
|                                                |                                       | 
|Total                                           |                                       | 
|                                                |                                       | 
|Equity loans                                    |                                       | 
|                                                |                                       | 
|Gain (loss) on sale or writedown of:            |                                       | 
|One- to four-family loans                       |                                       | 
|Lower of cost or market                         |                                       | 
|adjustment on                                   |                                       | 
|loans transferred to held for                   |                                       | 
|sale                                            |                                       | 
|Home equity loans                               |                                       | 
|                                                |                                       | 
|Total loan sale gains                           |                                       | 
|                                                |                                       | 
|Margin on loan sales:                           |                                       | 
|One- to four-family loans                       |                                       | 
|(exclusive of lower of                          |                                       | 
|cost or market adjustment)                      |                                       | 
|Equity loans                                    |                                       | 
|                                                |                                       | 

---

|(1) | Represents total disbursements during the year on all home equity lines,
          including amounts related to lines newly originated during the year and lines
          previously outstanding. This does not reflect any unused amounts that remain
          available at year end.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Loans sold includes one- to four-family originations that are swapped into
          mortgage-backed securities and sold simultaneously and does not include $37.2
          million in 2005 of Bank-originated loans swapped into mortgage-backed securities
          and held in portfolio.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Of
our fixed-rate originations in 2006, $613.3 million, or 97%, conformed to the requirements
for sale to Fannie Mae and Freddie Mac and $19.5 million, or 3%, were non-conforming. Our
non-conforming loans are generally designated as such because the principal
loan balance exceeds $417,000, which is the Freddie Mac, Fannie Mae, and MPF purchase
limit, and not because the loans present increased risk of default. Non-conforming loans,
or jumbo loans with such higher balances, generally carry interest rates from one-eighth
to one quarter of one percent higher than similar, conforming fixed-rate loans. Jumbo
loans are priced higher to compensate for their higher risks of prepayment.

We
generally sell our conforming long-term fixed-rate production to Freddie Mac, Fannie Mae,
or the MPF program of the Federal Home Loan Bank of Chicago, commonly referred to as
GSEs, or government sponsored entities. Since 2002, we have been selling most
of our non-conforming long-term fixed-rate production to private investors. During 2006 we
sold $525.2 million of adjustable rate loans, or 56% of our ARM originations as spreads to
funding costs narrowed as a means to hold down growth in lower-yielding assets and
mitigate pressure on the net interest margin.

We
often enter into forward commitments for loan sales with various investors based on our
mortgage production pipeline as our primary hedge of price risk. The majority of our loans
are sold without recourse, except those loans sold through the MPF program, where we
retain a limited level of risk in exchange for better pricing on the loans sold and a
credit enhancement fee. At December 31, 2006, we had approximately $16.8 million in
net credit risk exposure on loans we have sold through the MPF program.

Loan
servicing. We have generally retained servicing rights on single family
mortgage loans that we sell into the secondary market, but to date, not on equity lines
that we sell. When we retain the servicing, we generate loan servicing fee income from
fees the investors pay us to collect and remit mortgage payments, insurance premiums and
real estate taxes. The monthly servicing fees we receive are equal to at least .25% of the
outstanding principal balance of the sold loans being serviced. Costs of servicing loans
for others are charged to expense as incurred, while we capitalize mortgage servicing
rights upon the sale of loans based on assumptions as to fee income earned, estimated
prepayment

8

---

speeds of the underlying mortgage loans, and the cost of servicing. Mortgage
servicing rights are intangible assets and are amortized based on the estimated life of
the loan servicing income stream, which is recorded as a decrease to loan servicing fee
income. Our mortgage servicing rights are assessed quarterly for impairment, with any
impairment or recovery recognized through a valuation allowance and a related charge to
earnings.

The
following table shows the components of loan servicing fee income in dollars and as a
percentage of loans serviced for others, as well as other information regarding loans
serviced for others for the years indicated:

|                                                | Year Ended December 31, |  |  
|----------------------------------------------- | ----------------------- |  | -
|
|
|Gross servicing revenue                         |                         |  | $
|Amortization of mortgage servicing rights       |                         |  |  
|                                                |                         |  |  
|Loan servicing fee income                       |                         |  | $
|                                                |                         |  |  
|As a percentage of average loans serviced for   |                         | 
|others:                                         |                         | 
|Gross servicing revenue                         |                         |  |  
|Amortization of mortgage servicing rights       |                         |  |  
|                                                |                         |  |  
|Loan servicing fee income                       |                         |  |  
|                                                |                         |  |  
|Average balance of loans serviced for others    |                         |  | $
|Loans serviced for others at end of year(1)     |                         |  |  
|Mortgage servicing rights at end of year, net   |                         |  |  
|Average service fee at year end                 |                         |  |  
|Mortgage servicing rights as a percentage of    |                         | 
|mortgage loans serviced for others              |                         |  |  
|Multiple of average servicing fee at year end   |                         |  |  
|Weighted-average interest rate on loans         |                         | 
|serviced for others                             |                         |  |  
|                                                |                         |  |  
|                                                |                         | 
|Loan Servicing:                                 |                         | 
|Gain on sale of mortgage servicing rights       |                         |  | $
|Valuation recovery on mortgage servicing rights |                         |  |  

---

|(1) | One- to four-family loans serviced for other investors which are primarily GSE
          and to a lesser extent private investors.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

The loans we service for others are loans we have sold, typically without recourse, and are not
included in our loan portfolio composition totals or in our consolidated statements of financial
condition.  The following table shows delinquency information about mortgage loans we serviced for
others at the dates shown:

|                  | Loan Serviced for Others(1) | 
|----------------- | --------------------------- | 
|
|
|
|December 31, 2006 |                             | 
|December 31, 2005 |                             | 
|December 31, 2004 |                             | 

---

|(1) | Sold loans are serviced for other investors which are primarily GSEs and
          to a lesser extent, private investors.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(2) | Principal balance of delinquent loans serviced for others as a percentage of total loans serviced for
          others.
|--- | -----------------------------------------------------------------------------------------------------------------------

From
time to time, we may sell all or a portion of our servicing portfolio if we believe market
valuations of servicing rights offer us a better return than our outlook for servicing fee
income streams on the loans serviced for others. Servicing rights valuations are
significantly dependent on loan prepayment speed assumptions. We completed a sale of
servicing rights on $963.1 million of loans, approximately 27% of our one- to four-family
mortgage loans serviced for others portfolio, during the fourth quarter of 2006 at a
pre-tax gain of $3.6 million. The loan servicing rights were sold to take advantage of an
increase in servicing valuations early in the fourth quarter and represented primarily
single service customers we had determined were unlikely prospects for additional business
based on the outcome of our cross-selling efforts. We sold servicing rights on $751
million of loans in 2005 at a pre-tax gain of $2.4 million for similar reasons.

9

---

# Asset Quality and
Allowance for Loan Losses

We
work with consumers and business clients to provide a wide range of lending products
designed to meet their individual needs, while adhering to our internal underwriting
standards that have allowed us to maintain strong credit quality and minimize credit
losses historically.

Delinquent
Loans. When a borrower fails to make a required payment by the end of the
month in which the payment is due, we commence collection efforts through borrower
notifications and other collection procedures. When a loan payment is delinquent for three
or more monthly installments, we will generally initiate foreclosure proceedings and cease
accruing interest. At the dates shown delinquencies in our portfolio were as follows:

|                  | 61-90 Days | > 90 Days(2) | 
|----------------- | ---------- | ------------ | 
|
|
|December 31, 2006 |            |              | 
|December 31, 2005 |            |              | 
|December 31, 2004 |            |              | 

---

|(1) | Reflects principal balance of delinquent loans as a percentage of total loans
          outstanding.
|--- | ----------------------------------------------------------------------------------------------------

|(2) | The more than 90 days category includes all loans on non-accrual regardless of
          days past due.
|--- | -------------------------------------------------------------------------------------------------------

Non-Performing
Assets. The table below sets forth information regarding non-performing
assets in our portfolio at the dates shown:

|                                             | At December 31, | 
|-------------------------------------------- | --------------- | 
|
|
|Non-accrual loans:(1)                        |                 | 
|One- to four-family                          |                 | 
|Equity lines of credit and home equity loans |                 | 
|Multi-family                                 |                 | 
|Commercial real estate                       |                 | 
|Construction                                 |                 | 
|Land                                         |                 | 
|Commercial business loans                    |                 | 
|Consumer loans                               |                 | 
|                                             |                 | 
|Total                                        |                 | 
|                                             |                 | 
|Non-performing loans to total loans          |                 | 
|                                             |                 | 
|Non-accrual investment securities            |                 | 
|                                             |                 | 
|Foreclosed real estate:                      |                 | 
|One- to four-family                          |                 | 
|Commercial real estate                       |                 | 
|                                             |                 | 
|Total foreclosed real estate                 |                 | 
|                                             |                 | 
|Total non-performing assets                  |                 | 
|                                             |                 | 
|Total non-performing assets to total assets  |                 | 
|                                             |                 | 

---

|(1) | Consists of loans in the process of foreclosure or for which interest
          is otherwise deemed uncollectible.
|--- | ------------------------------------------------------------------------------------------------------------------

Non-accrual
loans. Generally, when a loan is more than 90 days or more past due, in the
process of foreclosure, or in bankruptcy, or when collectibility is otherwise in doubt,
the full amount of previously accrued but unpaid interest on such non-accrual loan is
deducted from interest income. Income is subsequently recorded to the extent cash payments
are received, or at the time when the loan is brought current in accordance with its
original terms. This policy is applied consistently for all types of loans in the
Banks loan portfolio. There were no loans over 90 days delinquent and still accruing
at any year end shown in the table above.

For
the year ended December 31, 2006, the amount of interest income that would have been
recorded on non-accrual loans if these loans were performing in accordance with their
terms amounted to $2.6 million for 2006 and $1.4 million for each of the years ended
December 31, 2005 and 2004. For the years ended December 31, 2006, 2005 and 2004,
interest income on non-accrual loans that was actually collected and recorded amounted to
$2.0 million, $563,000 and $630,000.

The
majority of our non-performing loans are secured by one- to four-family residential real
estate in our market area with current loan-to-value ratios less than 90% or with private
mortgage insurance.

10

---

We generally regard these loans as presenting lower risk of credit
loss due to the nature of the collateral. Approximately 17% of our non-accrual loans at
December 31, 2006, are covered by private mortgage insurance. Ratios for loans secured by
one- to four-family residential properties were as follows:

|                                                                                                                             | At December 31, | 
|---------------------------------------------------------------------------------------------------------------------------- | --------------- | 
|
|One- to four-family, equity lines of credit and home equity loans as a percentage of total loans                             |                 | 
|Non-performing one- to four-family, equity lines of credit and home equity loans as percentage of total non-performing loans |                 | 
|Percentage of non-performing one - to four-family, equity lines of credit and home equity loans                              |                 | 
|with private mortgage insurance or other guarantees                                                                          |                 | 
|Percentage of one- to four-family, equity lines of credit and home equity loans without                                      |                 | 
|private mortgage insurance and with combined loan- to-value greater than 90%                                                 |                 | 

Impaired
Loans. We consider a loan impaired when, based on current information and
events, it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan. Impairment for loans considered individually significant
and that exhibit probable or observed credit weaknesses are measured based on the present
value of expected future cash flows discounted at the loans effective interest rate,
or the fair value of the collateral if the loan is collateral dependent. If the determined
fair value of an impaired loan is less than the carrying value of the loan and a loss has
deemed to have occurred, we charge off the principal amount of the loan in excess of fair
value or net realizable value. For loans that are not individually significant, loans $1.0
million or less, and represent a homogeneous population, we evaluate impairment
collectively based on management reports on the level and extent of delinquencies, as well
as historical loss experience for these types of loans. These homogeneous loans are
excluded from the impaired loan disclosures. We use these criteria on one- to four-family
residential loans, consumer loans, smaller multi-family residential loans, and land loans.
At December 31, 2006 and 2005, the Company had $8.7 million and $2.1 million of
impaired loans. Impaired loans at December 31, 2006 includes $5.6 million related to a loan on a
commercial office building that resulted from the Bank advancing funds under a standby
letter of credit in December 2006. Earlier in the year we had recorded a $1.0 million writedown
on the letter of credit obligation and we charged off an additional $200,000 on the loan
in the fourth quarter. This loan was paid off in January 2007. The average
balance of impaired loans for 2006 and 2005 was $3.6 million and $2.4 million,
respectively.

Classified
Assets. The federal regulators have adopted a classification system for
problem assets of insured institutions, which covers all problem assets and requires
certain reserves. Under this classification system, problem assets of insured institutions
are classified as substandard, doubtful, or loss. An
asset is considered substandard if it is inadequately protected by the current
net worth and paying capacity of the obligor or the value of the collateral pledged, if
any. Substandard assets include those characterized by the distinct
possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets classified as loss are those
considered uncollectible and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted. In addition,
a special mention category consists of assets, which currently do not expose
the Company to a sufficient degree of risk to warrant adverse classification, but do
possess credit deficiencies deserving managements close attention.

In
connection with our filing of periodic reports with the OTS, we regularly review the
problem assets in our portfolio to determine whether any loans or investments require
classification in accordance with applicable regulations. At December 31, 2006 all our
non-performing loans were classified as substandard, except $676,000 classified as
doubtful. In addition, at December 31, 2006, we had classified $9.8 million of
multi-family loans, $3.8 million of commercial loans, $74,000 of land loans, $2.5 million
of construction loans and $1.5 million of commercial business loans as that were still
accruing interest as substandard for regulatory purposes. At December 31, 2005 all of our
non-performing loans were classified as substandard except $12,000 classified as doubtful.
At December 31, 2005, we had classified $3.5 million of multi-family loans, $8.2 million
of commercial real estate loans and $2.5 million of commercial business loans that were
accruing interest as substandard for regulatory purposes. Special mention loans at
December 31, 2006 and 2005 totaled $49.6 million and $23.9 million, respectively.

Allowance
for Loan Losses. In evaluating the adequacy of the allowance for loan
losses and determining the related provision for loan losses, if any, management
considers: (1) historical loss

11

---

experience and change in the size and mix of the
overall portfolio composition, (2) specific allocations based upon probable losses
identified during the review of the portfolio, (3) delinquency trends in the
portfolio and the composition of non-performing loans, including the percent of
non-performing loans with supplemental mortgage insurance, and (4) subjective
factors, including local and general economic business factors and trends, industry and
interest rate trends, new lending products and changes in underwriting criteria and
portfolio concentrations. Larger loans, typically secured by commercial real estate, that
exhibit probable or observed credit weaknesses are subject to individual review. In
addition, various regulatory agencies, as an integral part of their examination process,
periodically review our allowance for loan losses. Such agencies may require us to
recognize additions to the allowance based on their judgments about information available
to them at the time of their examination. While we use available information to recognize
inherent losses on loans, future adjustments to the allowance for loan losses may be
necessary based on changes in economic conditions and other factors and the impact of such
changes on the Banks borrowers. The allowance for loan losses totaled $39.9 million
at December 31, 2006, or .54% of total loans receivable, exclusive of loans held for
sale, and $36.5 million, or .51% of total loans receivable at December 31, 2005. An
analysis of the changes in the allowance for loan losses for the years indicated is
presented in the table below.

|                                  | Year Ended December 31, | 
|--------------------------------- | ----------------------- | 
|
|
|Balance at beginning of year      |                         | 
|Charge-offs:                      |                         | 
|One- to four-family               |                         | 
|Equity lines of credit and        |                         | 
|home equity loans                 |                         | 
|Multi-family                      |                         | 
|Commercial real estate            |                         | 
|Constuction                       |                         | 
|Land                              |                         | 
|Commercial business loans         |                         | 
|Consumer                          |                         | 
|                                  |                         | 
|                                  |                         | 
|                                  |                         | 
|Recoveries:                       |                         | 
|One- to four-family               |                         | 
|Equity lines of credit and        |                         | 
|home equity loans                 |                         | 
|Multi-family                      |                         | 
|Commercial real estate            |                         | 
|Construction                      |                         | 
|Land                              |                         | 
|Commercial business loans         |                         | 
|Consumer                          |                         | 
|                                  |                         | 
|                                  |                         | 
|                                  |                         | 
|Charge-offs, net of recoveries    |                         | 
|Provision for loan losses         |                         | 
|Additions related to acquisitions |                         | 
|                                  |                         | 
|Balance at end of year            |                         | 
|                                  |                         | 
|Net charge-offs to average loans  |                         | 
|outstanding                       |                         | 
|Allowance for loan losses to      |                         | 
|total loans receivable,           |                         | 
|exclusive of one- to              |                         | 
|four-family loans held for sale   |                         | 
|Allowance for loan losses to      |                         | 
|total non-performing loans        |                         | 

The
following table sets forth our allocation of allowance for loan losses. This allocation is
based on managements subjective estimates. The amount of reserves allocated to a
particular category may not be indicative of actual future losses, and amounts allocated
to particular categories may change from year to year based on changes in
managements assessment of the risk characteristics of the loan portfolio. During 2006, we refined the methodology
we use to evaluate the impact of the various factors described above in establishing allowance
allocations for each loan category. The portion of the reserve that is unallocated reflects managements recognition of the
imprecision in measuring and estimating loss when evaluating reserves for individual loans
or categories of loans. The allowance allocation as a percentage of one- to four-family
loans was relatively unchanged from December 31, 2005 and the decrease in the allocation
amount is primarily related to portfolio shrinkage. At December 31, 2006, the

12

---

allowance
allocation amount and as a percentage of equity lines of credit and home equity loans was
up significantly compared to December 31, 2005 due to the higher level of non-performing
loans and delinquencies and a much higher level of charge-offs in 2006, the increased risk
characteristics in the portfolio related to new products, the increase in high LTV loans
in the loan mix, and changes in underwriting criteria. The allowance allocations as a
percentage of the commercial real estate, and commercial business portfolios were lower,
reflecting a healthy corporate sector environment, very low levels of non-performing
loans, excellent delinquency trends and extremely low levels of net charge-offs,
particularly in the commercial real estate portfolio. The allowance allocations as a
percentage of the multi-family, construction and land portfolios were also lower,
reflecting very low levels of non-performing loans and delinquencies and another year of
no charge-offs in these portfolios. We have not experienced any charge-offs in the
construction and land portfolios in the last five years. The increase in the allowance
allocation amounts for the land, construction and commercial business loans is due to
portfolio growth. The decrease in the allowance amounts for the multi-family and commercial real estate
portfolios was primarily due to the lower percentage allocations for the reasons described above
offsetting the impact of growth in these portfolios.

|                       | At December 31, | 
|---------------------- | --------------- | 
|
|
|
|                       |                 | 
|One- to four-family    |                 | 
|Equity lines of credit |                 | 
|and home equity        |                 | 
|loans                  |                 | 
|Multi-family           |                 | 
|Commercial real        |                 | 
|estate                 |                 | 
|Construction           |                 | 
|Land                   |                 | 
|Commercial             |                 | 
|business               |                 | 
|Consumer               |                 | 
|Unallocated            |                 | 
|reserve                |                 | 
|                       |                 | 
|Total                  |                 | 
|                       |                 | 

At
December 31, 2006, 17% of our non-performing residential loans carried private mortgage insurance or government guarantees
and the average loan-to-value ratio on the one- to four-family, equity lines of credit and
home equity non-performing loans without supplemental mortgage insurance was 86%. Our net
income could be affected if our estimate of the amount of loan loss that may be incurred
is materially different than actual results, which could require an additional provision
for loan losses and a respective charge to earnings. We believe the allowance for loan losses
is adequate at December 31, 2006. However, future adjustments to the
allowance may be necessary based on changes in economic conditions and the impact of such
changes may have on our borrowers.

# Investment Activities

Our
strategy is to use our investment and mortgage-backed securities portfolios as stable
sources of interest income and to provide flexibility in managing our interest rate risk
and liquidity needs. For this reason, we keep our investment portfolios relatively
short-term in nature and seek to limit exposure to credit risk. These portfolios
represented a combined 17.4% of our total assets at December 31, 2006 compared to 21.0% at
December 31, 2005. We maintain a majority of our investment and mortgage-backed securities
in an available-for-sale portfolio, and we may sell these securities for liquidity needs,
to alter asset/liability management strategies or to manage risk-based capital levels. The
classification of investments and mortgage-backed securities as held to maturity,
available for sale or trading is made at the time of purchase based upon managements
intent at that time.

At
December 31, 2006, our investment securities classified as available for sale had a
fair market value of $530.0 million and a cost basis of $529.3 million. Mortgage-backed
securities available for sale had a fair value of $1.20 billion with a cost basis of $1.21
billion. At December 31, 2006, we had $212.3 million of mortgage-backed securities in a
held to maturity portfolio in which the loans underlying these securities are loans we
originated and swapped into mortgage-backed securities. See Note 4, Mortgage-Backed
Securities Available for Sale and Held to Maturity in Item 8. Financial
Statements and Supplementary Data, for further information regarding our balance
sheet restructuring.

13

---

We
owned $146.4 million of stock in the Federal Home Loan Bank of Chicago, or FHLBC, at
December 31, 2006, which is carried at cost, representing 1.3% of total assets and 13.7%
of stockholders equity. At December 31, 2006, we were required to hold $107.7
million of stock, based on our outstanding credit obligations to the FHLBC. We may,
subject to the regulatory and capital constraints of the FHLBC, redeem at par any
capital stock greater than our required investment. While our voluntary investment in
FHLBC stock yielded us a higher than market return in past years, the current yield on
this investment no longer represents an attractive rate compared to alternative
investments. In mid-2004, we began reducing our voluntary FHLBC stock position at the
recommendation of our asset liability committee (ALCO) in order to lower the
investment concentration that resulted from our 2003 acquisitions. We redeemed $31.9
million of FHLBC stock in 2006, $125.6 million in 2005 and $125.7 million in 2004. We
expect to redeem any remaining excess investment if and when the FHLBC allows further
redemptions. See Regulation and Supervision-Federal Home Loan Bank System.

The
following table sets forth certain information regarding the carrying value of our
investment and mortgage-backed securities portfolios at the dates indicated.

|                                | At December 31, | 
|------------------------------- | --------------- | 
|
|
|Investment securities available |                 | 
|for sale:                       |                 | 
|U.S. Government securities      |                 | 
|Municipal securities            |                 | 
|U.S. Agency securities          |                 | 
|Asset-backed securities         |                 | 
|Corporate debt securities       |                 | 
|Bank trust preferred securities |                 | 
|GSE preferred stock and other   |                 | 
|                                |                 | 
|Total investment securities     |                 | 
|                                |                 | 
|Stock in FHLB of Chicago        |                 | 
|                                |                 | 
|Mortgage-backed securities      |                 | 
|Available for sale              |                 | 
|Held to maturity                |                 | 
|                                |                 | 
|Total mortgage-backed           |                 | 
|securities                      |                 | 
|                                |                 | 

The
table below sets forth information regarding the carrying value and weighted average
yields based on amortized cost and expected maturities for our investment and
mortgage-backed securities.

|                              | At December 31, 2006 | 
|----------------------------- | -------------------- | 
|
|
|
|U.S. Government               |                      | 
|securities                    |                      | 
|Municipal securities(5)       |                      | 
|U.S. Agency                   |                      | 
|securities                    |                      | 
|Asset-backed                  |                      | 
|securities                    |                      | 
|Corporate debt                |                      | 
|securities                    |                      | 
|Bank trust preferred          |                      | 
|securities                    |                      | 
|Marketable equity securities: |                      | 
|GSE preferred                 |                      | 
|stock                         |                      | 
|Other                         |                      | 
|Stock in FHLB of              |                      | 
|Chicago(1)(2)                 |                      | 
|Mortgage-backed               |                      | 
|securities(3):                |                      | 
|Available for sale(4)         |                      | 
|Held to maturity(4)           |                      | 
|                              |                      | 
|Total                         |                      | 
|                              |                      | 

---

| | (1) | Marketable equity securities and stock in the FHLBC with no stated maturity are included in the More than
               10 Years category. These securities are excluded in the calculation of
               average life. Actual repricings and yields of the securities may differ from
               that reflected in the table depending upon actual interest rates and callable
               features of those investments.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | The yield reflects the dividend declared for the fourth quarter of 2006.
| | --- | ------------------------------------------------------------------------

| | (3) | Mortgage-backed securities available for sale and held to
                maturity are categorized for maturity purposes by their individual weighted average lives.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | The yields to maturity of mortgage-backed securities are based upon estimated
               future cash flow and prepayments. The yields on these securities may differ from
               that reflected in the table depending upon actual interest rates and prepayment
               experience.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | The yields exclude any tax equivalent adjustment.
| | --- | -------------------------------------------------

14

---

The
bank trust preferred securities shown in the tables above represent investments in several
different pools of collateralized debt securities consisting of primarily 30-year capital
securities issued by various banks, thrifts and insurance companies. The underlying pool
of issuers of the collateralized debt securities are well diversified as to asset size and
geography. These securities are primarily LIBOR-indexed floating-rate securities and
contain an issuer call provision at par anytime after five years from the issuance date.
The individual issuers of trust preferred securities have the ability to defer interest
payments for up to 20 consecutive quarters in certain circumstances. At December 31,
2006, the $91.7 million of bank trust preferred securities classified as available for
sale had a cost basis of $91.2 million.

During
2004, we recorded a $2.0 million other-than-temporary impairment on two Freddie Mac
floating-rate preferred stock securities with an aggregate carrying value of $8.8 million.
We recorded the write-down because the current yield on these securities was below market
interest rates, the fair value was below cost for an extended period, and a recovery in
fair value was not assumed within a reasonably short period of time. We determined that an
impairment charge on these securities was not necessary during 2006 and 2005.

Investment
Subsidiary.The Bank has a wholly-owned subsidiary organized as a Nevada
corporation that was acquired in the St. Francis acquisition. This subsidiary holds and
manages a portfolio of our investment securities that are included in the tables above. At
December 31, 2006, the Banks total investment in the Nevada subsidiary was
approximately $448.5 million, and the subsidiary had assets of $448.9 million consisting
primarily of mortgage-backed securities.

Wisconsin
does not require consolidated tax returns and because the investment subsidiary is out of
state, its income has not been subject to state income tax in Wisconsin. Representatives
of the Wisconsin Department of Revenue have indicated that the Department may revoke its
previously issued favorable tax rulings relating to such Nevada subsidiaries, even though
there has not been any intervening change in law. The Department also has implemented a
program for the audit of financial institutions operating in Wisconsin that have
subsidiaries incorporated and located in Nevada and is asserting a basis for imposition of
Wisconsin income taxes on income from those operations. Although the Bank is not currently
under audit by the Department, we are in discussions with the Department concerning an
agreement to finalize prior years tax liabilities relating to the Nevada subsidiary
that remain subject to audit, which, if agreement is reached, may among other things place
certain limitations on the operations of the Nevada subsidiary in future periods.

Other
Investments.In addition to our investment securities and mortgage-backed
securities portfolios, we maintain a portion of our assets in more liquid investments for
daily liquidity management. Our liquid investments include interest-bearing deposits,
primarily at the Federal Home Loan Bank of Chicago, federal funds sold and U.S. Government
and federal agency obligations. We invest overnight federal funds with two large
commercial banks in Chicago, based upon periodic review of these institutions
financial condition. We generally limit overnight federal funds sold investments to
$100.0 million at any one institution.

# Deposits

We offer a variety of deposit accounts having a wide range of
interest rates and terms.  Our deposits consist of passbook accounts, interest-bearing and non-interest bearing
checking accounts, money market and certificate accounts.  We rely primarily on competitive pricing policies,
advertising, and customer service to attract and retain deposits.  The flow of deposits is influenced
significantly by general economic conditions, changes in money market and prevailing interest rates, and
competition.  At December 31, 2006, core deposits, defined as commercial and non-interest bearing checking
accounts, interest-bearing checking accounts, money market accounts and passbooks, accounted for approximately
49.4% of our total deposits.  While this core deposit ratio is lower than our core deposit ratio of 53.4% at
December 31, 2005, reflecting our pricing strategies in the face of rising interest rates during the year, we
continue to benefit from a favorable core deposit ratio.

15

---

The
following table sets forth the composition of deposits by type at the dates indicated and
the change in the dollar amount of our deposits for the periods shown:

|                              | At or For the Year Ended
December 31, 2006 | At or For the Year Ended
December 31, 2005 | At or For the
Year Ended
December 31, 2004 |          
|----------------------------- | ------------------------------------------ | ------------------------------------------ | ------------------------------------------ | ---------
|
|
|Commercial checking           |                                            |                                            | $                                          | 300,624  
|Non-interest bearing checking |                                            |                                            |                                            | 303,480  
|Interest-bearing checking     |                                            |                                            |                                            | 739,149  
|Commercial money markets      |                                            |                                            |                                            | 105,783  
|Money markets                 |                                            |                                            |                                            | 900,959  
|Passbooks                     |                                            |                                            |                                            | 1,113,980
|                              |                                            |                                            |                                            |          
|Total core deposits           |                                            |                                            |                                            | 3,463,975
|Certificates of deposit       |                                            |                                            |                                            | 3,554,317
|Unamortized premium           |                                            |                                            |                                            | (282     
|                              |                                            |                                            |                                            |          
|Total deposits                |                                            |                                            | $                                          | 7,018,010
|                              |                                            |                                            |                                            |          

The
following table sets forth the distribution and the weighted-average interest rates of our
average deposits for the years indicated:

|                              | Year Ended | 
|----------------------------- | ---------- | 
|
|
|
|Commercial checking           |            | 
|Non-interest bearing checking |            | 
|Interest-bearing checking     |            | 
|Commercial money markets      |            | 
|Money markets                 |            | 
|Passbooks                     |            | 
|                              |            | 
|Total checking, money market  |            | 
|and passbook accounts         |            | 
|                              |            | 
|Certificates with original    |            | 
|maturities of:                |            | 
|6 months or less              |            | 
|7 to 12 months                |            | 
|Greater than 1 to 3 years     |            | 
|Greater than 3 years          |            | 
|                              |            | 
|Total certificates of         |            | 
|deposits                      |            | 
|                              |            | 
|Total average deposits        |            | 
|                              |            | 
|                              |            | 

The
following table presents, by various interest rate categories, the amount of our
certificates of deposit outstanding at December 31, 2006, 2005, and 2004, and the
periods to maturity of the certificates of deposit outstanding at December 31, 2006.
Certificates of deposit in our portfolio represent predominately retail deposits attracted from households in our market areas as we
have not sought to attract internet certificates of deposit nor have we pursued brokered
certificates of deposit as a funding source. For this reason we believe our certificate of
deposit portfolio reflects a stable part of our deposit base.

|                         | At December 31, | Time to Maturity at December 31, 2006 |  
|------------------------ | --------------- | ------------------------------------- | -
|
|
|Certificates of deposit: |                 |                                       |  
|Up to 2.99%              |                 |                                       | $
|3.00% to 3.99%           |                 |                                       |  
|4.00% to 4.99%           |                 |                                       |  
|5.00% and greater        |                 |                                       |  
|                         |                 |                                       |  
|Total                    |                 |                                       | $
|                         |                 |                                       |  

At
December 31, 2006, we had outstanding $1.04 billion in certificate of deposit
accounts in amounts of $100,000 or more maturing as follows:

|Period to Maturity            | Amount
|----------------------------- | ------
|
|Three months or less          |       
|Over three through six months |       
|Over six through 12 months    |       
|Over 12 months                |       
|                              |       
|Total                         |       
|                              |       

16

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Borrowed Funds and Junior Subordinated Debentures

The following table is a summary of the Company's borrowed funds and junior subordinated
debentures at December 31, 2006 and 2005.  The unamortized premium (discount) was recorded as a result
of purchase accounting adjustments for the acquisitions of St. Francis in 2003 and EFC in 2006.

|                                         | At December 31, 2006 | At December 31, 2005 |             
|---------------------------------------- | -------------------- | -------------------- | ------------
|
|
|Fixed-rate advances from FHLBC           |                      |                      |             
|due:                                     |                      |                     
|Within 1 year                            |                      |                      | 2.76 - 5.14%
|1 to 2 years                             |                      |                      | 2.78 - 5.24 
|2 to 3 years                             |                      |                      | 3.53 - 4.85 
|3 to 4 years                             |                      |                      | 4.28 - 4.28 
|4 to 5 years                             |                      |                      | 4.36 - 4.36 
|                                         |                      |                      |             
|Total fixed-rate advances                |                      |                      | 2.76 - 5.24 
|                                         |                      |                      |             
|Adjustable-rate advances from FHLBC due: |                      |                     
|Within 1 year                            |                      |                      | 5.29 - 5.52 
|1 to 2 years                             |                      |                      |            
|                                         |                      |                      |             
|Total adjustable-rate                    |                      |                     
|advances                                 |                      |                      | 5.29 - 5.52 
|                                         |                      |                      |             
|Total advances from FHLBC                |                      |                      | 2.76 - 5.52 
|                                         |                      |                      |             
|Unsecured term bank loan                 |                      |                      |             
|Other borrowings                         |                      |                      |             
|Junior subordinated debentures           |                      |                      |             
|Unamortized premium                      |                      |                      |             
|                                         |                      |                      |             
|Total borrowed funds and                 |                      |                     
|junior subordinated                      |                      |                     
|debentures                               |                      |                      |             
|                                         |                      |                      |             

Federal
Home Loan Bank of Chicago Advances. Although deposits are our primary
source of funds, our membership in the FHLBC has provided us another attractive funding
source. We obtain advances from the FHLBC secured by our capital stock investment in the
FHLBC and a blanket pledge of certain of our residential mortgage loans. See
Regulation and Supervision  Federal Home Loan Bank System. We borrow
under several different credit programs, each of which has its own interest rate and range
of maturities. The maximum amount that the FHLBC will advance to member institutions,
including the Bank, for purposes other than meeting withdrawals, fluctuates from time to
time in accordance with the policies of the FHLBC. The maximum amount of FHLBC advances to
a member institution generally is reduced by secured borrowings from any other source. At
December 31, 2006, the Banks FHLBC advances totaled $2.16 billion, or 19.4% of
our total assets, compared to $2.47 billion, or 23.6% of total assets at December 31,
2005.

Included
in FHLBC advances at December 31, 2006 are $40.0 million of fixed-rate advances with
original scheduled maturities of 10 years at interest rates ranging from 5.12% to 5.24%,
which are callable quarterly at the discretion of the FHLBC until maturity and are
currently expected to be put which may require us to refinance these borrowings. At
inception, we receive a lower cost of borrowing on such advances than on similar-termed
non-callable advances, in return for granting the FHLBC the option to call the advances
prior to their final maturity. If called, the FHLBC will provide replacement funding,
should we want or need to refinance the borrowing, at the then prevailing market rate of
interest for the remaining term to maturity of the advances, subject to standard terms and
conditions.

The
interest rate on $100.0 million of adjustable-rate advances is tied to the Prime rate and
ranges from Prime minus 280 basis points to prime minus 287 basis points. At
December 31, 2006, we had a $50.0 million adjustable-rate advance that is indexed at
three-month London interbank offering rate (LIBOR) minus 6 basis points. The
remaining $400.0 million of adjustable-rate advances is indexed at the FHLBC effective
federal funds rate minus 3 basis points, which was 5.29% at December 31, 2006. This
borrowing was funded in late December as part of the balance sheet restructuring
transaction and was repaid in January 2007 with the proceeds from the sale of investments
and mortgage-backed securities.

Reverse
Repurchase Agreements. We enter into sales of securities under agreements
to repurchase the identical securities (reverse repurchase agreements) with
nationally recognized primary securities dealers. These reverse repurchase agreements are
treated as financings and are reflected on our balance sheet as other borrowings. The
securities underlying the agreements are delivered to the

17

---

dealers who arrange the
transaction and continue to be reflected as assets on our balance sheet. The following
table presents certain information regarding reverse repurchase agreements as of the end
of and for the periods indicated:

|                                 | Year Ended December 31, | 
|-------------------------------- | ----------------------- | 
|
|
|Balance at end of period         |                         | 
|Maximum month-end balance        |                         | 
|Average balance                  |                         | 
|Weighted average rate at end of  |                         | 
|period                           |                         | 
|Weighted average rate on average |                         | 
|balance                          |                         | 

At
December 31, 2006, $300 million of the reverse repurchase agreements were
floating-rate and have maturities ranging from three months to four years. The interest
rate on $75 million of these agreements is tied to Prime and ranges from Prime minus 280
basis points to Prime minus 284 basis points. The remaining $225 million have interest
rates ranging from three-month LIBOR minus 26 basis points to three-month LIBOR minus 58.5
basis points. The LIBOR-indexed repurchase agreements are putable at the discretion of the
lender quarterly in 2007 and are currently expected to be put which may require us to
refinance these borrowings. At December 31, 2006, reverse repurchase agreements were
collateralized by investment and collateralized mortgage obligation (CMO)
securities with a carrying value of $429.7 million and a market value of $425.8 million.
We intend to continue to use reverse repurchase agreements as an additional funding
source.

Retail
Repurchase Agreements.For certain customers with significant funds
available for deposit at the Bank, we offer retail repurchase agreements under
which we collateralize our obligation to repay the customer funds with U.S. government or
agency securities. The retail repurchases, which totaled $69.8 million at
December 31, 2006, are collateralized by three U.S. government agency and ten CMO
securities with a carrying and fair value of $74.7 million.

Unsecured
Term Bank Loan and Line of Credit. During 2006, we twice refinanced the
unsecured term bank loan and revolving line of credit that we maintain from an
unaffiliated lender to increase our holding company borrowings. The first refinancing was
to fund a portion of our acquisition of EFC Bancorp, Inc. and the second quarter
refinancing was to fund a portion of our stock buyback program.

We
increased our unsecured term bank loan from $63.0 million outstanding at December 31,
2005, to $155.0 million during 2006 and increased our revolving line of credit from $55.0
million to $60.0 million. We made a scheduled principal payment on the term loan of $7.5
million on December 31, 2006 reducing the balance to $147.5 million. At December 31, 2006
and 2005, there were no amounts outstanding under the line. The loan agreement provides
for an interest rate on the term loan at our option of one, two, three, six or
twelve-month LIBOR plus 95 basis points. The term loan is unsecured and matures on
December 31, 2015, with the next scheduled payment of principal due on December 31, 2007,
and annually thereafter. Prepayments of principal are allowed without penalty at the end
of any repricing period.

The
revolving line of credit is also unsecured, bears an interest rate at our option at Prime
minus .50% or one, two, three, six or twelve-month LIBOR plus 80 basis points and matures
on June 30, 2007.

The
credit agreement for both the unsecured term loan and the secured revolving line of credit
contains covenants that, among other things, require the Company to maintain a minimum
stockholders equity balance and to obtain certain minimum operating results, as well
as requiring the Bank to maintain well capitalized regulatory capital levels
and certain non-performing asset ratios. In addition, the Company has agreed to certain
restrictions on additional indebtedness and agreed not to pledge any stock of the Bank or
MAF Developments for any purpose.

18

---

Junior
Subordinated Debentures.In 2005, we issued $67.0 million of junior subordinated
debentures through two privately-offered trust preferred financings. This debt, which
matures in 30 years and is callable at par in 2010, provides an attractive alternative to
equity capital. Interest on the junior subordinated debentures is payable quarterly at a
floating rate tied to three-month LIBOR and is tax deductible. At December 31, 2006, the
interest rate for $30.9 million of the debentures was 7.11% and for $36.1 million was
6.76%.

# Real Estate Development

We
engage in the business of purchasing unimproved land for development into residential
subdivisions of single-family lots through MAFD, a wholly-owned subsidiary of the Company.
We started this business in 1974 and since that time have developed and sold over 6,600
lots in 24 different subdivisions primarily in the western suburbs of Chicago. MAFD
typically acts as sole principal or as a joint venture partner in our development
projects. Historically, we have provided essentially all of the capital for a joint
venture and receive in exchange an ownership interest in the joint venture which entitles
us to a market rate of return on invested capital plus a percentage of the profit or loss
generated by the project, generally 50-60%, with the exact percentage based upon a number
of factors, including characteristics of the venture, the perceived risks involved, and
the time to completion. In addition, MAFD from time to time invests in residential real
estate projects, either individually or structured as limited partnership investments,
managed by unaffiliated parties.

Springbank
of Plainfield. Currently, our only active development is our Springbank
project. This joint venture project consists of 950 acres in Plainfield, Illinois, located
in Will County, southwest of Chicago along the fast-developing I-55 corridor. Delayed
receipt of local zoning and plan approvals in 2005 and 2006 has prolonged the original
timeline expected for lot sale closings in the project. Based on the current plans for
this project, future development costs are currently estimated to be $78.0 million.
The investment balance shown in the table above includes land purchases, engineering,
survey and other development costs incurred to date. With the recent weakness in new and
existing home sales, development of this project is currently expected to continue over
the next four to six years.

|                                                   | At December 31, 2006 | 
|-------------------------------------------------- | -------------------- | 
|
|
|Springbank of Plainfield                           |                      | 
|1,599 residential lots; 281 multi-family units and |                      | 
|45.8 acres for commercial development              |                      | 
|Other(2)                                           |                      | 
|                                                   |                      | 
|                                                   |                      | 
|                                                   |                      | 

---

|(1) | Lots remaining for sale reflects planned single-family lots in the current
          project that have not yet been sold and does not include commercial or
          multi-family units. The units are being developed in phases, and lots are
          generally not offered for sale until unit development is near completion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Reflects investment in 160 acres of unimproved land for potential future
          development. Development plan has not yet been established.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

# Regulation and
Supervision

General.The Company, as a savings and loan holding company, is required to file
          certain reports with, and otherwise comply with the rules and regulations of,
          the OTS under the Home Owners Loan Act, or the HOLA. In addition, the
          activities of savings institutions, like us, are governed by the HOLA and the
          Federal Deposit Insurance Act, or the FDI Act.

We
are subject to extensive regulation, examination and supervision by the OTS, as our
primary federal regulator, and the FDIC, as the deposit insurer. We are a member of the
Federal Home Loan Bank System, or FHLBC System and our deposit accounts are insured up to
applicable limits by the Deposit Insurance Fund, or SAIF, managed by the FDIC. We must
file reports with the OTS and the FDIC concerning our activities and financial condition
in addition to obtaining regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other savings institutions. The OTS and/or the
FDIC conduct periodic examinations to test our compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities in

19

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which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the classification
of assets and the establishment of adequate loan loss reserves for regulatory purposes.
Any change in such regulatory requirements and policies, whether by the OTS, the FDIC or
the Congress, could have a material adverse impact on our operations. Certain regulatory
requirements applicable to us are referred to below or elsewhere herein. The description
of statutory provisions and regulations applicable to savings institutions and their
holding companies set forth in this Form 10-K does not purport to be a complete
description of such statutes and regulations and their effects on our business.

Holding
Company Regulation.The Company is a non-diversified unitary savings and
loan holding company within the meaning of the HOLA. As a unitary savings and loan holding
company, the Company generally will not be restricted under existing laws as to the types
of business activities in which it may engage, provided that we continue to be a qualified
thrift lender, or QTL. See Federal Savings Institution Regulation  QTL
Test. Upon any non-supervisory acquisition by the Company of another savings
institution or savings bank that meets the QTL test and is deemed to be a savings
institution by the OTS, the Company would become a multiple savings and loan holding
company (if the acquired institution is held as a separate subsidiary) and would be
subject to limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and its
uninsured institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act of 1956, as amended, or
the BHC Act, subject to the prior approval of the OTS, and activities authorized by OTS
regulation. No multiple savings and loan holding company may acquire more than 5% of the
voting stock of a company engaged in impermissible activities.

The
HOLA prohibits a savings and loan holding company, directly or indirectly, or through one
or more subsidiaries, from acquiring more than 5% of the voting stock of another savings
institution or holding company thereof, without prior written approval of the OTS; or
acquiring or retaining control of a depository institution that is not insured by the
FDIC. In evaluating applications by holding companies to acquire savings institutions, the
OTS must consider the financial and managerial resources and future prospects of the
company and institution involved the effect of the acquisition on the institution, the
risk to the insurance funds, the convenience and needs of the community and competitive
factors.

Although
savings and loan holding companies are not subject to specific capital requirements or
specific restrictions on the payment of dividends or other capital distributions, HOLA
does prescribe such restrictions on subsidiary savings institutions, as described below.
We must notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary institution is a
matter that is evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of uninsured subsidiaries deemed to pose a threat to the safety
and soundness of the institution.

Federal Savings
Institution Regulation

Capital
Requirements. The OTS capital regulations require savings institutions to
meet three minimum capital standards: a 1.5% tangible capital ratio, a 3% leverage (core
capital) ratio for institutions receiving the highest rating on the CAMEL financial
institution rating system, and a 4% leverage (core capital) ratio for all other
institutions, like the Bank, and an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in effect, a minimum 2%
tangible capital standard, a 4% leverage (core capital) ratio (3% for institutions
receiving the highest rating on the CAMEL financial institution rating system), and,
together with the risk-based capital standard itself, a 4% Tier I risk-based capital
standard. The OTS regulations also require that, in meeting the leverage ratio, tangible
and risk-based capital standards, institutions must generally deduct investments in and
loans to subsidiaries engaged in activities as principal that are not permissible for a
national bank. The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%, respectively.

20

---

At
December 31, 2006 and 2005, the Bank was in compliance with the current capital
requirements as follows:

|                                      | At December 31,2006 | At December 31,2005 |  
|------------------------------------- | ------------------- | ------------------- | -
|
|
|Stockholder's equity of the Bank      |                     |                     | $
|                                      |                     |                     |  
|Tangible capital of the Bank          |                     |                     | $
|Tangible capital requirement          |                     |                     |  
|                                      |                     |                     |  
|Excess                                |                     |                     | $
|                                      |                     |                     |  
|Core capital of the Bank              |                     |                     | $
|Core capital requirement              |                     |                     |  
|                                      |                     |                     |  
|Excess                                |                     |                     | $
|                                      |                     |                     |  
|Core and supplementary capital of the |                     |                    
|Bank                                  |                     |                     | $
|Risk based capital requirement        |                     |                     |  
|                                      |                     |                     |  
|Excess                                |                     |                     | $
|                                      |                     |                     |  
|Total Bank assets                     |                     |                     | $
|Adjusted total Bank assets            |                     |                     |  
|Total risk weighted Bank assets       |                     |                     |  
|Adjusted total risk weighted Bank     |                     |                    
|assets                                |                     |                     |  

The
following table reflects the adjustments required to reconcile the Banks
stockholders equity to the Banks regulatory capital at December 31, 2006:

|                                      | Tangible | Core | Risk-Based
|------------------------------------- | -------- | ---- | ----------
|
|Stockholder's equity of the Bank      |          |      | $         
|Goodwill and core deposit intangibles |          |      |           
|Non-permissible subsidiary deduction  |          |      |           
|Non-includible purchased mortgage     |          |      |           
|servicing rights                      |          |      |           
|Adjustment for available for          |          |      |           
|sale securities                       |          |      |           
|Recourse on loan sales                |          |      |           
|General allowance for loan losses     |          |      |           
|                                      |          |      |           
|Regulatory capital of the Bank        |          |      | $         
|                                      |          |      |           

Prompt
Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the institutions
degree of undercapitalization. For this purpose, a savings association is placed in one of
the following five categories based on its capital:

| | o
well capitalized if its ratio of total capital to risk-weighted assets is at
least 10%, its ratio of Tier I (core) capital to risk-weighted assets is at least 6%, its
ratio of core capital to total assets is at least 5%, and it is not subject to any order
or directive by the OTS to meet a specific capital level;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
adequately capitalized if its ratio of total capital to risk-weighted assets
is at least 8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
its ratio of core capital to total assets is at least 4% (3% if the institution receives
highest rating on the CAMELS financial institution rating system) and it does not meet the
definition of well capitalized;
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
undercapitalized if its ratio of total capital to risk-weighted assets is less
than 8%, its ratio of Tier I (core) capital to risk-weighted assets is less than 4% or its
ratio of core capital to total assets is less than 4% (3% or less for institutions with
highest rating on the CAMELS financial institution rating system);
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
significantly undercapitalized if its ratio of total capital to risk-weighted
assets is less than 6%, its ratio of Tier I (core) capital to risk-weighted assets is less
than 3% or its ratio of core capital to total assets is less than 3%; or
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
critically undercapitalized if its tangible capital to assets ratio is equal
to or less than 2%.
| | ----------------------------------------------------------------------------------------------------

Subject
to a narrow exception, the OTS is required to appoint a receiver or conservator within
specified time frames for an institution that is critically undercapitalized.
The regulation also provides

21

---

that a capital restoration plan must be filed with the OTS
within 45 days of the date a savings institution receives notice that it is
undercapitalized, significantly undercapitalized or
critically undercapitalized. Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth, investment activities,
capital distributions and expansion. The OTS could also take any one of a number of
discretionary supervisory actions against undercapitalized institutions, including the
issuance of a capital directive and the replacement of senior executive officers and
directors.

At
December 31, 2006, the Bank met the criteria for being considered well
capitalized.

Insurance
of Deposit Accounts. The Banks deposits are insured up to applicable
limits by the Deposit Insurance Fund, or DIF, of the FDIC. The DIF is the successor to the
Bank Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006.
The Banks deposits, therefore, are subject to FDIC deposit insurance assessment.

The
FDIC recently amended its risk-based deposit assessment system for 2007 to implement
authority granted by the Federal Deposit Insurance Reform Act of 2005, or the Reform Act.
Under the revised system, insured institutions are assigned to one of four risk categories
based on supervisory evaluations, regulatory capital levels and certain other factors. An
institutions assessment rate depends upon the category to which it is assigned. Risk
Category I, which contains the least risky depository institutions, is expected to include
more than 90% of all institutions. Unlike the other categories, Risk Category I contains
further risk differentiation based on the FDICs analysis of financial ratios,
examination component ratings and other information. Assessment rates are determined by
the FDIC and currently range from five to seven basis points for the healthiest
institutions (Risk Category I) to 43 basis points of assessable deposits for the riskiest
(Risk Category IV). The FDIC may adjust rates uniformly from one quarter to the next,
except that no single adjustment can exceed three basis points.

The
FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15% and 1.5%
of estimated insured deposits, in contrast to the statutorily fixed ratio of 1.25% under
the old system. The ratio, which is viewed by the FDIC as the level that the funds should
achieve, was established by the agency at 1.25% for 2007. The Reform Act also provided for
the possibility that the FDIC may pay dividends to insured institutions once the DIF
reserve ratio equals or exceeds 1.35% of estimated insured deposits. The Reform Act also
provided for a one-time credit for eligible institutions based on their assessment base as
of December 1996. Subject to certain limitations with respect to institutions that are
exhibiting weaknesses, credits can be used to offset future assessments until exhausted.
The Banks one-time credit is estimated by the FDIC to be approximately $6.5 million.

In
addition to the assessment for deposit insurance, institutions are required to make
payments on bonds issued in the late 1980s by the Financing Corporation, or FICO, to
recapitalize the predecessor to the Savings Association Insurance Fund. The payment is
established quarterly and during the calendar year ending December 31, 2006 averaged
1.28 basis points of assessable deposits.

The
Banks total assessment paid for this period (including the FICO payments) was
$907,000. The FDIC has the authority and is expected to increase insurance assessments as
described above. A significant increase in insurance premiums would likely have an adverse
effect on the operating expenses and results of operations of the Bank. Management can not
predict what insurance assessment rates will be in the future.

Under
the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or the OTS. Our management does not know of any
practice, condition or violation that might lead to termination of deposit insurance.

Community
Reinvestment. Under the Community Reinvestment Act, or the CRA, every
insured depository institution, including the Bank, has a continuing and affirmative
obligation, consistent with its safe and sound operation, to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions, or limit
an institutions discretion to develop the types of products and services that it
believes are best suited to its particular community that are consistent with the CRA.
Institutions are rated on their performance in meeting the needs of their communities.
Performance is tested in three

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areas: (a) lending, which evaluates the
institutions record of making loans in its assessment areas; (b) investment,
which evaluates the institutions record of investing in community development
projects, affordable housing and programs benefiting low- or moderate-income individuals
and businesses; and (c) service, which evaluates the institutions delivery of
services to residents of its communities through its branches, ATMs and other offices. The
CRA requires each federal banking agency, in connection with its examination of a
financial institution, to assess and assign one of four ratings to the institutions
record of meeting the credit needs of its community and to take this record into account
in evaluating certain applications by the institution, including applications for
charters, branches and other deposit facilities, relocations, mergers, consolidations,
acquisitions of assets or assumptions of liabilities, and savings and loan holding company
acquisitions. The CRA also requires that all institutions publicly disclose their CRA
ratings. The Bank received an outstanding rating on its CRA performance
evaluation prepared by the OTS dated July 18, 2005, the most recent report we have
received.

Gramm-Leach-Bliley
Act. The Gramm-Leach-Bliley Act, or the GLB Act, significantly reformed
various aspects of the financial services business, including, but not limited to:
(i) the establishment of a new framework under which bank holding companies and,
subject to numerous restrictions, banks can own securities firms, insurance companies and
other financial companies; (ii) subjecting banks to the same securities regulation as
other providers of securities products; and (iii) prohibiting new unitary savings and
loan holding companies from engaging in nonfinancial activities or affiliating with
nonfinancial entities.

The
provisions in the GLB Act permitting full affiliations between bank holding companies or
banks and other financial companies do not increase the Companys authority to
affiliate with securities firms, insurance companies or other financial companies. As a
unitary savings and loan holding company, the Company was generally permitted to have such
affiliations prior to the enactment of the GLB Act. It is expected, however, that these
provisions will benefit the Companys competitors.

The
prohibition on the ability of new unitary savings and loan holding companies to engage in
nonfinancial activities or affiliating with nonfinancial entities generally applies only
to savings and loan holding companies that were not, or had not submitted an application
to become, savings and loan holding companies as of May 4, 1999. Since the Company
was treated as a unitary savings and loan holding company prior to that date, the GLB Act
will not prohibit the Company from engaging in nonfinancial activities or acquiring
nonfinancial subsidiaries. However, the GLB Act generally restricts any nonfinancial
entity from acquiring the Company unless such nonfinancial entity was, or had submitted an
application to become a savings and loan holding company as of May 4, 1999.

The
GLB Act imposed new requirements on financial institutions with respect to customer
privacy by generally prohibiting disclosure of customer information to non-affiliated
third parties unless the customer has been given the opportunity to object and has not
objected to such disclosure. Financial institutions are further required to disclose their
privacy policies to customers annually. The Company has developed policies and procedures
to comply with the implementing regulations promulgated by the OTS and the other federal
regulators with regard to customer privacy.

To
the extent the GLB Act permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further consolidation. This
could result in a growing number of larger financial institutions that offer a wider
variety of financial services than the Company currently offers and that can aggressively
compete in the markets the Company currently serves.

USA
Patriot Act of 2001/Bank Secrecy Act. The USA Patriot Act of 2001, or the
Patriot Act, was enacted in response to the terrorist attacks that occurred on September
11, 2001. The Patriot Act is intended to strengthen U.S. law enforcements and the
intelligence communities abilities to work cohesively to combat terrorism on a
variety of fronts. The potential impact of the Patriot Act on financial institutions of
all kinds is significant and wide ranging. By way of amendments to the Bank Secrecy Act,
the Patriot Act contains sweeping anti-money laundering and financial transparency laws
and requires various regulations, including standards for verifying customer
identification at account opening, and rules to promote cooperation among financial
institutions, regulators, and law enforcement entities in identifying parties that may be
involved in terrorism or money laundering. Under the Bank Secrecy Act, a financial
institution is required to have systems in place to detect certain transactions, based on
the size and nature of the transaction. The OTS is required to consider a financial
institutions compliance with the Bank Secrecy Act when reviewing applications from
financial institutions.

23

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Loans
to One Borrower. Under the HOLA, savings institutions are generally subject
to the limits on loans to one borrower applicable to national banks. Generally, savings
institutions may not make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may
be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by
readily marketable collateral, which is defined to include certain financial instruments
and bullion. At December 31, 2006, our legal lending limit on loans to any one
borrower was $122.0 million. At December 31, 2006, the Banks largest amount of
loans to any one related borrower group was $68.4 million.

QTL
Test. The HOLA requires savings institutions to meet a QTL test. Under the
QTL test, a savings and loan association is required to either qualify as a domestic
building and loan association under the Internal Revenue Code or maintain at least
65% of its portfolio assets (total assets less (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain qualified
thrift investments (primarily residential mortgages and related investments,
including certain mortgage-backed securities) in at least 9 months out of each 12 month
period. A savings institution that fails the QTL test is subject to certain operating
restrictions and may be required to convert to a bank charter. As of December 31,
2006, the Bank maintained 83.3% of its portfolio assets in qualified thrift investments
and, therefore, met the QTL test.

Limitation
on Capital Distributions. OTS regulations impose limitations upon all
capital distributions by a savings institution, such as cash dividends, payments to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash out merger and other distributions charged against capital, if the
institution would not be well-capitalized after the distribution. The regulations provide
that an institution (i) which is not eligible for expedited treatment under the
application processing rules of the OTS; or (ii) for which its total amount of
capital distributions for the applicable calendar year exceeds its net income for that
year to date plus its retained income for the preceding two years; or (iii) which
would not be at least adequately capitalized following the distribution; or
(iv) which would violate a prohibition contained in a statute, regulation or
agreement between the institution and the OTS by performing the capital distribution, must
submit an application to the OTS to receive approval of the capital distribution. Under
any other circumstances, the Bank would be required to provide a written notice to the OTS
30 days prior to the capital distribution.As of December 31, 2006, the
Banks capital distributions have met the foregoing conditions and no prior
applications to the OTS have been required.

Assessments.       
          Savings institutions are required to pay assessments to the OTS to fund the
          agencys operations. The general assessments, paid on a semi-annual basis,
          are computed upon the savings institutions total assets, including
          consolidated subsidiaries, as reported in the Banks latest quarterly
          thrift financial report. The assessments paid by the Bank were $1.6 million,
          $1.5 million and $1.3 million in 2006, 2005 and 2004, respectively.

Branching.       
          OTS regulations permit nationwide branching by federally chartered savings
          institutions to the extent allowed by federal statute. Generally, a federal
          savings institution which meets the QTL test, may establish or acquire branches
          in states other than its home state. This permits federal savings institutions
          to establish interstate networks and to geographically diversify their loan
          portfolios and lines of business. The OTS authority preempts any state law
          purporting to regulate branching by federal savings institutions.

Transactions
with Related Parties. The Banks authority to engage in transactions
with related parties or affiliates (e.g., any company that controls or is
under common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by Sections 23A and 23B of the Federal Reserve Act,
or FRA, and Regulation W thereunder. Section 23A limits the aggregate amount of covered
transactions with any individual affiliate to 10% of the capital and surplus of the
savings institution. The aggregate amount of covered transactions with all affiliates is
limited to 20% of the savings institutions capital and surplus. Certain transactions
with affiliates are required to be secured by collateral in an amount and of a type
described in Section 23A, and the purchase of low quality assets from affiliates is
generally prohibited. Section 23B generally provides that certain transactions with affiliates, including
loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as favorable to
the institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not permissible

24

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for bank holding
companies and no savings institution may purchase the securities of any affiliate other
than a subsidiary.

The
Banks authority to extend credit to executive officers, directors and 10%
shareholders, as well as entities such persons control, is governed by Sections 22(g) and
22(h) of the FRA and Regulation O thereunder. Among other things, such loans are
generally required to be made on terms substantially the same as those offered to
unaffiliated individuals and to not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans the
Bank may make to such persons based, in part, on the Banks capital position and
requires certain board approval procedures to be followed.

Enforcement.       
          Under the FDI Act, the OTS has primary enforcement responsibility over savings
          institutions and has the authority to bring actions against the institution and
          all institution affiliated parties, including certain shareholders,
          and any attorneys, appraisers and accountants who knowingly or recklessly
          participate in wrongful action likely to have an adverse effect on an insured
          institution. Formal enforcement action may range from the issuance of a capital
          directive or cease and desist order for removal of officers and/or directors to
          institution of proceedings for receivership, conservatorship or termination of
          deposit insurance. Civil penalties cover a wide range of violations and may
          amount to as much as $1 million per day in certain circumstances. Under the
          FDI Act, the FDIC has the authority to recommend to the Director of the OTS
          enforcement action to be taken with respect to a particular savings institution.
          If action is not taken by the Director, the FDIC has authority to take such
          action under certain circumstances. Federal law also establishes criminal
          penalties for certain violations.

Standards
for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness, or the Guidelines,
and a final rule to implement safety and soundness standards required under the FDI Act.
The Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions before
capital becomes impaired. The standards set forth in the Guidelines address internal
controls and information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality; earnings and
compensation; fees and benefits. If the appropriate federal banking agency determines that
an institution fails to meet any standard prescribed by the Guidelines, the agency may
require the institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The OTS requires that a savings association
file a written safety and soundness compliance plan within 30 days of receiving a request
for a compliance plan from the OTS.

Consumer
Lending Laws.We also are subject to many federal and state consumer
protection statutes and regulations including the Equal Credit Opportunity Act, the Fair
Housing Act, the Truth in Lending Act, the Truth in Savings Act, the Real Estate
Settlement Procedures Act and the Home Mortgage Disclosure Act. Among other things, these
acts:

| | o
 require lenders to disclose credit terms in meaningful and consistent ways;
| | ------------------------------------------------------------------------------

| | o
  prohibit discrimination against an applicant in any consumer or business credit transaction;
| | ------------------------------------------------------------------------------------------------

| | o
   prohibit discrimination in housing-related lending activities;
| | -------------------------------------------------------------------

| | o
require certain lenders to collect and report applicant and borrower data regarding loans
for home purchases or improvement projects;
| | ---------------------------------------------------------------------------------------------------------------------------------------

| | o
require lenders to provide borrowers with information regarding the nature and cost of
real estate settlements;
| | -----------------------------------------------------------------------------------------------------------------

| | o
prohibit certain lending practices and limit escrow account amounts with respect to real
estate transactions; and
| | -------------------------------------------------------------------------------------------------------------------

| | o
prescribe possible penalties for violations of the requirements of consumer protection
statutes and regulations.
| | ------------------------------------------------------------------------------------------------------------------

In
addition to private actions by aggrieved borrowers or applicants for actual and punitive
damages, the U.S. Department of Justice and other regulatory agencies can take enforcement
action seeking injunctive and other equitable relief for alleged violations. The Bank is
subject to an Agreed

25

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Consent Order that it entered into on December 30, 2002, to
resolve allegations by the Department of Justice that the Bank had violated the fair
lending laws based on the level of the Banks lending in minority areas during the
period 1996-2000. The Bank denied all alleged violations. The Agreed Consent Order
requires the Bank to undertake a number of actions over the five year period of 2003-2008
to promote its home mortgage lending in communities with significant minority populations,
including:

| | o
Open or acquire two branch offices in minority areas by June 30, 2005.
| | ------------------------------------------------------------------------

| | o
Implement a targeted advertising campaign to increase home mortgage lending.
| | ------------------------------------------------------------------------------

| | o
Provide $10 million in benefits to borrowers under special lending programs to help
residents of minority areas achieve home ownership (which may include subsidized interest
rates, down payment and closing cost assistance, and Prime rate loans to borrowers with
below Prime credit).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o
Contribute $500,000 over the five year period 2003-2008 to homebuyer education and
counseling programs, and conduct an assessment of the home mortgage credit needs of
residents in minority areas.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Bank is in compliance with all terms of the Order. Since the Order was entered by the
court, the Bank has opened two branch offices within minority areas, conducted an
assessment of home mortgage credit needs of residents in minority areas, and implemented a
targeted marketing campaign to increase mortgage lending. The Bank fully satisfied the $10
million financial benefits requirement in 2003 through special lending programs designed
to help minority residents achieve homeownership and is continuing to offer special
community lending programs targeted to minority and low-income borrowers in its market
areas.

# Federal Home Loan Bank
System

The
Bank is a member of the FHLBC System, which consists of 12 regional Federal Home Loan
Banks. The FHLBC System provides a central credit facility primarily for member
institutions. As a member of the FHLBC, the Bank is required to acquire and hold shares of
capital stock in the FHLBC in an amount at least equal to 1% of the aggregate principal
amount of its unpaid residential mortgage loans and similar obligations at the beginning
of each year, or 1/20 of its advances (borrowings) from the FHLBC, whichever is greater.
Regulatory directives, capital requirements and net income of the FHLBC affect its ability
to pay dividends to us. In addition, the FHLBs are required to provide funds to cover
certain obligations on bonds issued by the Resolution Funding Corporation to fund the
resolution of insolvent thrifts and to contribute funds for affordable housing programs.
These requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on advances
to their members. From an average of 6.125% paid in 2004, the FHLBC has reduced its
dividend to 3.10% in 2006.

We
currently have an investment in FHLBC stock in excess of our required investment by
approximately $38.7 million at December 31, 2006. Excess investments are redeemable at par
upon notice to the FHLBC, subject to regulatory or capital constraints of the FHLBC.
During 2006, we redeemed $31.9 million of FHLB stock. FHLBC has indicated that it is not
currently redeeming additional stock, but we intend to redeem our excess investment if and
when redemption opportunities resume.

At
December 31, 2006, the Bank had advances from the FHLBC with aggregate outstanding
principal balances of $2.16 billion, and the Banks investment in FHLBC stock totaled
$146.4 million. FHLBC advances must be secured by specified types of collateral and are
available to member institutions primarily for the purpose of providing funds for
residential housing finance. We also sell mortgages to the FHLBC through the FHLBCs
MPF program. See the discussion under Secondary Market and Loan Servicing
Activities for more information.

# Federal Reserve System

The
Federal Reserve Board regulations require savings institutions to maintain non-interest
earning reserves against their transaction accounts (primarily checking accounts). The
Federal Reserve Board regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: for accounts aggregating $45.8 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement is 3%; and
for accounts greater than $45.8 million, the reserve

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requirement is currently $1,119,000
plus 10% (subject to adjustment by the Federal Reserve Board) against that portion of
total transaction accounts in excess of $45.8 million. The first $8.5 million of otherwise
reserveable balances (subject to adjustments by the Federal Reserve Board) are exempted
from the reserve requirements. The Bank is in compliance with the foregoing requirements.
The balances maintained to meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy liquidity requirements imposed by the OTS.

# Executive Officers of
the Registrant

Information regarding the executive
officers of the Company and the Bank are listed below.

|Name               | Age | Year of
Employment | Position and Background |   
|------------------ | --- | ------------------ | ----------------------- | --
|Allen H. Koranda   |     |                    |                         | 60
|Kenneth Koranda    |     |                    |                         | 57
|                   |     |                   
|                   |     |                   
|Jerry A. Weberling |     |                    |                         | 55
|James E. Allen     |     |                    |                         | 48
|                   |     |                   
|                   |     |                   
|Gerard J. Buccino  |     |                    |                         | 45
|Jennifer R. Evans  |     |                    |                         | 48
|                   |     |                   
|                   |     |                   
|                   |     |                   
|James S. Eckel     |     |                    |                         | 51
|William G. Haider  |     |                    |                         | 56
|Michael J. Janssen |     |                    |                         | 47
|Edward A. Karasek  |     |                    |                         | 53
|                   |     |                   
|David W. Kohlsaat  |     |                    |                         | 52
|Thomas C. Miers    |     |                    |                         | 55
|Sharon M. Wheeler  |     |                    |                         | 54

# Employees

We
employed a total of 2,152 full-time equivalent employees as of December 31, 2006.
Management considers its relationship with its employees to be excellent.

# Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995

This
report, including the discussion in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere, contains,
and other periodic reports and press releases of the Company may contain, certain
forward-looking statements (within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended), which involve certain risks and uncertainties. The Company
intends such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform Act of

27

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1995, and is including this statement for purposes of invoking these safe harbor
provisions. These forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are generally
identifiable by use of the words believe, expect,
intend, anticipate, estimate, project,
plan, or similar expressions. The Companys ability to predict results or
the actual effect of future plans or strategies is inherently uncertain and actual results
may differ from those predicted. The Company undertakes no obligation to update these
forward-looking statements in the future. Please see Risk Factors below for a
discussion of the risks and uncertainties that could affect managements outlook or
future prospects of the Company

Item 1A.  Risk Factors

The
Company is subject to certain risks. In addition to the factors discussed below, please
see the discussion under Item 7A. Quantitative and Qualitative Disclosure about
Market Risk beginning on page 55. These risks and uncertainties, along with the
other information in our Form 10-K, should be considered in evaluating forward-looking
statements, and undue reliance should not be placed on such statements.

Unanticipated changes in
interest rates and/or continuation of the inverted yield curve environment could reduceour
profitability and affect the value of our assets.

Our
net interest income, which is our primary source of revenue, depends on the spread between
the interest we earn on loans and investments and the interest we pay on deposits and
borrowings. For this reason, the level of our earnings is highly susceptible to changes in
interest rates which generally impact our interest-earning assets and our interest-bearing
liabilities differently. While we actively manage this sensitivity to interest rate risk
as a key part of our business strategy, unanticipated changes in interest rates and
changes in the yield curve may have a material adverse effect on our results of
operations. Changes in the level of interest rates also may negatively affect the level of
our mortgage loan originations, the value of our assets and our ability to realize gains
from the sale of loans.

In
addition, further prolonging of the current inverted treasury yield curve environment may
continue to pressure our net interest margin and could have a material adverse effect on
our results of operations.

Weakening of the real
estate markets in the Chicago and Milwaukee metropolitan areas could have a material adverse
effect on us.

With
most of our real estate loans concentrated in suburban Chicago and suburban Milwaukee
areas, a decline in local economic conditions or declining demand for real estate in these
markets could adversely affect the value of the collateral securing our loans and may
cause us to suffer loan losses, particularly if loans we originated at higher loan-to
value ratios default. For example, recent weakness in housing prices and the slowdown in
home purchase activity in our markets have made it more difficult to fully recover on some
of our defaulted residential mortgage and home equity loans through the sale of the
residential real estate collateral and have increased our cost associated with the sale of
foreclosed real estate. A decline in local economic and market conditions may have a
greater effect on our earnings and capital than on the earnings and capital of
institutions whose real estate loan portfolios are more geographically diverse.

In
addition, the residential mortgage business, historically a strong part of our operations,
is largely dependent on home sales activity. With the considerable slowdown of home
purchases nationwide, the mortgage industry has slowed dramatically. Our mortgage loan
origination volumes dropped 23% in 2006 to $1.6 billion, generally in line with the
overall decline industry-wide. Until the housing market improves, we expect continued
pressure on our one- to four-family loan origination volume and mortgage banking revenues.

High loan-to-value ratios
on a portion of our residential mortgage and home equity portfolios expose us togreater
risk of loss.

Some of our residential mortgage loans are secured by
liens on mortgage properties in which the borrowers have little or no equity, which may lead to a higher
incidence of default on these loans. Our product offerings include certain mortgage and home equity
loans or lines of credit that allow qualifying

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borrowers to obtain loans with combined loan-to-value
ratios at origination of up to 100% of the value of the home securing the loan.  At December 31, 2006,
approximately $428.1 million, or 8%, of our $5.31 billion single-family residential mortgage loan
portfolio, including equity lines of credit and home equity loans, had combined loan-to-value ratios in
excess of 90% (based on total line available) and no private mortgage insurance.  There was an
additional approximately $40 million of undrawn amounts remaining available under high CLTV equity lines
in our portfolio at December 31, 2006.  During 2006, we experienced a higher loss rate on high CLTV
loans than our residential portfolio as a whole, and we are likely to continue to experience a higher
risk of loss on these loans that we elect to keep in portfolio, since our ability to recover against the
collateral is more sensitive to declining property values than for loans with lower combined
loan-to-value ratios.

Competition from
financial institutions and other financial service providers may adversely affect our
growth and profitability.

The financial services business is highly competitive and
we experience competition in each of our markets from many other financial institutions.  The Chicago
metropolitan market, in particular, is regarded as one of the most competitive banking markets in the
country due to fragmented market share among many competing institutions which also tends to attract new
entrants to the market.  We compete with community banks, savings and loan associations, credit unions,
mortgage banking firms, mortgage brokers, consumer finance companies, securities brokerage firms,
insurance companies, money market funds and other mutual funds, as well as other regional,
super-regional, national and international financial institutions that operate offices in our primary
market areas and elsewhere. While we believe we can and do successfully compete with these other
financial institutions in our primary markets, we may face a competitive disadvantage as a result of
lesser geographic diversification and inability to spread our marketing costs across a broader market.

We
compete with these institutions both in attracting deposits and in originating loans. A
key part of our strategy is to compete through concentrated marketing in our primary
markets with local advertisements, broad product offerings, community support, personal
contacts, and flexibility and responsiveness in working with local customers, but
competition has made it more difficult for us to grow our customer base without adjusting
our pricing. We have experienced increased competition from larger commercial banks which
have refocused their marketing efforts on the retail banking customers. In addition, in
recent years we have encountered many de novo banks in our market areas that tend to price
their loans and deposits aggressively in order to attract customers. Price competition for
loans and deposits causes us to earn less on our loans and pay more on our deposits, which
reduces net interest income.

Income from our real
estate development business may continue to be adversely affected by housing marketconditions
and other uncertainties.

Historically,
a significant source of our non-interest income for us has been income from our real
estate development projects involving the acquisition and development of raw land into
residential lots for sale to home builders. We often develop these projects in multiple
phases over a period of years and our initial projections regarding the time to completion
and development cost involved may prove to be inaccurate. For example, in our Springbank
project in Plainfield, Illinois, delays in the approval process, weak housing market
conditions and other factors outside our control, have extended the project timeline,
increased our development costs and reduced our expected returns on investment over the
life of the project. The weakness in new and existing home sales activity that we
experienced in 2006, along with softening real estate prices, contributed to significantly
lower income from real estate operations in 2006. Without improved housing market
conditions, we are likely to continue to experience weaker income from real estate in 2007
and beyond.

Our allowance for loan
losses is based on our estimates of future losses inherent in our portfolio, and actual losses
we incur could exceed these estimates.

We
maintain an allowance for loan losses we deem adequate to cover losses inherent in our
portfolio from loans that may not be repaid in their entirety. In evaluating the adequacy
of our allowance for loan losses on a quarterly basis, in addition to numerous
quantitative factors we take into account, we also consider many qualitative factors, such
as general business and economic conditions, general real

29

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estate market trends and other
matters which are by their nature more subjective and susceptible to change. In addition,
our estimates of the risk of loss and amount of loss on some of our commercial loans
require us to assess our borrowers abilities to successfully execute their business
models through changing economic environments, competitive challenges and other factors
outside our control. Because of the degree of uncertainty in the assumptions we make and
the factors we consider, the losses we actually incur may exceed our estimates and our
allowance for loan losses may prove insufficient to absorb these losses.

Breaches of our computer
and network security may result in compromises of information which could have amaterial
adverse effect on our business.

We
depend heavily in our daily operations on our automated information systems, networks and
telecommunications systems which support the evaluation, acquisition, monitoring,
collection and administration of our loan and deposit servicing portfolios, general
accounting and other management controls. We also outsource some data and payment
processing to third parties. While we have implemented extensive policies and procedures
designed to limit the impact of system failures or disruptions as well as information
security measures to safeguard these systems, technological difficulties or security
breaches involving our systems or those of any of our vendors could compromise our ability
to protect customer personal information and could interfere with our ability to
accurately process and account for customer transactions, and this could potentially
expose us to significant loss. In addition, a failure or interruption of these systems or
a failure of data integrity could subject us to customer complaints, potential lawsuits or
increased regulatory scrutiny and could damage our reputation, making it more difficult
for us to compete successfully.

Our ability to service
our holding company debt and pay dividends to our shareholders is substantially dependent on
dividends from the Bank, and these dividends are subject to regulatory limits.

Since
January 1, 2005, we increased debt at our holding company $135 million as a result of
acquisitions and as part of our capital management strategy designed to increase
shareholder returns. The Company is largely dependent on the receipt of dividends from the
Bank in order to service this debt and the availability of dividends from the Bank is
limited by various statutes and regulations. In the event that the Bank is unable to pay
dividends to us, we may not be able to service our debt, fund additional real estate
development activities, complete stock buybacks, if any, or pay dividends on our common
stock.

We operate in a highly
regulated environment and we may be adversely affected by changes in laws and regulations.

The
Bank is subject to extensive regulation, supervision and examination by the Office of
Thrift Supervision, its chartering authority, and by the Federal Deposit Insurance
Corporation, as insurer of its deposits. Such regulation and supervision govern the
activities in which an institution and its holding company may engage, and are not
intended to protect the interests of investors in our common stock. Regulatory authorities
have broad discretion in their supervisory and enforcement activities, including the
authority to impose restrictions on our operations, to classify our assets which may
affect the level of our allowance for loan losses, to limit our dividends or impose higher
capital requirements on us, to limit acquisition activities we may propose and to impose
penalties for noncompliance. In addition, we are likely to continue to incur significant
operational costs related to compliance as the risks and burden of regulatory compliance
have increased significantly in recent years. Regulatory changes, whether in the form of
regulatory policy, regulations, legislation or supervisory action, may have a material
impact on our operations.

Our acquisition strategy
exposes us to certain risks.

We
have acquired a number of other banking companies in recent years and we may pursue
selective acquisitions of other financial institutions in the future. Acquisitions can
present certain managerial and operational challenges. While we evaluate acquisition
opportunities across a variety of parameters, including our assessment of the potential
impact on our financial condition as well as our prospective financial performance, our
results may suffer as a result of an acquisition if we are not

30

---

effective in integrating
the acquired operations into our business and converting data processing systems to our
platform as planned, or if we fail to achieve anticipated cost savings or revenue
enhancements. In addition, we anticipate that future acquisitions, if any, will likely be
valued at a premium to book value and at a premium to current market value, which may
result in book value per share or tangible book value per share dilution and possible
short-term earnings per share dilution for our shareholders depending on the transaction
structure and pricing.

# Item 1B. Unresolved
Staff Comments

None.

# Available Information

Our
internet address is www.mafbancorp.com. We make available through this address, free of
charge, our annual report on Form 10-K, proxy statement, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after such material is electronically filed with, or furnished to, the SEC.
Our Code of Ethics and other corporate governance information is also available on our
website.

# Item 2. Properties

All
of our facilities are located in the greater Chicago and Milwaukee metropolitan areas. At
December 31, 2006, we own the majority of our 82 banking offices and lease others
under individual lease arrangements. We also own our executive office building in
Clarendon Hills, Illinois, and lease additional corporate offices in Downers Grove,
Illinois, both located in the western suburbs of Chicago. We believe that all of our
facilities are suitable and adequate for our operational needs.

See
Note 8 in Item 8. Financial Statement and Supplementary Data for
additional information about the Companys properties.

# Item 3. Legal Proceedings

There
are various actions pending against the Company or its subsidiaries in the normal course
of business, but in the opinion of management, none of these actions is likely to have a
material adverse effect on our consolidated financial statements.

# Item 4. Submission of
Matters to a Vote of Security Holders

None.

# PART II

# Item 5. Market for the
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Our
common stock trades on the NASDAQ Stock Market under the symbol MAFB. As of
February 23, 2007, we had 3,800 shareholders of record. The table below shows the
reported high and low sales prices of the common stock during the periods indicated as
well as the period end closing sales prices.

|               | Year ended December 31, 2006 | Year ended December 31, 2005 |  
|-------------- | ---------------------------- | ---------------------------- | -
|
|First Quarter  |                              |                              | $
|Second Quarter |                              |                              |  
|Third Quarter  |                              |                              |  
|Fourth Quarter |                              |                              |  

We
declared $1.00 per share in dividends during the year ended December 31, 2006 and
$0.92 per share in dividends for the year ended December 31, 2005. During the first
quarter of 2007, we announced an increase in our quarterly dividend to $0.27 per share, or
$1.08 per share on an annualized basis. Our ability to pay cash dividends depends largely
on cash dividends received from the Bank. Dividend payments from the Bank are subject to
various regulatory restrictions. See Item 1. Business -Regulation and Supervision
 Federal Savings Institution Regulation  Limitation on Capital
Distributions.

31

---

# Stock Performance Graph

The
following graph shows a comparison of cumulative total shareholder return (including
reinvested dividends) on the Companys common stock, with the cumulative total
returns of both a broad-market index and a peer group index for the period
December 31, 2001 through December 29, 2006.

The broad-market index chosen was
the Nasdaq Market Index, and the peer group index chosen was the Hemscott Industry Group,
comprised of savings and loan institutions, which is the same peer group index used in
past years. The data was provided by Hemscott, Inc. (formerly known as Core Data, Inc.).
The shareholder returns are measured based on an assumed investment of $100 on
December 31, 2001.

# Comparison of
Cumulative Total Return Among MAF Bancorp,Peer Group Index and
Nasdaq Market Index

|                    | 12/31/01 | 12/31/02 | 12/31/03 | 12/31/04 | 12/30/05 | 12/29/06
|------------------- | -------- | -------- | -------- | -------- | -------- | --------
|MAF Bancorp         |          |          |          | 100      | .00      |         
|Peer Group Index    |          |          |          | 100      | .00      |         
|Nasdaq Market Index |          |          |          | 100      | .00      |         

| | A. | The lines represent yearly index levels derived from compounded returns that
               include all dividends.
| | -- | ------------------------------------------------------------------------------------------------------------------

| | B. | If the fiscal year end is not a trading day, the preceding day is used. C. The
               index level for all series was set to $100.00 on 12/31/01.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | The index level for all series was set to $100.00 on 12/31/01.
| | -- | --------------------------------------------------------------

The following
table sets forth information in connection with purchases of common stock made by or on behalf of us during the fourth
quarter of the year ended December 31, 2006.

|Period                                | TotalNumber ofSharesPurchased(1) | AveragePrice Paidper Share | Total Number ofSharesPurchased asPart of PubliclyAnnounced Plansor Programs | Maximum Number ofShares that May Yetbe Purchased underthe Plans or Programs
|------------------------------------- | -------------------------------- | -------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------
|October 1, 2006 through October 31,   |                                  |                            |                                                                             |                                                                            
|2006                                  |                                  |                            |                                                                             |                                                                           
|November 1, 2006 through November 30, |                                  |                           
|2006                                  |                                  |                            |                                                                             | 2,747                                                                      
|December 1, 2006 through December 31, |                                  |                           
|2006                                  |                                  |                            |                                                                             | 2,705                                                                      
|                                      |                                  |                            |                                                                             |                                                                            
|Total                                 |                                  |                            |                                                                             | 5,452                                                                      
|                                      |                                  |                            |                                                                             |                                                                            

---

| | (1) | Reflects 5,452 shares that were surrendered to us in payment of option
               exercise prices. The table does not include 1,706 shares that were surrendered
               in payment of withholding tax in connection with the exercise of related options
               during the quarter.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

---

# Item 6. Selected
Financial Data

The
following tables set forth certain summary consolidated financial data, performance ratios
and other data at or for the periods indicated. This information should be read in
conjunction with the Consolidated Financial Statements and notes thereto included herein.
See Item 8. Financial Statements and Supplementary Data. We also
have presented certain Non-GAAP financial information that management believes is helpful
to an understanding of our financial results. See Non GAAP Financial
Information following these tables for a reconciliation of these items to GAAP
measures.

|                                         | At December 31, | 
|---------------------------------------- | --------------- | 
|
|
|Selected Balance Sheet Data:             |                 | 
|                                         |                 | 
|Total assets                             |                 | 
|Loans receivable, net                    |                 | 
|Mortgage-backed securities available     |                 | 
|for sale                                 |                 | 
|Mortgage-backed securities held to       |                 | 
|maturity                                 |                 | 
|Interest bearing deposits                |                 | 
|Federal funds sold                       |                 | 
|Investment securities available for sale |                 | 
|Stock in Federal Home Loan Bank of       |                 | 
|Chicago                                  |                 | 
|Real estate held for development or sale |                 | 
|Goodwill and core deposit intangibles    |                 | 
|Deposits                                 |                 | 
|Borrowed funds                           |                 | 
|Junior subordinated debentures           |                 | 
|Stockholders' equity                     |                 | 
|Book value per share                     |                 | 
|Tangible book value per share(1)         |                 | 
|Common shares outstanding                |                 | 

---

| | (1) | See Non-GAAP Financial Information below.
| | --- | -----------------------------------------

|                                                   | For the Year Ended December 31, |  |   |            | 
|-------------------------------------------------- | ------------------------------- |  | - | ---------- | 
|
|
|Selected Income Statement Data:                    |                                 |  |   |            | 
|                                                   |                                 |  |   |            | 
|Interest income                                    |                                 |  | $ | 595,200    | 
|Interest expense                                   |                                 |  |   | 335,571    | 
|                                                   |                                 |  |   |            | 
|Net interest income                                |                                 |  |   | 259,629    | 
|Provision for loan losses                          |                                 |  |   | 3,900      | 
|                                                   |                                 |  |   |            | 
|Net interest income after provision                |                                 | 
|for loan losses                                    |                                 |  |   | 255,729    | 
|Total non-interest income                          |                                 |  |   | 75,918     | 
|Total non-interest expense                         |                                 |  |   | 198,070    | 
|                                                   |                                 |  |   |            | 
|Income before income taxes                         |                                 |  |   | 133,577    | 
|                                                   |                                 |  |   |            | 
|Income taxes                                       |                                 |  |   | 48,994     | 
|                                                   |                                 |  |   |            | 
|Net income                                         |                                 |  | $ | 84,583     | 
|                                                   |                                 |  |   |            | 
|Net income as adjusted for balance sheet           |                                 | 
|restructuring and certain tax charges              |                                 |  | $ | 100,651    | 
|                                                   |                                 |  |   |            | 
|Net income per common share:                       |                                 | 
|Basic earnings per share                           |                                 |  | $ | 2.55       | 
|Diluted earnings per share                         |                                 |  |   | 2.51       | 
|Diluted earnings per share as adjusted for balance |                                 | 
|sheet restructuring and certain tax charges        |                                 |  |   | 2.99       | 
|Average common and common equivalent               |                                 | 
|shares outstanding:                                |                                 | 
|Basic                                              |                                 |  |   | 33,177,226 | 
|Diluted                                            |                                 |  |   | 33,765,012 | 

---

| |  | (see footnote on following page)
| |  | --------------------------------

33

---

|                                                                  | At or For the Years Ended December 31, | 
|----------------------------------------------------------------- | -------------------------------------- | 
|
|
|Average Balance Data:                                             |                                        | 
|Average interest-earning assets                                   |                                        | 
|Average interest-bearing liabilities                              |                                        | 
|Average loans to average deposits                                 |                                        | 
|Average stockholders' equity                                      |                                        | 
|Average  stockholders'  equity  to  average                       |                                        | 
|assets                                                            |                                        | 
|Average interest-earning assets to average                        |                                        | 
|interest-bearing liabilities                                      |                                        | 
|Interest rate spread                                              |                                        | 
|Net interest margin                                               |                                        | 
|                                                                  |                                        | 
|Performance Ratios:                                               |                                        | 
|Return on average assets                                          |                                        | 
|Return on average assets, exclusive of balance sheet              |                                        | 
|restructuring and certain tax charges(1)                          |                                        | 
|Return on average equity                                          |                                        | 
|Return on average equity, exclusive of balance sheet              |                                        | 
|restructuring and certain tax charges(1)                          |                                        | 
|Return on average tangible equity(2)                              |                                        | 
|Return on average tangible equity, exclusive of balance           |                                        | 
|sheet restructuring and certain tax charges(1)(2)                 |                                        | 
|Stockholders' equity to total assets                              |                                        | 
|Tangible  stockholders'  equity to tangible                       |                                        | 
|assets(3)                                                         |                                        | 
|Tangible  and core  capital to total assets                       |                                        | 
|(Bank only)                                                       |                                        | 
|Risk based capital ratio (Bank only)                              |                                        | 
|Non-interest expense to average assets                            |                                        | 
|                                                                  |                                        | 
|Non-interest expense exclusive of balance sheet                   |                                        | 
|restructuring to average assets(1)                                |                                        | 
|Efficiency ratio, exclusive of balance sheet restructuring (1)(4) |                                        | 
|Ratio of earnings to  fixed charges:                              |                                        | 
|Including interest on deposits                                    |                                        | 
|Excluding interest on deposits                                    |                                        | 
|                                                                  |                                        | 
|Asset Quality Data (at year-end):                                 |                                        | 
|Non-performing loans to total loans                               |                                        | 
|Non-performing assets to total assets                             |                                        | 
|Allowance for loan loss to total loans                            |                                        | 
|Allowance  for loan loss to  non-performing                       |                                        | 
|loans                                                             |                                        | 
|                                                                  |                                        | 
|Other Data (at year-end):                                         |                                        | 
|Number of deposit accounts                                        |                                        | 
|Mortgage loans serviced for others                                |                                        | 
|Number of retail banking offices                                  |                                        | 
|Number of FTEs                                                    |                                        | 
|Cumulative one-year gap                                           |                                        | 
|                                                                  |                                        | 
|Stock Price and Dividend Information:                             |                                        | 
|High                                                              |                                        | 
|Low                                                               |                                        | 
|Close                                                             |                                        | 
|Cash dividends declared per share                                 |                                        | 
|Dividend payout ratio                                             |                                        | 

---

|(1) | Exclusive of balance sheet restructuring and
          certain tax charges. See Non-GAAP Financial Information below for
          related reconciliations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Return on average tangible equity is calculated by dividing net income
          by the difference of average shareholder equity less average goodwill and core
          deposit intangibles. See Non-GAAP Financial Information below for
          related reconciliations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | See Non-GAAP Financial Information.
|--- | -------------------------------------

|(4) | The efficiency ratio is calculated by dividing non-interest expense exclusive
          of restructuring charges by the sum of net interest income and non-interest
          income, exclusive of restructuring charges and net gain/(loss) on sale and
          write-down of mortgage-backed and investment securities, gain on sale of
          mortgage servicing rights and fixed assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34

---

Non-GAAP
Financial Information

This
report contains certain financial information determined by methods other than in
accordance with U.S. generally accepted accounting principles, or GAAP. The Companys
management uses tangible book value per share, tangible stockholders equity to
tangible assets ratio and return on average tangible equity in its analysis of the
Companys performance and financial condition and believes this presentation provides
useful supplemental information that is helpful in understanding our financial condition
and results, as it provides a method to assess managements success in managing
alternatives for the utilization of tangible capital.

The
Company believes net income, non-interest income and non-interest expense adjusted for the
2006 balance sheet restructuring and certain 2006 tax charges recorded in the fourth
quarter of 2006 is useful supplemental information to better understand the core operating
performance of the Company. See Management's Discussion and Analysis of Financial Condition
and Results of Operations for a discussion of the restructuring plan we announced in the fourth
quarter of 2006. The excluded tax charges relate to adjustments to tax reserves for prior year periods that
were recorded in the fourth quarter of 2006 because of uncertainties that recently arose
relating to an unresolved tax authority audit and other developments. See
Managements Discussion & Analysis of Financial Condition  Results of
Operations  Income Taxes.

These disclosures should not be
considered an alternative to GAAP, nor are they necessarily comparable to Non-GAAP
performance measures that might be presented by other companies.

Tangible
Book Value Per Share.Tangible book value per share is calculated by
dividing (a) stockholders equity less the sum of goodwill and core deposit
intangibles, by (b) common shares outstanding. The following table presents a
reconciliation of stockholders equity to tangible stockholders equity (in
thousands):

|                                   | 12/31/06 | 12/31/05 |  
|---------------------------------- | -------- | -------- | -
|
|Stockholders' equity - as reported |          |          | $
|Goodwill                           |          |          |  
|Core deposit intangibles           |          |          |  
|                                   |          |          |  
|Tangible stockholders' equity      |          |          | $
|                                   |          |          |  

Tangible
Stockholders Equity to Tangible Assets.Tangible stockholders
equity to tangible assets is calculated by dividing (a) stockholders equity less the
sum of goodwill and core deposit intangibles, by (b) total assets less the sum of goodwill
and core deposit intangibles. The following table presents a reconciliation of total
assets to tangible assets (in thousands):

|                           | 12/31/06 | 12/31/05 |  
|-------------------------- | -------- | -------- | -
|Total assets - as reported |          |          | $
|Goodwill                   |          |          |  
|Core deposit intangibles   |          |          |  
|                           |          |          |  
|Tangible total assets      |          |          | $
|                           |          |          |  

35

---

Return
on Average Stockholders Equity and Return on Average Tangible Stockholders
Equity.Return on average stockholders equity is calculated by
dividing (a) net income adjusted for balance sheet restructuring charges and certain tax
charges (see below) by (b) average stockholders equity. Return on average tangible
stockholders equity is calculated by dividing (a) net income adjusted for balance
sheet restructuring charges and certain tax charges by (b) average stockholders
equity less average goodwill and core deposit intangibles. The following table presents a
reconciliation of average stockholders equity to average tangible stockholders
equity (in thousands):

|                                      |  | Year EndedDecember 31, |  | 
|------------------------------------- |  | ---------------------- |  | 
|
|Average stockholders' equity          |  |                        |  | 
|Average goodwill                      |  |                        |  | 
|Average core deposit intangibles      |  |                        |  | 
|                                      |  |                        |  | 
|Average tangible stockholders' equity |  |                        |  | 
|                                      |  |                        |  | 

The
following three tables reconcile net income, non-interest income and non-interest expense
to net income, non-interest income and non-interest expense as adjusted for the balance
sheet restructuring and certain tax charges (in thousands):

Net income adjusted for balance sheet restructuring and certain tax charges.
Diluted earnings per share as adjusted for balance sheet
restructuring and certain tax charges is calculated by dividing net income as adjusted for balance sheet restructuring and certain tax charges by the weighted average
number of diluted shares outstanding.

|                                                    |  | Year EndedDecember 31, 2006
|--------------------------------------------------- |  | ---------------------------
|Net income - as reported                            |  |                            
|Lower of cost of market adjustment on loans         |  |                            
|transferred to  held for sale                       |  |                            
|Loss on mortgage-backed securities                  |  |                            
|Loss on investment securities                       |  |                            
|Prepayment charge related to repayment              |  |                            
|of borrowings                                       |  |                            
|Tax benefits related to balance sheet               |  |                            
|restructuring charges                               |  |                            
|Certain tax charges                                 |  |                            
|                                                    |  |                            
|Net income adjusted for balance sheet restructuring |  |                            
|and certain tax charges                             |  |                            
|                                                    |  |                            

Return
on average assets is calculated by dividing (a) net income adjusted for balance sheet
restructuring and certain tax charges by (b) average total assets.

Non-interest income adjusted for balance sheet restructuring charges

|                                               | Year EndedDecember 31, 2006 | 
|---------------------------------------------- | --------------------------- | 
|Non-interest income - as reported              |                             | 
|Lower of cost of market adjustment on loans    |                             | 
|transferred to  held for sale                  |                             | 
|Loss on mortgage-backed securities             |                             | 
|Loss on investment securities                  |                             | 
|                                               |                             | 
|Non-interest income adjusted for balance sheet |                             | 
|restructuring charges                          |                             | 
|                                               |                             | 

Non-interest expense adjusted for balance sheet restructuring charges

|                                                | Year EndedDecember 31, 2006 | 
|----------------------------------------------- | --------------------------- | 
|Non-interest expense - as reported              |                             | 
|Prepayment charge related to repayment          |                             | 
|of borrowings                                   |                             | 
|                                                |                             | 
|Non-interest expense adjusted for balance sheet |                             | 
|restructuring charges                           |                             | 
|                                                |                             | 

The
ratio of non-interest expense to average assets is calculated by dividing (a) non-interest
expense adjusted for balance sheet restructuring charges by (b) average total assets.

36

---

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

We
encourage you to read the following discussion in conjunction with the selected financial
information as of and for the three years ended December 31, 2006, included in Item 6.
Selected Financial Data and the financial information as of and for the three
years ended December 31, 2006, included in Item 8. Financial Statements and
Supplementary Data.

# Overview

Our net income was $84.6 million in 2006 compared to $103.4 million in 2005 and $101.5 million in 2004.
Net income for 2006 was reduced by $12.1 million, or $.36 per diluted share due to the balance
sheet restructuring plan we implemented in the fourth quarter. In addition, 2006 results were reduced
by certain tax charges of $4.0 million, or $.12 per diluted share, primarily relating to
reserves established in connection with uncertainties arising from a recent tax authority
audit. Exclusive of these charges, 2006 net income was $100.7 million, or $2.99 per diluted share compared to $3.13
per diluted share in 2005 and $3.01 in 2004. The decline in earnings during 2006 primarily reflects the difficult operating environment
that our industry faces in the inverted yield curve environment in weak mortgage and housing market conditions.

Our
primary source of revenue is net interest income which is driven by the volume of our
interest-earning assets and our net interest margin. During 2006, the increasing and flat
to inverted interest rate yield curve had a negative impact on our net interest income as
the increase in the average cost of our interest-bearing liabilities out-paced increases
in our average interest-earning asset yields. In light of the unfavorable interest rate
environment, a key part of the interest rate risk management strategies we pursued in 2006
was to limit balance sheet growth of our one-to-four family mortgages, which mitigated
some of the margin pressures. Gravitating to more of an originate-and-sell model in our
residential lending business, we sold a significant portion of our ARM loans as well as
the majority of our fixed-rate mortgage production which generate income from gains on
sales. However, significantly lower mortgage origination volumes resulting from rising
interest rates and slowing housing sales during the year limited growth in this source of
income.

Due
to the extended duration of the inverted yield curve environment, we undertook a balance
sheet restructuring plan in the fourth quarter to reposition our balance sheet for
improved earnings in the future. As described more fully below, we sold certain
lower-yielding loans and investment securities, repaid certain higher-cost wholesale
borrowings, and reinvested remaining proceeds in short-term investment securities to
eliminate negative interest rate spread that had been reducing our net interest income.
While this deleveraging caused us to recognize restructuring charges in the fourth quarter of
2006 and will shrink our balance sheet for the near term, management believes the
restructuring will benefit the Company by allowing us to reinvest certain
funds into higher yielding short-term securities and over time to redeploy capital in more
favorable investment opportunities as we continue our strategy of increasing the
concentration of business and home equity loans in our portfolio.

Exclusive
of restructuring charges, we grew non-interest income approximately 14% in 2006 largely due to
stronger deposit account service fees and higher gains on sale of loans in our mortgage banking
operation which more than offset a $2.1 million decline in income from real estate operations. Lot sales activity has been
adversely impacted by the slow down in the housing market. We anticipate that 2007 will
also be a difficult year for our land development operations.

37

---

As
expected, non-interest expense in 2006 increased with the additional costs of operating
two de novo branches that we opened in December 2005 and the seven branches we added in
our acquisition of EFC Bancorp, Inc. in February 2006. However, we were able to limit the
increase in our total non-interest expense through cost containment efforts that we
pursued in the face of the challenging operating environment. Exclusive of expense related
to the balance sheet restructuring, our ratio of non-interest expense to average assets
improved in 2006 to 1.73% from 1.86% in 2005 and 2.01% in 2004. We are continuing to
address our cost structure and are pursuing additional cost control initiatives in 2007.

# Recent Acquisitions

We
have acquired a number of other financial institutions in recent years, including EFC Bancorp in early 2006. The following
table summarizes financial information relating to our recent acquisitions:

|Selling Entity                 | Acquisition Date | Data ProcessingConversionCompletion | AcquiredDeposits | AcquiredLoans | Goodwill andIntangiblesRecorded
|------------------------------ | ---------------- | ----------------------------------- | ---------------- | ------------- | -------------------------------
|
|EFC Bancorp, Inc.(1)           |                  |                                     | February 1, 2006 |               |                                
|Chesterfield  Financial  Corp. |                  |                                    
|(2)                            |                  |                                     | November 1, 2004 |               |                                
|St. Francis Capital            |                  |                                    
|Corporation(3)                 |                  |                                     | December 1, 2003 |               |                                
|Fidelity Bancorp, Inc.(4)      |                  |                                     | July 21, 2003    |               |                                

---

|(1) | We acquired EFC Bancorp for $176.6 million. We issued 2.3 million shares
          of stock and paid $67.3 million in cash, $52 million of which was funded with
          increased borrowings under our unsecured term loan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We acquired Chesterfield Financial Corp. for $128.4 million. We issued 981,467
          shares of stock and paid $85.7 million in cash for the purchase, $25 million of
          which was funded by an increase in borrowings under our unsecured term loan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | We acquired St. Francis Capital Corporation by issuing 7.5 million shares in an
          all-stock transaction valued at $358 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(4) | We acquired Fidelity Bancorp by issuing 2.8 million shares in an all-stock
          transaction valued at $115 million.
|--- | ------------------------------------------------------------------------------------------------------------------------

# Critical Accounting
Policies and Estimates

Our
discussion and analysis of financial condition and results of operations are based upon
consolidated financial statements, which have been prepared in conformity with U.S.
generally accepted accounting principles, and are more fully described in Note 1 of
the consolidated financial statements found in Item 8. Financial
Statements and Supplementary Data. The preparation of these consolidated financial
statements requires that management make estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expense, as well as related
disclosures of contingencies. Managements judgment is based on historical
experience, terms of existing contracts, market trends and other information available. We
believe that of our significant accounting policies, the following may involve a higher
degree of judgment and complexity:

Allowance
for loan losses. In evaluating the adequacy of the allowance for loan
losses and determining the related provision for loan losses on a quarterly basis,
management considers: (1) historical loss experience and change in the size and mix
of the overall portfolio composition, (2) specific allocations based upon probable
losses identified during the review of the portfolio, (3) delinquency trends in the
portfolio and the composition of non-performing loans, including the percent of
non-performing loans with supplemental mortgage insurance, and (4) subjective factors,
including local and general economic business factors and trends, industry and interest
rate trends, new lending products and changes in underwriting criteria, and portfolio
concentrations. A provision for loan losses is recorded as a charge to current earnings.
The allowance for loan losses is managements estimate of probable losses inherent in
the Banks loan portfolio at the assessment date. If actual losses ultimately exceed
managements estimate, the allowance may not be sufficient to absorb probable losses
in the loan portfolio and may result in an additional provision for loan losses. The
allowance is also subject to examination and adequacy testing by regulatory agencies,
which may consider such factors as the methodology used to determine the adequacy and size
of the allowance relative to that of peer institutions, and other adequacy tests. Such
regulatory agencies could require an adjustment to our allowance based on information
available to them at the time of their examination.

Valuation
of mortgage servicing rights. We capitalize the fair value of mortgage
servicing rights upon the sale of loans. We determine the fair value by allocating the
previous carrying amount of the sold loans based on the relative fair values of the
servicing rights retained and the loans that are sold to a third party. The estimated
value takes into consideration contractually known amounts, such as loan balance, term,
contract rate and whether the customer escrows funds with the Bank for the payment of

38

---

taxes and insurance. The estimated value is also affected by additional assumptions
relating to loan prepayment speeds, earnings on escrow funds, as well as the discount rate
used to present value the estimated future cash flow stream. Subsequent to the
establishment of this asset, management reviews the fair value of mortgage servicing
rights on a quarterly basis using current estimates of prepayment speeds, cash flow and
discount rate assumptions. Changes in these estimates impact fair value, and could require
us to record a valuation allowance or recovery. There was no valuation reserve at December
31, 2006 or 2005. Net recoveries of $171,000 were recorded in 2005 due to lower prepayment
estimates reflective of a rising rate environment. Should estimates assumed by management
regarding future prepayment speeds on the underlying loans supporting the mortgage
servicing rights prove to be incorrect, additional valuation allowances could occur, or
conversely, valuation allowances could be recovered if changing estimates increase the
fair value of mortgage servicing rights.

Valuation
of goodwill and intangible assets. In accounting for acquisitions of other
companies, we generally record as assets on our financial statements both goodwill and
identifiable intangible assets, such as core deposit intangibles. The amounts we record
are based on our estimates of the fair value of assets and liabilities acquired. The
valuation techniques we use to determine the carrying value of tangible and intangible
assets and liabilities acquired in acquisitions and the estimated lives of the
identifiable intangible assets involve a number of subjective judgments such as estimates
for discount rates, projected future cash flows and time period of useful lives, all of
which are susceptible to change based on changes in economic conditions and other factors.
Core deposit and other identifiable intangible assets are amortized to expense over their
estimated useful lives and are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset exceeds the remaining value
we are reasonably likely to realize. Similarly, on an annual basis we evaluate whether the
carrying value of our goodwill has become impaired, in which case we reduce its carrying
value through a charge to our earnings. Goodwill is evaluated for impairment at the
segment reporting level, and all of our goodwill is recorded in our banking segment. Based
on our evaluations, we recorded no goodwill impairment in the years ended December 31,
2006, 2005 and 2004.

While
we believe the valuation assumptions and estimates we used are reasonable, using different
assumptions or estimates would have resulted in our recording different amounts of
goodwill and core deposit intangibles and could have impacted our amortization expense.
For example, if we had assumed faster prepayment speeds of mortgage loans we acquired in
our acquisitions, the value of the mortgage loans we acquired would have been less and the
goodwill we recorded would have been greater. Similarly, if we had assumed greater deposit
run-off rates, we may have recorded lower core deposit intangibles, but might have
shortened our estimate of the average life of this intangible asset, and the combination
of these changes may have increased or decreased our amortization expense in 2006. Any
changes in the assumptions and estimates which we use in future periods to determine the
carrying value of our goodwill and identifiable intangible assets which adversely affect their value or shortens estimated lives would
adversely affect our results of operations.

Real
estate held for development. Income from real estate operations in the
Companys real estate developments are based on cash received less the cost of sales
per lot, including capitalized interest and an estimate of future costs to be incurred.
This is especially true at the outset of a project, where few actual costs have been incurred in the project
as a whole. The estimate of total project costs is reviewed on a quarterly basis by management. Estimates are subject to change for various reasons, including the duration of the
project, changes in rules or requirements of the communities where the projects reside,
soil and weather conditions, increased project budgets, as well as the general level of
inflation. If these estimates are incorrect and either the expenses are greater than
anticipated or the sales do not close as expected, we may have to expend additional funds
or obtain borrowings to cover current improvement costs.

Any change in income from real estate
operations from past sales that results from changes in future estimated costs are
recognized in the period of change as either a
charge or an addition to income from real estate operations. Additionally,
we periodically evaluate the net realizable value from each project by considering other
factors, such as pace of lot absorption, sources of funding and timing of disbursements. A
charge to current earnings would occur if this evaluation indicated a projects net
realizable value did not exceed its recorded cost. Currently, the estimated net realizable
value of Springbank, our only project currently under development, exceeds the recorded
cost of the project.

Income
Taxes. The determination of income tax expense and the amounts of current
and deferred income tax assets and liabilities is based on complex analyses of many
factors, including

39

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interpretation of Federal and state income tax laws, current financial
accounting standards, the difference between tax and financial reporting bases of assets
and liabilities (temporary differences), assessments of the likelihood that the reversals
of deferred deductible temporary differences will yield tax benefits and estimates of
reserves required for tax uncertainties.

We
periodically undergo examination by various governmental taxing authorities. Such agencies
may require that changes in the amount of tax expense be recognized when their
interpretations of tax law differ from those of management, based on their judgments about
information available to them at the time of their examinations. There can be no assurance
that future events, such as court decisions, new interpretations of existing law or
positions by federal or state taxing authorities, will not result in tax liability amounts
that differ from managements current assessment of such amounts, the impact of which
could be significant to future results.

Temporary differences may give rise to deffered
tax assets, which are recorded on our balance sheet as deferred tax assets. We assess the likelihood that deferred tax assets will be realized in future
periods and establish a valuation allowance for those assets for which recovery is
unlikely. In making this assessment, we must make judgments and estimates regarding the
ability to realize these assets through carryback to taxable income in prior years, the
future reversal of existing taxable temporary differences, future taxable income, and the
possible application of future tax planning strategies. Although the Company has
established valuation allowances relating to certain deferred tax assets, there is no
guarantee that the tax benefits associated with other deferred tax assets for which no
valuation allowance has been established, will be fully realized.

In
the preparation of income tax returns, tax positions are taken based on interpretation of
federal and state income tax laws for which the outcome of such positions may not be
certain. Management periodically reviews and evaluates the status of uncertain tax
positions and may establish tax reserves for estimates of amounts that may ultimately be
due or owed (including interest). These estimates may change from time to time based on
managements evaluation of developments subsequent to the filing of the income tax
return, such as tax authority audits, court decisions or other tax law interpretations.
There can be no assurance that any tax reserves will be sufficient to cover tax
liabilities that may ultimately be determined to be owed. FASB Interpretation No. 48
provides new accounting for uncertain income tax positions and is effective for 2007. See
Recent Accounting Standards.

For
additional discussion of income taxes, see Management's Discussion and Anaylsis of Financial
Condition and Results of Operations - Results of Operations- Income Tax Expense and Notes 1
and 14 of Notes to Consolidated Financial Statements in Item 8 of this
Form 10-K.

# Results of Operations

|                                                | Year Ended December 31, |  |  
|----------------------------------------------- | ----------------------- |  | -
|
|
|Net income                                      |                         |  | $
|Net income as adjusted for balance sheet        |                         | 
|restructuring and certain tax charges           |                         |  |  
|Diluted earnings per share                      |                         |  |  
|Diluted earnings per share as adjusted for      |                         | 
|balance sheet restructuring and                 |                         | 
|certain tax charges                             |                         |  |  
|Return on average assets                        |                         |  |  
|Return on average assets, exclusive of          |                         | 
|balance sheet restructuring and certain tax     |                         | 
|charges (1)                                     |                         |  |  
|Return on average equity                        |                         |  |  
|Return on average equity, exclusive of          |                         | 
|balance sheet restructuring and certain tax     |                         | 
|charges (1)                                     |                         |  |  
|                                                |                         | 
|Return on average tangible equity(2)            |                         |  |  
|Return on average tangible equity, exclusive of |                         | 
|balance sheet restructuring and certain tax     |                         | 
|charges(1)(2)                                   |                         |  |  
|Average diluted shares outstanding              |                         |  |  

---

|(1) | These ratios are calculated exclusive of balance sheet restructuring and
          certain tax charges. See Item 6. Non-GAAP Financial Information
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Return on average tangible equity is calculated by dividing net income by the
          difference of average shareholder equity less average goodwill and core deposit
          intangibles.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40

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Balance Sheet
Restructuring

During
the fourth quarter of 2006, we undertook a balance sheet restructuring plan seeking to
better position the Bank for current difficult and uncertain interest rate environment.
The restructuring has allowed us to reduce pressure on our net interest margin as we reduced the size
of our investment portfolio and repaid certain wholesale borrowings, and has enable us to improve future operating results without
increasing interest rate risk. The restructuring plan had a negative impact on 2006
pre-tax earnings of $19.9 million, or $.36 per diluted share on an after-tax basis. We estimate that the restructuring will benefit 2007 pre-tax
earnings by approximately $9.8 million, or approximately $.18 per diluted share on an
after-tax basis, and that we will have recouped the 2006 restructuring costs
through increased net interest income in approximately 2.1 years without considering any potential redeployment of capital in longer-term opportunities.

The
table below summarizes the results of the various components of the restructuring:

|                              | Balance | Yield/Cost | Pre-tax Impact on 2006 Results
|----------------------------- | ------- | ---------- | ------------------------------
|Interest-earning assets sold: |         |            |                               
|Loans receivable              |         |            | $                             
|Investment Securities         |         |            |                               
|Mortgage-backed securities    |         |            |                               
|                              |         |            |                               
|                              |         |            | $                             
|                              |         |            |                               
|FHLBC advances prepaid        |         |            | $                             
|                              |         |            |                               
|Total restructuring charges   |         |            |                               
|                              |         |            |                               

We
identified for sale $219.6 million of one- to four-family loans held in our portfolio,
primarily seasoned 5/1 hybrid ARMs with approximately two years remaining to their first
repricing, which carried a weighted average yield of 4.21%. A lower-of-cost-or-market
adjustment was recorded in December 2006, when we reclassified the loans into the loans
held for sale category. We also identified for sale investments and mortgage-backed
securities with; a cost basis of $531.4 million, an average duration of approximately 2.17
years, and an average yield of 3.93%. We recorded an other-than-temporary impairment on
these securities as of December 31, 2006. Much of this write-down was previously
recognized as a reduction to stockholders equity through other comprehensive income
adjustments in accordance with SFAS No. 115. We repaid $501.5 million of FHLBC advances
with a duration of approximately 2.07 years and included advances with unexercised put
options. We repaid the borrowings in late December 2006, and recorded $2.8 million of
expense associated with prepayment of these borrowings. We initially funded the repayment
with cash on hand and a $400 million short-term borrowing until the asset sales were
consummated and settled in early 2007. Consequently, at December 31, 2006, our balance
sheet has yet to reflect the deleverage aspect of the transaction. The short-term
borrowing was repaid on January 9, 2007. The approximately $230.0 million of liquidity
available for immediate reinvestment has been used to purchase securities which meet the Banks
duration target contemplated in the transaction, at a current yield of approximately
5.69%, well above the yields on assets sold.

Net interest income

Net
interest income is our principal source of earnings, and consists primarily of interest
income on loans receivable and mortgage-backed and investment securities, offset by
interest expense on deposits, borrowed funds, and junior subordinated debentures. Net
interest income fluctuates due to a variety of reasons, most notably due to the size of
our balance sheet, changes in interest rates, the shape of the U.S. Treasury yield curve,
competitive market pressures on the pricing of our products,  the extent of our investment in non-interest earning assets and the level of
interest-rate and credit risk we are willing to accept. Our net interest margin has
contracted over the last several years largely due to the concentration of one- to
four-family mortgages in our portfolio.

Traditionally,
we have been able to increase net interest income at a faster pace when intermediate to
long-term U.S. Treasury rates are greater than short-term interest rates, as our funding
costs tend to be tied to shorter-term rates, while pricing on our fixed-rate and ARM loan
products tend to

41

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be tied to intermediate to longer-term interest rates. In periods of
greater slope in the yield curve, we have leveraged our capital to increase loans and
other earning assets and this strategy has successfully increased past profits. As the
market differential between short- and long-term interest rates has shrunk since late
2004, marginal incremental business added to our balance sheet carries smaller net
interest margin income, and ultimately decreases our net interest margin percentage. We
have attempted to limit the adverse impact of the flatter and inverted yield curve
environment by limiting asset growth in lower yielding asset categories, by selling a
higher percentage of our one- to four-family ARM mortgage loan production.

Over
the past five years, we have successfully transitioned a greater percentage of our balance
sheet into higher-yielding, adjustable-rate loans related to our business banking and home
equity line of credit loan portfolios as another way of combating a flatter, or inverted
yield curve environment. These products tend to be tied to the Prime rate (or to a lesser
extent three-month LIBOR) and adjust to increased short-term interest rates more rapidly
than other assets in our portfolio. Because of this, we can more effectively match fund
these assets with similar duration liabilities, exclusive of the shape of the yield curve.

Core
deposits, which tend to provide lower-cost funding, also help us mitigate the impact of a
flatter yield curve. Impacting our net interest income recently has been the shifting of
our low-cost core deposits into higher-yielding certificate accounts and money market
accounts due to rapid increases in short-term interest rates since 2005. As rates rose in
the first half of 2006, our pricing strategy was designed to migrate interest-sensitive
depositors to more rate-sensitive certificates of deposit. In the fourth quarter of 2006, when rates appeared to have peaked, we changed
our pricing strategy with a goal of moving these funds back into shorter term products such as
money market accounts. Our mix of core deposits to total deposits has declined slightly
from 53.4% at December 31, 2005, to 49.4% at December 31, 2006, and the cost of core
deposits has also risen, both due to higher short-term market rates and competitive
pricing for deposits. These factors have added pressure to our net interest margin.

42

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Average
Balance Sheets.The following table reflects the average yield on assets
and average cost of liabilities for the periods indicated.  Such yields or costs are derived by dividing
income or expense by the average balance of assets or liabilities, excluding any tax equivalent
adjustments for municipal security income, the impact of which is not significant.  Average balances are
derived from average daily balances, and include non-accrual loans and investments.  The yield/cost at
December 31, 2006 includes fees that are considered adjustments to yield.

|                          | Year Ended December 31, | 
|------------------------- | ----------------------- | 
|
|
|
|Assets:                   |                         | 
|Loans receivable          |                         | 
|Mortgage-backed           |                         | 
|securities                |                         | 
|Stock in FHLB of          |                         | 
|Chicago                   |                         | 
|Investment securities     |                         | 
|Interest-bearing deposits |                         | 
|and federal funds sold(1) |                         | 
|                          |                         | 
|Total interest-earning    |                         | 
|assets                    |                         | 
|Non-interest earning      |                         | 
|assets                    |                         | 
|                          |                         | 
|Total assets              |                         | 
|                          |                         | 
|Liabilities and           |                         | 
|stockholders' equity:     |                         | 
|Deposits                  |                         | 
|Borrowed funds            |                         | 
|Junior subordinated       |                         | 
|debentures                |                         | 
|                          |                         | 
|Total interest-bearing   
|liabilities               |                         | 
|Non-interest              |                         | 
|bearing deposits          |                         | 
|Other liabilities         |                         | 
|                          |                         | 
|Total liabilities         |                         | 
|Stockholders' equity      |                         | 
|                          |                         | 
|Liabilities and           |                         | 
|stockholders' equity      |                         | 
|                          |                         | 
|Net interest income/      |                         | 
|interest rate spread      |                         | 
|                          |                         | 
|Net earning assets/net    |                         | 
|yield on average          |                         | 
|interest-earning assets   |                         | 
|                          |                         | 
|Ratio of interest-earning |                         | 
|assets to interest-       |                         | 
|bearing liabilities       |                         | 
|                          |                         | 

|(1) | Includes pro-rata share of interest income received on outstanding drafts
          payable.
|--- | --------------------------------------------------------------------------------------------

43

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Rate/Volume
Analysis. The table below shows the impact of changes in interest-earning
assets and interest-bearing liabilities and changes in interest rates on our interest
income and interest expense during the periods indicated. Changes attributable to the
combined impact of volume and rate have been allocated proportionately to the changes due
to volume and the changes due to rate.

|                              | Year EndedDecember 31, 2006 vs. 2005 | Year EndedDecember 31, 2005 vs. 2004 |  
|----------------------------- | ------------------------------------ | ------------------------------------ | -
|
|
|Change in:                    |                                      |                                      |  
|Interest-income:              |                                      |                                     
|Loans receivable              |                                      |                                      | $
|Mortagage-backed securities   |                                      |                                      |  
|Investment securities         |                                      |                                      |  
|Stock in FHLB of Chicago      |                                      |                                      |  
|Interest-bearing deposits and |                                      |                                     
|federal funds sold            |                                      |                                      |  
|                              |                                      |                                      |  
|Total interest income         |                                      |                                      |  
|                              |                                      |                                      |  
|Interest-expense:             |                                      |                                     
|Deposits                      |                                      |                                      |  
|Borrowed funds                |                                      |                                      |  
|Junior subordinated           |                                      |                                     
|debentures                    |                                      |                                      |  
|                              |                                      |                                      |  
|Total interest expense        |                                      |                                      |  
|                              |                                      |                                      |  
|Net change in interest        |                                      |                                     
|income                        |                                      |                                      | $
|                              |                                      |                                      |  

2006 versus 2005.Net interest
income decreased to $259.6 million in 2006, compared to $264.8 million in 2005. While we
grew average earning assets by $1.12 billion, primarily due to the acquisition of EFC, our
net interest margin declined 36 basis points, to 2.52% from 2.88%. With higher funding
costs, our one- to four-family mortgage portfolio, made up primarily of hybrid ARMs
originated within the last one to three years, is negatively impacting our margin. More
than $1.5 billion of these loans are scheduled to reprice over the next eight quarters,
which should help our net interest margin beginning in late 2007.

The
overall yield on interest-earning assets improved 56 basis points to 5.77% in 2006,
reflecting higher market rates of interest as well as the strategic shift in our mix of
loans. Organic growth in interest-earning assets was minimal in 2006 due to our strategy to limit balance sheet
growth in lower-yielding asset categories.

We
experienced 35 and 48 basis point improvements in the average yields on our
mortgage-backed and investment securities portfolio, respectively, during 2006 due to
maturities and amortization of lower-yielding securities redeployed at higher current
yields. Due to our balance sheet restructuring, the yields on these portfolios should
improve further in 2007, while average balances are expected to decrease.

We
reduced our investment in FHLBC stock in 2006 to the extent of permitted redemptions, but
continued to hold excess investment in what is now an underperforming investment. The
dividend yield declined to 3.17% in 2006 from 5.91% in 2005 due to continued regulatory
restrictions and weaker earnings at the FHLBC. We anticipate further reducing our excess
investment in 2007, subject to FHLBC constraints.

The
cost of our interest-bearing liabilities increased 98 basis points to 3.54% in 2006, as
deposit costs increased by 104 basis points due to upward repricing of maturing
certificates of deposit, slow checking account growth and a decline in the balance of
passbook accounts. Money market deposit costs increased due to our strategy of offering a
higher rate money market product as an alternative to higher cost CDs. The increase in the
prime rate due to Federal Reserve Board tightened monetary policy (as well as 3-month
LIBOR) led to an increase in the cost of variable rate borrowings and our junior
subordinated debentures.

In addition, during 2006 we repurchased 1.9 million shares of stock using borrowed funds, which improved
earnings per share results but had the effect of reducing the net interest margin. We also increased our investments
in bank-owned life insurance (earnings from which are classified as non-

44

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interest income) by another $35 million during 2006 after
having added $35 million in the second quarter of 2005, and our investment in real estate held for development. Investments in non-interest
earning assets negatively impact the net interest margin.

2005
versus 2004.Net interest income increased to $264.8 million in 2005, compared to
$261.3 million in 2004, due to an increase in average interest-earning assets of $642.3
million, or 7.5%, to $9.19 billion. Our net interest margin contracted 18 basis points
from the previous year to 2.88% in 2005, due to the faster upward repricing of our
deposits and borrowed funds compared to our interest->earning assets, in response to the
rise in short-term market interest rates and our issuance during 2005 of junior
subordinated debentures, which are higher cost than the average rate on our other
borrowings. We used the majority of this amount to fund stock repurchases during the year.

Our
overall yield on interest-earning assets increased 29 basis points to 5.21% in 2005. We
achieved a 34 basis point increase in the yield on our loan portfolio, to 5.44%, as our
portfolios of equity lines of credit and commercial business loans adjusted upward in
response to the rise in the Prime rate of interest. Similarly, a 38 basis point increase
in the average yield on our mortgage-backed and investment securities portfolio due to new assets purchased at
higher rates helped improve our asset yields. Due to limited growth in our loan portfolio,
attributable to slower mortgage production and increased prepayments on mortgage loans and
equity lines, we grew our average mortgage-backed securities portfolio by $402.8 million,
while maintaining our interest rate risk objectives. Our overall average asset yield in 2005 was
negatively impacted by the yield reduction on our FHLBC stock investment, as well as the
$147.7 million reduction in the average balance of this investment. We redeemed FHLBC stock
periodically throughout the year during 2005 to address the concentration in our investment
portfolio resulting from prior acquisitions.

Our
overall cost of interest-bearing liabilities increased 49 basis points to 2.56% in 2006,
driven by a 53 basis point increase in our cost of deposits, to 1.94%. Deposits accounted
for 66.5% of our funding in 2005. Our deposit costs were impacted by a variety of factors,
including the sharp upward repricing of maturing certificate of deposit accounts and money
market deposits, slower growth of checking deposits, and a decline in the balance of
passbook accounts, which led to a reduction in the percentage of our core deposits to
total deposits to 53.4% in 2005, compared to 59.6% in 2004. Similarly, our costs of
borrowed funds increased 31 basis points to 3.77% in 2005. In response to our increase in
shorter-term interest-earning assets, we have increased our exposure to Prime and
LIBOR-indexed borrowed funds, which have repriced upward in response to rising short-term
interest rates.

Provision for Loan Losses

We
recorded a provision for loan losses and experienced net charge-offs as follows for the
three years ended December 31, 2006 as shown below:

|                                 | Year Ended December 31,
|-------------------------------- | -----------------------
|
|
|Provision for loan losses        |                        
|Net charge-offs                  |                        
|Net charge-offs to average loans |                        

The
provision for loan losses increased in 2006 due to higher incurred and expected losses on
the residential loan portfolio, particularly in the high loan-to-value equity lines of
credit category, where we earn a higher rate of interest to compensate for the greater
credit risk associated with these loans. Higher interest rates and weakness in residential
real estate prices have contributed to higher levels of delinquencies, non-accrual loans
and chargeoffs on these loans although our overall credit quality experience as measured
by net-charge-offs to average loans has remained strong.

45

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In
evaluating the adequacy of the allowance for loan losses and determining, if any, the
related provision for loan losses shown in the table above, management considers:
(1) historical loss experience and change in the size and mix of the overall
portfolio composition, (2) specific allocations based upon probable losses identified
during the review of the portfolio, (3) delinquency trends in the portfolio and the
composition of non-performing loans, including the percent of non-performing loans with
supplemental mortgage insurance, and (4) subjective factors, including local and general
economic business factors and trends, industry and interest rate trends, new lending
products and changes in underwriting criteria and portfolio concentrations. The table
below shows the total allowance for loan losses and selected percentages for the periods
indicated:

|                                                               | Year Ended December 31, | 
|-------------------------------------------------------------- | ----------------------- | 
|
|
|Allowance for loan losses                                      |                         | 
|Allowance for loan losses as a percentage of non-performing    |                         | 
|loans                                                          |                         | 
|Allowance for loan losses as a percentage of loans receivable, |                         | 
|exclusive of loans held for sale                               |                         | 

Non-interest income

2006
versus 2005. Non-interest income is another significant source of revenue for us. It
consists primarily of fees earned on deposit and loan products and services and gains and
losses from asset sale activity. Non-interest income decreased $5.3 million or 6.5% for
the year ended December 31, 2006 compared to the year ended December 31, 2005. Exclusive
of balance sheet restructuring charges, however, non-interest income grew by $11.8
million, or 15% in 2006.

The
table below shows the composition of non-interest income for the periods indicated.

|                                       | Year Ended December 31, | Percentage Increase (Decrease) |  
|-------------------------------------- | ----------------------- | ------------------------------ | -
|
|
|Net gain (loss) on sale and write-down |                         |                                |  
|of assets:                             |                         |                               
|Loans receivable                       |                         |                                | $
|Mortgage-backed securities             |                         |                                |  
|Investment securities                  |                         |                                |  
|Premises and equipment                 |                         |                                |  
|Foreclosed real estate                 |                         |                                |  
|Mortgage loan servicing rights         |                         |                                |  
|Deposit account service charges        |                         |                                |  
|Other loan fees                        |                         |                                |  
|Bank-owned life insurance              |                         |                                |  
|Brokerage and insurance commissions    |                         |                                |  
|Loan servicing fee income              |                         |                                |  
|Valuation recovery (allowance) on      |                         |                               
|mortgage servicing rights              |                         |                                |  
|Income from real estate operations     |                         |                                |  
|Other income:                          |                         |                               
|Safe deposit box fees                  |                         |                                |  
|Title agency fees                      |                         |                                |  
|Assumed premium income                 |                         |                                |  
|Real estate held for investment        |                         |                               
|income(1)                              |                         |                                |  
|Other                                  |                         |                                |  
|                                       |                         |                                |  
|Total other income                     |                         |                                |  
|                                       |                         |                                |  
|Total non-interest income              |                         |                                | $
|                                       |                         |                                |  

---

|(1) | Income from investments in affordable housing properties in Wisconsin.
|--- | ----------------------------------------------------------------------

Exclusive
of the $4.2 million lower-of-cost or market adjustment related to our balance sheet
restructuring, our gain on sale of loans in 2006 increased to $13.0 million on $1.28
billion of loan sales compared to $10.7 million on $825.8 million of loan sales in 2005.
Also contributing to 2006 non-interest income was a $3.6 million gain on sale of $963
million of loan servicing rights compared to a $2.4 million gain on $751 million of loan
servicing rights sold in 2005, continuing our strategy of selling primarily single-service
loan servicing rights to take advantage of attractive market opportunity when we believe
market pricing offers us a better return than our projected servicing cash flows.

Losses
on investment and mortgage-backed securities in 2006 resulted from $12.9 million of
other-than-temporary impairment writedowns on $531 million of securities identified for
sale as part of the balance sheet restructuring. Subsequent to year end, these securities
have all been sold. Investment

46

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gains in 2005 related primarily to consideration received
in the dissolution of a regional ATM network in which we held shares.

Losses
of $322,000 in 2006 from the sale of foreclosed real estate is indicative of the slowdown
in home sales in the U.S. and local economy.

Assumed
premium income, which represents the portion we share of insurance premiums under
reinsurance agreements with various private mortgage insurance (PMI) companies in return
for our assuming part of the risk of loss on credits we originate, increased over 6% due
to a higher volume of loans included in these programs.

Deposit
account service charge income increased primarily due to higher fee rates for deposit
service charges, as well as the addition of the EFC deposit base acquired in February
2006. The growth also reflects increases in debit card activity and higher consumer
overdraft activity.

Income
earned from bank-owned life insurance increased $1.7 million, or 31%, in 2006, as the
result of $15 million of new investments during the year and additional BOLI investments
acquired in the EFC acquisition.

Other
loan fee income, which primarily includes late charges, commercial processing fees, equity
lines of credit fees, income from our origination and sale of subprime product offerings
and letter of credit fees, was $6.8 million in 2006, an increase of $518,000 over 2005.
The increase is due primarily to higher fee income from subprime lending activities where
we originate loans as a broker or correspondent for third party subprime lenders.

Brokerage
and insurance commissions improved 28.4% to $6.3 million due to the improved equity
markets, additional sales personnel, as well as the acquisition of EFC. We currently
employ 28 licensed investment professionals throughout our network selling investment
products to our customers.

Loan
servicing fee income improved in 2006 as a result of slower prepayment speeds experienced
in the current year that resulted from higher interest rates and slower home sales. The
improvement supports the higher value of servicing rights in the market, and why we have
sold mortgage servicing rights in the past two years.

Income
from real estate operations for the last three years is detailed below by project:

|                            | Year Ended December 31, | 
|--------------------------- | ----------------------- | 
|
|
|
|Springbank of Plainfield    |                         | 
|Shenandoah                  |                         | 
|Tallgrass of Naperville:    |                         | 
|Single-family               |                         | 
|Multi-family and commercial |                         | 
|Other                       |                         | 
|                            |                         | 
|                            |                         | 
|                            |                         | 

During 2006,
we sold the final lots in Tallgrass of Naperville. Lot sales in the Springbank development
in 2006 decreased due to the weaker housing market that has significantly reduced new and existing
home sales nationwide and in our markets. Higher estimated costs to completion in the project, largely due to earlier
project delays, have contributed to lower lot sale profit margins. While we
now have product to sell to our builder group, most of the builders have been reluctant to add
to their existing lot inventories due to the slow home sales market. The $296,000 other loss
in 2006 resulted from the Companys decision not to exercise an expiring option to
purchase a parcel of real estate in Plainfield, IL , which resulted in a write-off of an
earnest money deposit and other costs. The slow real estate sales market and the
considerable investment the Company has in the Springbank development in Plainfield led to
this decision. To accelerate revenue in the Springbank project, we are considering potential bulk lot sales,
and the sale of unimproved land and the commercial and townhome sites in the subdivision.

2005
versus 2004.Loan sale volume dropped to $825.8 million in 2005 compared to $914.1
million in 2004, but our gain on sale of loans increased nearly 15% due to higher loan
sale margins, primarily on our equity line of credit sales. During the year we also
completed a sale of mortgage servicing rights, representing 21% of our serviced for others
portfolio, at a pre-tax gain of $2.4 million.

47

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Gain
on investment securities in 2005 resulted primarily from the dissolution of a regional ATM
network and the sale of two investments in other equity securities. The gain in 2004
resulted from the sale of certain corporate debt securities that had incurred
other-than-temporary impairment write-downs in previous periods at a net gain of $2.7
million that was offset by a $2.0 million other-than-temporary impairment write-down on
$8.8 million of Freddie Mac floating-rate preferred stock securities.

Assumed
premium income increased over 20% due to an increase in the volume of loans originated
with PMI that we included in these programs.

Deposit
account service charge income increased primarily due to higher fee rates for deposit
service charges, as well as the addition of the EFC deposit base acquired in February 2006.  The growth also reflects
increases in debit card activity and higher consumer overdraft activity.

Income
earned from bank-owned life insurance increased $2.2 million, or 64%, in 2005, as the
result of $35 million of new investments during the year and the receipt of $664,000 of
death benefit proceeds.

Other
loan fee income was $6.3 million in 2005, an increase of $528,000 over 2004. The increase
was due primarily to a higher volume of late charges and commercial processing fees.

We
closed on the first lots in the Springbank development in the fourth quarter of 2005. The
2005 income from Shenandoah included a $428,000 gain resulting from the closing out of the
project.

Non-interest expense

The
table below shows the composition of non-interest expense for the periods indicated.

|                                                                                         | Year Ended December 31, | PercentageIncrease (Decrease) |  
|---------------------------------------------------------------------------------------- | ----------------------- | ----------------------------- | -
|
|
|Compensation                                                                             |                         |                               | $
|Employee benefits                                                                        |                         |                               |  
|                                                                                         |                         |                               |  
|Total compensation and benefits                                                          |                         |                               |  
|                                                                                         |                         |                               |  
|Occupancy expense                                                                        |                         |                               |  
|Furniture, fixture and equipment expense                                                 |                         |                               |  
|Advertising and promotion                                                                |                         |                               |  
|Data processing                                                                          |                         |                               |  
|Amortization of core deposit intangibles                                                 |                         |                               |  
|Prepayment charges related to repayment of borrowings                                    |                         |                               |  
|Other expenses:                                                                          |                         |                              
|Professional fees                                                                        |                         |                               |  
|Stationery, brochures and supplies                                                       |                         |                               |  
|Postage                                                                                  |                         |                               |  
|Telephone                                                                                |                         |                               |  
|Transaction fraud losses, net                                                            |                         |                               |  
|Correspondent banking services                                                           |                         |                               |  
|Title fees, recording fees and credit                                                    |                         |                               |  
|report expense                                                                           |                         |                              
|Security expense                                                                         |                         |                               |  
|Insurance costs                                                                          |                         |                               |  
|FDIC premiums and OTS assessment                                                         |                         |                               |  
|Real estate held for investment(1)                                                       |                         |                               |  
|Other                                                                                    |                         |                               |  
|                                                                                         |                         |                               |  
|Total other expenses                                                                     |                         |                               |  
|                                                                                         |                         |                               |  
|Total non-interest expense                                                               |                         |                               | $
|                                                                                         |                         |                               |  
|Non-interest expense to average assets, exclusive of balance sheet restructuring charges |                         |                               |  
|FTEs                                                                                     |                         |                               |  

---

|(1) | Expenses related to investments in affordable housing properties in Wisconsin.
|--- | ------------------------------------------------------------------------------

48

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2006
versus 2005.Non-interest expense increased 6.5%, or $12.0 million, in 2006 compared
to 2005, including $2.8 million of prepayment charges related to the balance sheet
restructuring and $1.0 million loss related to a standby letter of credit obligation.
While we added seven branches from the acquisition of EFC and operated two de novo
branches opened in December 2005 for the full year, we partially offset these costs
through a number of cost curtailment strategies implemented during the year. The ratio of
non-interest expense to average assets improved to 1.73% in 2006 from 1.86% in 2005.
Efforts to carefully monitor and control non-interest expense levels will continue to be a
focus in 2007.

Compensation
and benefits increased by 5.8% during 2006, while occupancy and equipment costs increased
by 8.2% over this same period. The increase in these categories is primarily due to the
impact of the EFC transaction.

We
experienced a 19.0% increase in data processing expense to $9.7 million in 2006 as the
expansion of our retail network in the EFC acquisition necessitated additional resources
allocated to network hardware support. Also contributing to the increase was the cost of
additional security safeguards.

Amortization
of core deposit intangibles increased as a result of the EFC acquisition.

Other
expenses of $36.0 million were 3.6% lower than 2005 despite the $1.0 million write down.
Professional expenses were substantially lower in 2006 compared to 2005 as certain
expenses incurred in 2005 relating to anti-money laundering and Sarbanes-Oxley functions
were not recurring in 2006.

2005
versus 2004.Our successful cost control efforts during the year held non-interest
expenses flat to the prior year. The ratio of non-interest expense to average assets
improved to 1.86% in 2005 compared to 2.01% in 2004. This was achieved while operations
continued to expand through acquisition (Chesterfield Financial Corp. in October 2004) and
three new branch openings in 2005.

Compensation
and benefit costs increased only 1.7% in 2005, as our average full-time equivalent number
of employees remained flat, and we reduced annual incentive compensation despite adding
three new branches during the year.

Our
advertising costs were reduced by 8.4% as we changed our marketing initiatives, spending
less on new account premiums and channeling those savings into more targeted, rate-driven
promotions.

Professional
fees increased during 2005 compared to the prior year, reflecting higher costs related to
consulting fees for various process improvement initiatives, including an automated work
flow system for the mortgage loan division, and for enhancement of our ongoing Bank
Secrecy Act/anti-money laundering compliance activities.

Telephone
expense decreased year over year due to renegotiation and consolidation of our contract.
Reductions in stationery and supplies expenses for 2005 reflect various efficiency and
cost-reduction efforts.

# Income Tax Expense

2006
versus 2005.Income tax expense decreased to $49.0 million for 2006, compared to $54.5
million for 2005 due to a decrease in pre-tax income, the effect of which was partially
offset by an increase in the effective income tax rate. Our effective tax
rate increased to 36.7% in 2006 compared to 34.5% for 2005. The increase in the effective
tax rate compared to the prior year period was primarily attributable to adjustments to
tax reserves for uncertainties.

During
2006, we recorded additional tax reserves of approximately $4.5 million relating to tax
uncertainties (including interest) associated with income earned through the Banks
REIT subsidiary that invests in real estate loans. Included in this total is $4.0 million
of REIT-related reserves recorded in the fourth quarter as a result of state audit
activity. As part of its audit of state income tax returns for 1999 to 2001, the Illinois
Department of Revenue (IDR) issued a proposed adjustment in January 2007 that
reflected the disallowance of the REIT dividends paid deduction for the years under
examination. We disagree with the IDR proposed adjustment and intend to defend our tax filing
positions.

49

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Although
we believe we have established adequate reserves for the state tax uncertainties
associated with the REIT, if we are unsuccessful in defending our tax filing
positions in these and subsequent years, we may incur increased tax expense in future
periods.

2005
versus 2004.Income tax expense increased to $54.5 million for 2005, compared to $50.8
million for 2004, due to an increase in pre-tax income and to an increase in our
 effective tax rate to 34.5% in 2005 compared to 33.3% for 2004. The
increase in the effective tax rate in 2005 was primarily due to the reversal of tax
reserves for uncertainties in 2004 that related to certain prior years income tax
matters.

A
reconciliation of the statutory federal income tax rate to the effective tax rate is
included in Note 14 to the consolidated financial statements in Item 8. Financial
Statements and Supplementary Data.

# Liquidity and Capital
Resources

Our
holding company manages liquidity and capital resources to provide funds necessary for
holding company debt service on borrowings, cash dividends to stockholders, funding our
real estate operations, and planned repurchases of common stock. Our major sources of
liquidity at our holding company are dividends from the Bank, which are subject to
regulatory limitations. Additionally, we maintain a $60.0 million unsecured line of
credit with a Chicago-based commercial bank. See Business Borrowed Funds and
Junior Subordinated Debentures on page 19 for more information relating to this bank
line of credit.

At
December 31, 2006 our capital structure at the holding company includes equity capital of
$1.07 billion, coupled with $67.0 million of junior subordinated debentures and $147.5
million of unsecured term debt. The weighted-average cost of our junior subordinated
debentures is equal to 3-month LIBOR plus 156 basis points, while our term debt floats at
3-month LIBOR plus 95 basis points. We have used a combination of these sources of funds
over the past few years to fund acquisitions and to repurchase our common stock in the
open market. In connection with our purchase of EFC, we issued $105.1 million worth of our
common stock, and increased our unsecured term loan to $115 million from $63 million to
help finance the cash portion of the transaction. We also increased our revolving line of
credit during 2006 from $55.0 million to $60.0 million. In July, 2006, we increased the
term loan by $40 million to $155 million in part to provide funding for our stock buyback
program. A scheduled principal payment on the term loan of $7.5 million was paid on
December 31, 2006 reducing the balance to $147.5 million. At December 31, 2006, there were
no amounts outstanding under the $60 million line of credit.

During
2006, the Company received $95.0 million in dividends from the Bank. At December 31, 2006
under current OTS regulations, the Bank has $13.3 million of retained earnings available
for dividend declarations. On January 1, 2007 the amount available for dividend
declarations increased to $40.5 million.

We
manage liquidity at the Bank to ensure that adequate funds are available to meet normal
operating requirements, as well as unexpected loan demand or deposit withdrawals by our
customers, and other contractual obligations or commitments, on a timely and
cost-effective manner. Our primary sources of funds are deposits, wholesale borrowings,
principal repayments on loans and mortgage-backed securities, as well as proceeds from the
sale of loans and investment securities. We manage our liquidity through regular review of
loan originations and payoffs, deposit flows, and anticipated movements in interest rates,
efforts that are aimed at forecasting when liquidity needs may occur and satisfying these
liquidity needs while attempting to minimize funding risk.

While
our scheduled loan and mortgage-backed securities amortization and maturing certificates
of deposit are a relatively predictable source of funds, core deposit flows, loan and
mortgage-backed securities prepayments are greatly influenced by economic conditions, the
general level of interest rates and competition. We utilize particular sources of funds
based on comparative costs and availability. We expect to continue diversifying our
funding sources in 2007 through increased use of other wholesale borrowing sources,
including reverse repurchase agreements. We may pursue
wholesale borrowings with optionality structures to provide lower effective
borrowing costs.

At
December 31, 2006, we have approximately $1.21 billion of potential additional
borrowing capacity from the FHLBC and approximately $1.05 billion of available collateral
capacity under our one- to four-family blanket pledge agreement. We also have the ability
to pledge other mortgage-backed and investment securities, as well as certain multi-family
mortgage loans. Additional borrowings from the

50

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FHLBC are subject to the Banks
compliance underwriting, collateral, capital stock and other policies set forth in the
FHLBC credit guide at the time of the borrowing request. In addition, we have $80 million
of various short-term lines of credit with two other commercial banks. We also have
additional capacity to obtain other borrowings through the pledge of investment or
mortgage-backed securities.

Contractual Obligations
and Commitments and Contingencies

Through
the normal course of business we enter into certain contractual obligations and other
commitments. These obligations generally relate to the funding of operations through
deposits or borrowings. We generally renew a large percentage of our certificates of
deposit, upon maturity, as certificates of deposit are primarily retail-oriented accounts
rather than more rate-sensitive brokered certificates. As such, the scheduled $2.78
billion of maturing certificates of deposit in 2007 are not expected to put a burden on
our cash needs. We have the ability to refinance any advance coming due with the FHLBC,
which we will normally do in the normal course of business if our loan portfolio is
growing and out-pacing deposit growth. If loan portfolio growth is slower, due to higher
prepayments in the loan portfolio or increased loan sale activity, we may repay our
maturing advances out of loan repayment proceeds.

Contractual
Obligations. The following table shows our contractual obligations coming
due in the periods indicated at December 31, 2006:

|                                     | Total | Less than1 Year | 1 to 3Years | 3 to 5Years | After 5Years
|------------------------------------ | ----- | --------------- | ----------- | ----------- | ------------
|
|Certificates of deposit              |       |                 | $           | 3,554,035   |             
|FHLB of Chicago advances             |       |                 |             | 2,155,000   |             
|Other borrowings                     |       |                 |             | 470,751     |             
|Unsecured term bank loan             |       |                 |             | 147,500     |             
|Junior subordinated debentures       |       |                 |             | 67,011      |             
|Purchase obligations                 |       |                 |             | 5,623       |             
|Real estate development contracts(1) |       |                 |             | 11,898      |             
|Post retirement benefit plans        |       |                 |             | 5,895       |             
|Operating leases                     |       |                 |             | 54,310      |             
|                                     |       |                 |             |             |             
|Total                                |       |                 | $           | 6,472,023   |             
|                                     |       |                 |             |             |             

---

|(1) | Reflects pending contractual commitments for improvements. These figures do not
          include estimated development costs not under contract, currently estimated at
          $67 million for existing real estate development projects, all of which
          relates to our Springbank of Plainfield development.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Purchase
obligations reflect payment obligations under agreements to purchase goods or services in
determinable amounts at fixed prices that are enforceable and legally binding on the
Company.

Real
estate development costs have been funded primarily out of proceeds from sales of
previously developed lots, and when sales have not generated sufficient cash flow, funding
is supported by additional capital investments from the holding company. It is currently
anticipated that in 2007 we will be required to supplement the cash flow from lot sales
with capital investments from the holding company.

Post
retirement benefits include benefits for certain employees and/or directors under the
Companys Supplemental Executive Retirement Plan and Long-Term Medical Plan.

51

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Commitments
and Contingencies. The following table shows certain off-balance sheet
commitments and contingencies of the Company and the Bank as of December 31, 2006:

|                                  | Total | Less than1 Year | 1 to 3Years | 3 to 5Years | After 5Years
|--------------------------------- | ----- | --------------- | ----------- | ----------- | ------------
|
|One- to four-family mortgage      |       |                 |             |             |             
|commitments                       |       |                 | $           | 377,617     |             
|Equity line and equity loan       |       |                
|commitments                       |       |                 |             | 55,856      |             
|Unused portion of equity lines of |       |                
|credit                            |       |                 |             | 1,166,102   |             
|Commitments to sell one- to       |       |                
|four-family mortgage and equity   |       |                
|loans                             |       |                 |             | 109,266     |             
|SBIC commitments                  |       |                 |             | 3,625       |             
|Other mortgage loan commitments   |       |                 |             | 50,404      |             
|Commercial business lines         |       |                 |             | 643,059     |             
|Letters of credit(1)              |       |                 |             | 111,091     |             
|Commercial business loan          |       |                
|commitments                       |       |                 |             | 3,985       |             
|Loans in Process                  |       |                 |             | 32,258      |             
|Contingent liability under        |       |                
|recourse provisions(2)            |       |                 |             | 63,128      |             
|                                  |       |                 |             |             |             
|Total                             |       |                 | $           | 2,616,391   |             
|                                  |       |                 |             |             |             

---

|(1) | Letters of credit include $14.0 million related to land development projects.
|--- | -----------------------------------------------------------------------------

|(2) | Amounts are shown based on time to maturity for amounts if used.
          Reflects the maximum amount of potential liability for credit losses at December 31, 2006 that we have retained
relating to an aggregate $719.2 million of one- to four-family loans. We have either sold
the loans to investors with recourse or have assumed a layer of credit risk through
private mortgage insurance in force in the Banks captive reinsurance subsidiary and
have a contingent liability under these provisions of $63.1 million. Our loss experience
to date under such recourse provisions has been immaterial.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At
December 31, 2006, we have $331.2 million of cash and liquidity, $109.3 million of
commitments to sell loans and significant additional borrowing capacity from the FHLBC and
other wholesale borrowing sources. These sources are also available for the funding of
unused equity lines of credit. However, we do not expect all of these lines to be used
based on historical levels of total line usage by our customers. Recourse provisions
include credit risk related to $28.6 million of loans sold with recourse to investors,
$16.8 million of credit risk relating to loans sold to the MPF program and $17.7 million
of credit risk related to loans with private mortgage insurance in force in our captive
reinsurance subsidiary.

# Impact of Inflation and
Changing Prices

The
consolidated financial statements and related consolidated information are prepared in
accordance with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a more
significant effect on a financial institutions performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same direction
or in the same magnitude as the price of goods and services.

# Recent Accounting
Standards

Statements of Financial
Accounting Standards

Stock
Based Compensation.In December 2004, the FASB issued Statement No. 123 (revised
2004), Share-Based Payment (SFAS No. 123R). SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock Based Compensation, supersedes
APB 25 and amends FASB Statement No. 95, Statement of Cash Flows. SFAS No.
123R requires that stock option awards, as well as other equity-based compensation, be
recognized as compensation expense in the income statement based on their fair values
determined at the date of the grant. Under SEC guidance, the applicable effective date of
SFAS No. 123R is the beginning of the next fiscal year after June 15, 2005. SFAS No. 123R
permits companies to adopt the recognition requirements using either a modified
prospective method or a modified retrospective method. Under the
modified prospective method, compensation cost is recognized in the financial
statements based on the time of vesting beginning with the effective date, under the
requirements of SFAS No. 123R for all share-based payments granted after that date and
under the requirements of SFAS No. 123 for all awards granted prior to the effective date
of SFAS No. 123R that vest after the effective date.

52

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The
Company adopted SFAS No. 123R effective January 1, 2006 using the modified
prospective method and plans to use the Black-Scholes option valuation model.
Adopting SFAS No. 123R will result in the Company recording compensation cost for employee
stock options that vest on or after January 1, 2006 or are granted on or after January 1,
2006. Nearly all stock options outstanding on December 31, 2005 were fully-vested and
there were no new stock options granted in 2006 so SFAS No. 123R had minimal impact in
2006. We will incur compensation expense to the extent that additional stock option awards
are made in future periods. Had the Company adopted stock option expensing in prior
periods, the impact would have approximated that as presented in the SFAS No. 123
disclosure of pro-forma net income and earnings per share in Note 1, Summary of
Accounting Policies, of this Form 10-K. See Note 1 for the pro forma impact in 2005
and 2004.

For
additional information regarding the Companys stock-based compensation plans, refer
to Note 16, Officer, Director and Employee Benefit Plans, of this Form 10-K.

Accounting
Changes and Error Corrections. In May 2005, the FASB issued Statement No. 154,
Accounting Changes and Error Corrections, which provides guidance on the
accounting for and reporting of accounting changes and error corrections. It establishes,
unless impracticable, retrospective application as the required method for reporting a
change in accounting principle in the absence of explicit transition requirements specific
to the newly adopted accounting principle. The reporting of a correction of an error by
restating previously issued financial statements is also addressed by this statement. This
statement became effective, on a prospective basis, for fiscal years beginning after
December 15, 2005. Our implementation of this statement has not had a material affect on
our consolidated financial statements.

Accounting
for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133
and 140.In February 2006, FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments  an amendment of FASB No. 133 and 140, which is
effective for fiscal years beginning after September 15, 2006. The statement was issued to
clarify the application of SFAS No. 133 to beneficial interests in securitized financial
assets and to improve the consistency of accounting for similar financial instruments,
regardless of the form of the instruments.This statement is effective for the
first fiscal year beginning after September 30, 2006. We do not expect implementation of
the Statement in 2007 to have a material effect on our consolidated financial statements.

Accounting
for Servicing of Financial Assets.In March 2006, FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets  an amendment to FASB Statement
No. 140. The new standard requires recognition of servicing assets in connection
with any obligation to service a financial asset arising from 1) a servicing contract
entered into as part of a transfer of assets meeting the requirements for sale accounting,
2) the transfer of assets to a special purpose entity in a guaranteed mortgage
securitization where the transferor retains a controlling interest in the securitized
asset, or 3) an acquisition or assumption of obligations to service financial assets not
related to the servicer or its consolidated affiliates. The servicing assets and
liabilities must be measured at fair value initially, if practicable, and the assets or
liabilities must either be amortized or recorded at fair value at each reporting date. The
statement allows a one-time reclassification for entities with servicing rights and
subsequently requires separate presentation of servicing assets and liabilities at fair
value in the statement of financial position. This statement is effective for the first
fiscal year beginning after September 15, 2006, with earlier adoption permitted. We
adopted this pronouncement January 1, 2007 and will utilize the amortization method. We do
not expect this implementation to have a material effect on our consolidated financial
statements.

Fair
Value Measurements.In September 2006, FASB issued SFAS No. 157,Fair
Value Measurements,whichestablishes a framework for measuring fair
value, and expands disclosures about fair value measurements required under the accounting
pronouncements, but does not change existing guidance as to whether or not an instrument
is carried at fair value. Additionally, it establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is encouraged, provided
that the reporting entity has not yet issued financial statements for fiscal year,
including financial statements for an interim period within the fiscal year. We are
currently evaluating the impact, if any, that SFAS No. 157 will have on our consolidated
financial statements.

53

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Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of
FASB Statements No. 87, 88, 106, and 132R.In September 2006, the FASB, issued SFAS,
No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R,
which requires employers to recognize the underfunded or overfunded status of a defined
benefit postretirement plan as an asset or liability in its statement of financial
position and to recognize changes in the funded status in the year in which the changes
occur through accumulated other comprehensive income. Additionally, SFAS No. 158 requires
employers to measure the funded status of a plan as of the date of its year-end statement
of financial position. The new reporting requirements and related new footnote disclosure
rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. We
adopted the provisions of SFAS No. 158 for the year end 2006, and the effect of
recognizing the funded status in accumulated other comprehensive income was not
significant. The new measurement date requirement applies for fiscal years ending after
December 15, 2008. See Note 16, Officer, Director and Employee Benefit Plans,
of this Form 10-K for additional information.

Financial Accounting
Standards Board Staff Positions, Interpretations and Issues

Other-Than-Temporary
Impairment. FASB Staff Position on FAS No. 115-1 and FAS No. 124-1
(the FSP), The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, was issued in November 2005 and addresses the
determination of when an investment is considered impaired, whether the impairment on an
investment is other-than-temporary and how to measure an impairment loss. The FSP also
addresses accounting considerations subsequent to the recognition of other-than-temporary
impairments on a debt security, and requires certain disclosures about unrealized losses
that have not been recognized as other-than-temporary impairments. The FSP replaces the
impairment guidance on Emerging Issues Task Force (EITF) Issue No. 03-1 with
references to existing authoritative literature concerning other-than-temporary
determinations. Under the FSP, losses arising from impairment deemed to be
other-than-temporary, must be recognized in earnings at an amount equal to the entire
difference between the securities cost and its fair value at the financial statement date,
without considering partial recoveries subsequent to that date. The FSP also required that
an investor recognize other-than-temporary impairment losses when a decision to sell a
security has been made and the investor does not expect the fair value of the security to
fully recover prior to the expected time of sale. The FSP is effective for reporting
periods beginning after December 15, 2005. Our initial adoption of this statement has
not had a material impact on our consolidated financial statements.

FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No.109. Interpretation 48 prescribes a
recognition threshold and a measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. Benefits
from tax positions should be recognized in the financial statements only when it is more
likely than not that the tax position will be sustained upon examination by the
appropriate taxing authority that would have full knowledge of all relevant information.
The amount of tax benefits to be recognized for a tax position that meets the
more-likely-than-not recognition threshold is measured as the largest amount of benefit
that is greater than fifty percent likely of being realized upon ultimate settlement. Tax
benefits relating to tax positions that previously failed to meet the more-likely-than-not
recognition threshold should be recognized in the first subsequent financial reporting
period in which that threshold is met or certain other events have occurred. Previously
recognized tax benefits relating to tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the first subsequent
financial reporting period in which that threshold is no longer met. Interpretation 48
also provides guidance on the accounting for and disclosure of tax reserves for
unrecognized tax benefits, interest and penalties and accounting in interim periods.
Interpretation 48 is effective for fiscal years beginning after December 15, 2006. The
change in net assets as a result of applying this pronouncement will be a change in
accounting principle with the cumulative effect of the change required to be treated as an
adjustment to the opening balance of retained earnings on January 1, 2007, except in
certain cases involving uncertainties relating to income taxes in purchase business
combinations. In such instances, the impact of the adoption of Interpretation 48 will
result in an adjustment to goodwill. While our analysis of the impact of adopting
Interpretation 48 is not yet complete, we do not currently anticipate it will have a
material impact on the Companys consolidated financial statements.

Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements. In September 2006, FASB ratified the consensus reached by
the Emerging Issues Task Force, or EITF, in Issue No. 06-4, Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. EITF 06-4 requires companies with split-dollar life insurance policies
that provide a benefit to an employee that extends

54

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to post-retirement periods to recognize
a liability for future benefits based on the substantive agreement with the employee.
Recognition should be in accordance with FASB Statement No. 106, Employers
Accounting for Retirement Benefits Other Than Pensions or APB Opinion No. 12,
Omnibus Opinion  1967, depending on whether a substantive plan is deemed
to exist. Companies are permitted to recognize the effects of applying the consensus
through either (1) a change in accounting principle the cumulative-effect adjustment to
retained earnings or to other components of equity or net assets as of the beginning of
the year of adoption or (2) a change in accounting principle through retrospective
application to all prior periods. EITF 06-4 will be effective for fiscal years beginning
after December 15, 2007, with early adoption permitted. We anticipate adopting EITF 06-4
in 2008 and are in the process of assessing the impact on our consolidated financial
statements.

Accounting
for Purchases of Life Insurance-Determining the Amount That Could Be Realized in
Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance. In September 2006, FASB ratified the consensus reached by the EITF, in
Issue No. 06-5. Accounting for Purchases of Life Insurance-Determining the Amount
That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for
Purchases of Life Insurance. EITF 06-5 concluded that companies purchasing a life
insurance policy including COLI or BOLI should record the amount that could be realized,
considering any additional amounts beyond cash surrender value included in the contractual
terms of the policy. The amount that could be realized should be based on assumed
surrender at the individual policy or certificate level, unless all policies or
certificates are required to be surrendered as a group. When it is probable that
contractual restrictions would limit the amount that could be realized, such contractual
limitations should be considered and any amounts recoverable at the insurance
companys discretion should be excluded from the amount that could be realized.
Companies are permitted to recognize the effects of applying the consensus through either
(1) a change in accounting principle through a cumulative-effect adjustment to retained
earnings or to other components of equity or net assets as of the beginning of the year of
adoption or (2) a change in accounting principle through retrospective application to all
prior periods. EITF 06-5 will be effective for fiscal years beginning after December 15,
2006. We will adopt EITF 06-5 in 2007 and are in the process of assessing the impact on
our consolidated financial statements.

SEC Staff Accounting
Bulletins

Considering
the Effects of Prior Year Misstatements in Current Year Financial Statements. In
September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements, (SAB 108),which
provides interpretive guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of a materiality
assessment. We adopted SAB 108 in the fourth quarter of 2006 with no impact on our
consolidated financial statements.

# Item 7A. Quantitative
and Qualitative Disclosures about Market Risk

Ourprimary market risk is considered to be interest rate risk. Interest rate
risk on our balance sheet arises from the maturity mismatch of interest-earning assets
versus interest-bearing liabilities, as well as the potential for maturities to shorten or
lengthen on our interest-earning assets, and to a lesser extent on our interest-bearing
liabilities due to the exercise of options. The most common of these are prepayment
options on mortgage loans, and mortgage-backed securities, and to a lesser extent put
options on wholesale borrowings or jump-rate features in our certificates of deposits.
Managements goal, through policies established by the Asset/Liability Management
Committee of the Board of Directors (ALCO), is to maximize net interest income while
achieving adequate returns on equity capital and managing our balance sheet within the
established interest rate risk policy limits prescribed by the ALCO.

We
use a variety of measurement and modeling techniques that estimate the impact of future
movements in interest rates on the net interest income of our Company. Generally, we
measure the impact via parallel movements in interest rates in 100 basis point increments
over a one-year time horizon, although we also model other scenarios, such as ramps and
rotations of the Treasury yield curve.

One
of the techniques used in measuring the sensitivity of net interest income to changes in
interest rates is interest rate sensitivity (static) gap analysis. The static gap is the
difference between the amount of interest-earning assets maturing or repricing within a
specific period of time and the amount of interest-bearing liabilities maturing or
repricing within that same period of time. We utilize our static gap analysis as means of
managing our interest rate risk at the cumulative one-year time horizon. In this

55

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analysis,
maturities of assets and liabilities are adjusted for the estimated impact of embedded
options that are contained in certain financial instruments on the Companys balance
sheet. These include prepayment assumptions on real estate loans, and mortgage-backed
securities, call options embedded in investment securities, and put options embedded in
certain borrowings. Because of the level of financial instruments with embedded options on
our balance sheet, certain shortcomings are inherent in using gap analysis to quantify
exposure to interest rate risk. For instance, while we model expected loan prepayments in
our static gap analysis, actual customer behavior may prove to be much different. Changes
in interest rates may impact cash flow on a lag basis, or lead future interest rate
movements, and our expected lives of our non-maturity core deposit accounts may not prove
to be as long-term as we assume them to be in our gap analysis. However, we still believe
static gap analysis remains a useful tool for us to help manage our interest rate risk.

Generally,
a positive one-year gap, where more interest-earning assets are repricing or maturing
during one-year period than interest-bearing liabilities, would tend to result in a
reduction in net interest income in a period of falling interest rates. Conversely, during
a period of rising interest rates, a positive one-year gap would likely result in an
improvement in net interest income. Our goal is to maintain our cumulative one-year gap
within the range of (15)% to 15%, although we will begin to adjust our ALCO strategies in
our interest-sensitive portfolios, if the gap exceeds (10)% to 10%, recognizing that
changes in ALCO strategies take some time to impact our overall static gap position. Our
loan portfolio tends to have the most impact on the movement in our static gap over a
range of changing interest rates, due to the predominance of one- to four-family mortgage
loans that allow the customer to prepay without penalty. We have mitigated the impact one-
to four-family loans can have on our gap by 1) reducing their concentration as a
percentage of our overall loan portfolio, 2) limiting our exposure to long-term fixed-rate
mortgage loans, and 3) expanding our equity line of credit and business loan portfolios,
that generally carry more frequent interest rate adjustments, adjustable rates and/or
shorter maturities.

Currently
we do not use derivative financial instruments such as interest rate swaps, caps, floors,
options or similar financial instruments, to manage our interest rate risk, or periodic
net interest income. We do use forward commitments with the GSEs and other investors when
selling our loan production originated for sale.

The
following tables set forth the scheduled repricing or maturity of the Banks assets
and liabilities at December 31, 2006 and 2005. The table uses a series of assumptions
to disclose the expected cash flows in our various interest sensitive portfolios. Loans
held for sale are shown in the less than six months category due to managements
intent, ability and often use of firm forward commitments to sell mortgage loans. In 2006,
loans held for sale includes $215.9 million of loans transferred to held for sale as part
of our balance sheet restructuring transactions which were subsequently sold in January
2007. Investments and mortgage-backed securities are shown at their average maturity,
adjusted for estimated prepayments, and/or expected call. In 2006, the less than six month
category includes $226.0 million and $292.4 million for investments and mortgage-backed
securities identified for sale as part of our balance sheet restructuring which were
subsequently sold in January 2007. Decay rates for non-maturity deposits are based in
internally generated historical information, while FHLBC advances are shown at maturity,
adjusted for any put options deemed in the money. Prepayment assumptions on loans
receivable are based on internal models developed from our actual prepayment experience,
while prepayment assumptions on mortgage-backed securities and the impact of embedded put
options on borrowings and call options on investments are based on current market
expectations.

56

---

|                                | At December 31, 2006 | 
|------------------------------- | -------------------- | 
|
|
|Interest-earning assets:        |                      | 
|Loans receivable held for sale  |                      | 
|Loans receivable                |                      | 
|Mortgage-backed securities      |                      | 
|Investment securities           |                      | 
|Stock in FHLB of Chicago        |                      | 
|Interest-bearing deposits       |                      | 
|Federal funds sold              |                      | 
|                                |                      | 
|Total interest-earning          |                      | 
|assets                          |                      | 
|                                |                      | 
|Interest-bearing liabilities:   |                      | 
|Interest-bearing checking       |                      | 
|accounts                        |                      | 
|Money market accounts           |                      | 
|Passbook accounts               |                      | 
|Certificate accounts            |                      | 
|FHLBC advances                  |                      | 
|Other borrowings                |                      | 
|Junior subordinated debentures  |                      | 
|                                |                      | 
|Total interest-bearing          |                      | 
|liabilities                     |                      | 
|                                |                      | 
|Interest sensitivity gap        |                      | 
|                                |                      | 
|Cumulative gap                  |                      | 
|                                |                      | 
|Cumulative gap as a percentage  |                      | 
|of total assets                 |                      | 
|Cumulative net interest-earning |                      | 
|assets as a percentage of       |                      | 
|interest-bearing liabilities    |                      | 

---

|(1) | Represents forward commitments to sell mortgage loans.
|--- | ------------------------------------------------------

|                               | At December 31, 2005 | 
|------------------------------ | -------------------- | 
|
|
|Interest-earning assets:       |                      | 
|Loans receivable held for      |                      | 
|sale                           |                      | 
|Loans receivable               |                      | 
|Mortgage-backed securities .   |                      | 
|Investment securities          |                      | 
|Stock in FHLB of Chicago       |                      | 
|Interest-bearing deposits      |                      | 
|Federal funds sold             |                      | 
|                               |                      | 
|Total interest-earning         |                      | 
|assets                         |                      | 
|                               |                      | 
|Interest-bearing liabilities:  |                      | 
|Interest-bearing checking      |                      | 
|accounts                       |                      | 
|Money market accounts          |                      | 
|Passbook accounts              |                      | 
|Certificate accounts           |                      | 
|FHLBC advances                 |                      | 
|Other borrowings               |                      | 
|Junior subordinated debentures |                      | 
|                               |                      | 
|Total interest-bearing         |                      | 
|liabilities                    |                      | 
|                               |                      | 
|Interest sensitivity gap       |                      | 
|                               |                      | 
|Cumulative gap                 |                      | 
|                               |                      | 
|Cumulative gap as a percentage |                      | 
|of total assets                |                      | 
|                               |                      | 
|Cumulative net                 |                      | 
|interest-earning assets as     |                      | 
|a percentage of                |                      | 
|interest-bearing liabilities   |                      | 

---

|(1) | Represents forward commitments to sell mortgage loans.
|--- | ------------------------------------------------------

Our
cumulative one-year gap at December 31, 2006 is (7.38)%, compared to (1.31)% one-year gap
at December 31, 2005. Our negative gap which indicates that if interest rates rose,
without us making any additional managerial decisions regarding our ALCO strategy, our net
interest income would decline modestly over the next 12 months. Conversely, if rates
declined, our net interest income would increase modestly over the next twelve months. To
maintain our gap within policy limits, we intend to continue to control our extension risk
by limiting our investment in long-term mortgage loans and expanding our short-term
interest sensitive equity lines of credit and business loan portfolios. Our negative gap
is higher at December 31, 2006 due to our strategy of attracting additional money market
accounts as opposed to short-term certificates of deposit, which are carrying higher rates
than the money market product. Unlike our core money market accounts, we are showing
approximately $472.4 million in high-rate money markets related to this new product
entirely in the less than six month bucket as the product pays a market rate of interest
that can change at any time and we have limited experience related to the duration of
these accounts. Because of the short-term nature of our certificates of deposit our
one-year gap is not materially impacted.

57

---

In
addition to static gap analysis, we model the impact of instantaneous parallel shifts in
yield curve changes in interest rates (assuming interest rates rise and fall in increments
of 100 basis points), on anticipated net interest income over a 12-month horizon. These
models are more robust than our static gap analysis, in that we are modeling underlying
cash flows in each of our interest-sensitive portfolios under these changing rate
environments. This includes adjusting anticipated prepayments, analyzing put and call
exercises, changing expected business volumes and mix (such as the mix in loan
originations between ARMs and fixed-rate), as well as modeling anticipated changes in
interest rates paid on core deposit accounts, whose rates do not necessarily move in any
relationship to movements in Treasury rates. We compare these results to our results
assuming flat interest rates. Our modeling as of December 31, 2006 indicates that net
interest income would decrease by approximately 3.6% if interest rates rose 100
basis points instantaneously, while if rates instantaneously fell by 100 basis points, net
interest income would increase by approximately 6.1%.

A
third measurement of our interest rate risk we use is Net Portfolio Value Analysis. Under
OTS Thrift Bulletin 13a, we are required to measure our interest rate risk assuming
various increases and decreases in general interest rates, and their effect on our market
value of portfolio equity. The Board of Directors has established limits to changes in Net
Portfolio Value (NPV), (including limits regarding the change in net interest
income discussed above), across a range of hypothetical interest rate changes. If
estimated changes to NPV and net interest income are not within these limits, the Board
may direct management to adjust its asset/liability mix to bring its interest rate risk
within Board limits. At December 31, 2006 and 2005, the Bank was well within the
Board-approved limits. NPV is computed as the difference between the market value of
assets and the market value of liabilities, adjusted for the value of off-balance sheet
items, including a core deposit intangible on the Banks core deposit balances.

Net
Portfolio Value Analysis measures our interest rate risk by calculating the estimated
change in the NPV of our cash flows from interest-sensitive assets and liabilities, as
well as certain off-balance sheet items, in the event of a shock in interest rates ranging
from 100 to 200 basis points. We use a 200 basis point movement up or down
as our means of measuring overall NPV interest-rate risk. The table below shows the change
in NPV applying various instantaneous rate shocks to the Banks interest-earning
assets and interest-bearing liabilities as of December 31, 2006 and 2005.

|Change in Interest Rate | Estimated NPV | Estimated Increase(Decrease) in NPV | Percentage Increase(Decrease) in NPV |          
|----------------------- | ------------- | ----------------------------------- | ------------------------------------ | ---------
|
|
|200 basis point rise    |               |                                     | $                                    | 943,641  
|100 basis point rise    |               |                                     |                                      | 1,044,011
|Base scenario           |               |                                     |                                      | 1,137,070
|100 basis point decline |               |                                     |                                      | 1,189,940
|200 basis point decline |               |                                     |                                      | 1,215,507

---

|(1) | The base scenario includes the impact of the balance sheet restructuring.
|--- | -------------------------------------------------------------------------

The 2006
decline in NPV assuming an up 200 basis point shock in interest rates is similar
when compared to 2005 on a percentage basis. Although short-term interest rates rose
during 2006, the remainder of the term structure of interest rates remained relatively
steady and similarly sloped at the end of 2006 compared to 2005. As such, we are estimating
similar mortgage loan prepayments in each analysis, which is the main driver of our change
in NPV. The actual increase in interest rates that did occur, and which negatively
impacted interest-earning asset values at the end of 2006 compared to 2005 were offset by
higher core deposit values due to the larger increase in short-term interest rates.

58

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| |                                                                          |     
| | ------------------------------------------------------------------------ | ----
| | Item 8. Financial Statements and Supplementary Data                      |     
| |                                                                          | Page
| | Report of Management Regarding Internal Control Over Financial Reporting | 60  
| | Report of Independent Registered Public Accounting Firm                  | 61  
| | Report of Independent Registered Public Accounting Firm                  | 62  
| | Consolidated Statements of Financial Condition                           | 63  
| | Consolidated Statements of Operations                                    | 64  
| | Consolidated Statements of Changes in Stockholders' Equity               | 65  
| | Consolidated Statements of Cash Flows                                    | 66  
| | Notes to Consolidated Financial Statements                               | 68  

59

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# Report of Management
Regarding Internal Control Over Financial Reporting

The
management of MAF Bancorp, Inc. is responsible for the preparation, integrity, and fair
presentation of the consolidated financial statements included in this annual report. The
consolidated financial statements and notes included in this annual report have been
prepared in conformity with U.S. generally accepted accounting principles and necessarily
include some amounts that are based on managements best estimates and judgments.

In
order to produce reliable financial statements, management is responsible for establishing
and maintaining effective internal control over financial reporting. Management evaluates
the effectiveness of internal control over financial reporting and tests for reliability
of recorded financial information through a program of ongoing internal audits. Any system
of internal control, no matter how well designed, has inherent limitations, including the
possibility that a control can be circumvented or overridden and misstatements due to
error or fraud may occur and not be detected. Also, because of changes in conditions,
internal control effectiveness may vary over time. Accordingly, even an effective system
of internal control will provide only reasonable assurance with respect to financial
statement preparation.

Management
assessed the Companys internal control over financial reporting as of December 31,
2006, as required by Section 404 of the Sarbanes-Oxley Act of 2002, based on the criteria
for effective internal control over financial reporting described in the Internal
Control-Integrated Framework, adopted by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on this assessment, management concludes that, as
of December 31, 2006, the Companys internal control over financial reporting is
effective at the reasonable assurance level.

KPMG
LLP, the independent registered public accounting firm that audited the Companys
consolidated financial statements included in this Annual Report on Form 10-K, has issued
an attestation report on managements assessment of the Companys internal
control over financial reporting as of December 31, 2006. The report, which expresses
unqualified opinions on managements assessment and on the effectiveness of the
Companys internal control over financial reporting as of December 31, 2006, is
included in this Item. See Report of Independent Registered Public Accounting
Firm on page 61.

60

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# Report of Independent
Registered Public Accounting Firm

The Stockholders and
Board of DirectorsMAF Bancorp, Inc.

We
have audited managements assessment, included in the accompanying Report of
Management Regarding Internal Control Over Financial Reporting, that MAF Bancorp, Inc.
maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). MAF Bancorp, Inc.s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on managements assessment and an opinion on the effectiveness of
MAF Bancorp, Inc.s internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.

A
companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In
our opinion, managements assessment that MAF Bancorp, Inc. maintained effective
internal control over financial reporting as of December 31, 2006, is fairly stated, in
all material respects, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We
also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated statements of financial condition of MAF
Bancorp, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, changes in stockholders equity, and cash
flows for each of the years in the three-year period ended December 31, 2006, and our
report dated March 1, 2007 expressed an unqualified opinion on those consolidated
financial statements.

KPMG LLP

Chicago, Illinois
March 1, 2007

61

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# Report of Independent
Registered Public Accounting Firm

The Stockholders and
Board of DirectorsMAF Bancorp, Inc.

We
have audited the accompanying consolidated statements of financial condition of MAF
Bancorp, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, changes in stockholders equity, and cash
flows for each of the years in the three-year period ended December 31, 2006. These
consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.

We
conducted our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of MAF Bancorp, Inc. and subsidiaries as of
December 31, 2006 and 2005, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 2006 in conformity
with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of MAF Bancorp, Inc.s internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal ControlIntegrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission, and our report dated March 1,
2007 expressed an unqualified opinion on managements assessment of, and the
effective operation of, internal control over financial reporting.

KPMG LLP

Chicago, IllinoisMarch 1, 2007

62

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# MAF Bancorp, Inc. and
SubsidiariesConsolidated Statements of Financial Condition

|                                                                               | December 31, | 
|------------------------------------------------------------------------------ | ------------ | 
|
|
|Assets                                                                         |              | 
|Cash and due from banks                                                        |              | 
|Interest-bearing deposits                                                      |              | 
|Federal funds sold                                                             |              | 
|                                                                               |              | 
|Total cash and cash equivalents                                                |              | 
|Investment securities available for sale, at fair value                        |              | 
|Stock in Federal Home Loan Bank of Chicago, at cost                            |              | 
|Mortgage-backed securities available for sale, at fair value                   |              | 
|Mortgage-backed securities held to maturity (fair value $205,620 and $237,489) |              | 
|Loans receivable held for sale                                                 |              | 
|Loans receivable, net                                                          |              | 
|Allowance for loan losses                                                      |              | 
|                                                                               |              | 
|Loans receivable, net of allowance for loan losses                             |              | 
|                                                                               |              | 
|Accrued interest receivable                                                    |              | 
|Foreclosed real estate                                                         |              | 
|Real estate held for development or sale                                       |              | 
|Premises and equipment, net                                                    |              | 
|Bank-owned life insurance                                                      |              | 
|Goodwill                                                                       |              | 
|Intangibles, net                                                               |              | 
|Other assets                                                                   |              | 
|                                                                               |              | 
|Total assets                                                                   |              | 
|                                                                               |              | 
|Liabilities and Stockholders' Equity                                           |              | 
|Liabilities                                                                    |              | 
|Deposits                                                                       |              | 
|Borrowed funds                                                                 |              | 
|Junior subordinated debentures                                                 |              | 
|Advances by borrowers for taxes and insurance                                  |              | 
|Accrued expenses and other liabilities                                         |              | 
|                                                                               |              | 
|Total liabilities                                                              |              | 
|                                                                               |              | 
|Stockholders' equity                                                           |              | 
|Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued or   |              | 
|outstanding                                                                    |              | 
|Common stock, $.01 par value; 80,000,000 shares authorized; 34,499,494 and     |              | 
|33,634,642 shares issued; 32,895,846 and 32,066,721 shares outstanding         |              | 
|Additional paid-in capital                                                     |              | 
|Retained earnings, substantially restricted                                    |              | 
|Accumulated other comprehensive loss, net of tax                               |              | 
|Treasury stock, at cost; 1,603,648 and 1,567,921  shares                       |              | 
|                                                                               |              | 
|Total stockholders' equity                                                     |              | 
|                                                                               |              | 
|Total liabilities and stockholders' equity                                     |              | 
|                                                                               |              | 

See
accompanying Notes to Consolidated Financial Statements.

63

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# MAF Bancorp, Inc. and
SubsidiariesConsolidated Statements of Operations

|                                                         | Year Ended December 31, | 
|-------------------------------------------------------- | ----------------------- | 
|
|
|Interest income:                                         |                         | 
|Loans receivable                                         |                         | 
|Mortgage-backed securities held to maturity              |                         | 
|Mortgage-backed securities available for sale            |                         | 
|Federal Home Loan Bank of Chicago stock                  |                         | 
|Investment securities available for sale                 |                         | 
|Interest-bearing deposits and federal funds sold         |                         | 
|                                                         |                         | 
|Total interest income                                    |                         | 
|Interest expense:                                        |                         | 
|Deposits                                                 |                         | 
|Borrowed funds                                           |                         | 
|Junior subordinated debentures                           |                         | 
|                                                         |                         | 
|Total interest expense                                   |                         | 
|                                                         |                         | 
|Net interest income                                      |                         | 
|Provision for loan losses                                |                         | 
|                                                         |                         | 
|Net interest income after provision for loan losses      |                         | 
|Non-interest income:                                     |                         | 
|Net gain (loss) on sale and write-down of:               |                         | 
|Loans receivable                                         |                         | 
|Mortgage-backed securities                               |                         | 
|Investment securities                                    |                         | 
|Premises and equipment                                   |                         | 
|Foreclosed real estate                                   |                         | 
|Mortgage loan servicing rights                           |                         | 
|Deposit account service charges                          |                         | 
|Other loan fees                                          |                         | 
|Bank-owned life insurance                                |                         | 
|Brokerage and insurance commissions                      |                         | 
|Loan servicing fee income                                |                         | 
|Valuation recovery on mortgage servicing rights          |                         | 
|Income from real estate operations                       |                         | 
|Other                                                    |                         | 
|                                                         |                         | 
|Total non-interest income                                |                         | 
|Non-interest expense:                                    |                         | 
|Compensation and benefits                                |                         | 
|Office occupancy and equipment                           |                         | 
|Advertising and promotion                                |                         | 
|Data processing                                          |                         | 
|Amortization of core deposit intangibles                 |                         | 
|Prepayment charge related to repayment of borrowings     |                         | 
|Other                                                    |                         | 
|                                                         |                         | 
|Total non-interest expense                               |                         | 
|                                                         |                         | 
|Income before income taxes                               |                         | 
|Income taxes                                             |                         | 
|                                                         |                         | 
|Net income                                               |                         | 
|                                                         |                         | 
|Basic earnings per share                                 |                         | 
|Diluted earnings per share                               |                         | 
|Dividends declared per common share                      |                         | 
|Average common and common equivalent shares outstanding: |                         | 
|Basic                                                    |                         | 
|Diluted                                                  |                         | 

See
accompanying Notes to Consolidated Financial Statements.

64

---

# MAF Bancorp, Inc. and
SubsidiariesConsolidated Statements of Changes in Stockholders Equity

|                                            | Commonstock | Additionalpaid-incapital | Retainedearnings | GainDeferralPlan | Accumu-lated othercompre-hensiveincome(loss) | Treasurystock | Total  
|------------------------------------------- | ----------- | ------------------------ | ---------------- | ---------------- | -------------------------------------------- | ------------- | -------
|
|Balance at December 31, 2003                |             |                          | $                | 331              |                                              |               | 495,747
|                                            |             |                          |                  |                  |                                              |               |        
|Comprehensive income:                       |             |                         
|Net income                                  |             |                          |                  |                 |                                              |               |       
|Other comprehensive income, net of          |             |                         
|tax:                                        |             |                         
|Unrealized holding loss during              |             |                         
|the year                                    |             |                          |                  |                 |                                              |               |       
|Reclassification adjustment of              |             |                         
|gains included in net income                |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Total comprehensive income                  |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Exercise of 425,282 stock options and       |             |                         
|reissuance of treasury stock                |             |                          |                  |                 |                                              |               | 1,162  
|Issuance of 981,467 shares for              |             |                         
|acquisition of Chesterfield                 |             |                         
|Financial Corp.                             |             |                          |                  | 5                |                                              |               | 23,114 
|Purchase of 1,151,000 shares of             |             |                         
|treasury stock                              |             |                          |                  |                 |                                              |               |       
|Tax benefits from stock-related             |             |                         
|compensation                                |             |                          |                  |                 |                                              |               | 2,024  
|Cash dividends declared, $0.84 per          |             |                         
|share                                       |             |                          |                  |                 |                                              |               |       
|Dividends paid to Gain Deferral Plan        |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Balance at December 31, 2004                |             |                          |                  | 336              |                                              |               | 522,047
|                                            |             |                          |                  |                  |                                              |               |        
|Comprehensive income:                       |             |                         
|Net income                                  |             |                          |                  |                 |                                              |               |       
|Other comprehensive income, net of          |             |                         
|tax:                                        |             |                         
|Unrealized holding loss during              |             |                         
|the year                                    |             |                          |                  |                 |                                              |               |       
|Reclassification adjustment of              |             |                         
|gains included in net income                |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Total comprehensive income                  |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Exercise of 267,423 stock options and       |             |                         
|reissuance of treasury stock from           |             |                         
|option exercise and 4,930 shares            |             |                         
|from restricted stock unit awards           |             |                          |                  |                 |                                              |               |       
|Purchase of 1,342,500 shares of             |             |                         
|treasury stock                              |             |                          |                  |                 |                                              |               |       
|Tax benefits from stock-related             |             |                         
|compensation                                |             |                          |                  |                 |                                              |               | 1,137  
|Cash dividends declared, $0.92 per          |             |                         
|share                                       |             |                          |                  |                 |                                              |               |       
|Distribution of Gain Deferral Plan          |             |                         
|shares                                      |             |                          |                  |                 |                                              |               | 3,947  
|Dividends paid to Gain Deferral Plan        |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Balance at December 31, 2005                |             |                          |                  | 336              |                                              |               | 527,131
|                                            |             |                          |                  |                  |                                              |               |        
|Comprehensive income:                       |             |                         
|Net income                                  |             |                          |                  |                 |                                              |               |       
|Other comprehensive income, net of          |             |                         
|tax:                                        |             |                         
|Adjustment to initially apply SFAS No. 158, |             |                         
|net of tax                                  |             |                          |                  |                 |                                              |               |       
|Unrealized holding gain during              |             |                         
|the year                                    |             |                          |                  |                 |                                              |               |       
|Reclassification adjustment of              |             |                         
|losses included in net income               |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Total comprehensive income                  |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Exercise of 460,196 stock options and       |             |                         
|reissuance of treasury stock from           |             |                         
|option exercise and 7,842 shares            |             |                         
|from restricted stock unit awards           |             |                          |                  | 1                |                                              |               | 1,386  
|Issuance of 2,343,186 shares for the        |             |                         
|acquisition of EFC Bancorp and the          |             |                         
|conversion of 168,690 EFC Bancorp           |             |                         
|stock options                               |             |                          |                  | 8                |                                              |               | 38,905 
|Purchase of 1,917,379 shares of             |             |                         
|treasury stock                              |             |                          |                  |                 |                                              |               |       
|Tax benefits from stock-related             |             |                         
|compensation                                |             |                          |                  |                 |                                              |               | 1,720  
|Cash dividends declared, $1.00 per          |             |                         
|share                                       |             |                          |                  |                 |                                              |               |       
|                                            |             |                          |                  |                  |                                              |               |        
|Balance at December 31, 2006                |             |                          | $                | 345              |                                              |               | 569,142
|                                            |             |                          |                  |                  |                                              |               |        

See
accompanying Notes to Consolidated Financial Statements.

65

---

# MAF Bancorp, Inc. and
SubsidiariesConsolidated Statements of Cash Flows

|                                                               | Year Ended December 31, | 
|-------------------------------------------------------------- | ----------------------- | 
|
|
|Operating activities:                                          |                         | 
|Net income                                                     |                         | 
|Adjustments to reconcile net income to net cash provided by    |                         | 
|operating activities:                                          |                         | 
|Amortization (accretion) of premiums, discounts and            |                         | 
|deferred loan fees                                             |                         | 
|Provision for loan losses                                      |                         | 
|FHLB of Chicago stock dividends                                |                         | 
|Net gain on sale of loans receivable                           |                         | 
|Net gain on sale of mortgage servicing rights                  |                         | 
|Net gain on sale of investment and mortgage-backed             |                         | 
|securities                                                     |                         | 
|Other than temporary impairment write-down on investment       |                         | 
|securities                                                     |                         | 
|Net gain on real estate held for development or sale           |                         | 
|Net gain on sale of premises and equipment                     |                         | 
|Amortization of mortgage servicing rights, net                 |                         | 
|Depreciation and amortization                                  |                         | 
|Amortization of core deposit intangibles                       |                         | 
|Deferred income tax expense (benefit)                          |                         | 
|Increase (decrease) in accrued interest receivable             |                         | 
|Net increase (decrease) in bank-owned life insurance income    |                         | 
|Net change in other assets and liabilities, net of effects     |                         | 
|from acquisitions                                              |                         | 
|Tax benefit for stock options exercised                        |                         | 
|Excess tax benefits realized on exercise of stock compensation |                         | 
|Loans originated and purchased for sale                        |                         | 
|Sale of loans originated and purchased for sale                |                         | 
|                                                               |                         | 
|Net cash provided by operating activities                      |                         | 
|                                                               |                         | 
|Investing activities:                                          |                         | 
|Loans originated and purchased for investment                  |                         | 
|Principal repayments on loans receivable                       |                         | 
|Principal repayments on mortgage-backed securities             |                         | 
|Proceeds from maturities of investment securities available    |                         | 
|for sale                                                       |                         | 
|Proceeds from sale or redemption of:                           |                         | 
|Investment securities available for sale                       |                         | 
|Mortgage-backed securities available for sale                  |                         | 
|Real estate held for development or sale                       |                         | 
|Stock in Federal Home Loan Bank of Chicago                     |                         | 
|Premises and equipment                                         |                         | 
|Purchases of:                                                  |                         | 
|Investment securities available for sale                       |                         | 
|Mortgage-backed securities available for sale                  |                         | 
|Bank-owned life insurance                                      |                         | 
|Real estate held for development or sale                       |                         | 
|Premises and equipment                                         |                         | 
|Net cash received (paid) in acquisition                        |                         | 
|                                                               |                         | 
|Net cash provided by (used in) investing activities            |                         | 
|                                                               |                         | 
|Financing Activities:                                          |                         | 
|Proceeds from:                                                 |                         | 
|FHLB of Chicago advances                                       |                         | 
|Issuance of junior subordinated debentures                     |                         | 
|Unsecured bank term loan                                       |                         | 
|Unsecured line of credit                                       |                         | 
|Reverse repurchase agreements                                  |                         | 
|Repayments of:                                                 |                         | 
|FHLB of Chicago advances                                       |                         | 
|Unsecured bank term loan                                       |                         | 
|Unsecured line of credit                                       |                         | 
|Reverse repurchase agreements                                  |                         | 
|Net increase (decrease) in:                                    |                         | 
|Deposits                                                       |                         | 
|Other short-term borrowings                                    |                         | 
|Advances by borrowers for taxes and insurance                  |                         | 

66

---

# MAF Bancorp, Inc. and
SubsidiariesConsolidated
Statements of Cash Flows - (Continued)

|                                                               | Year Ended December 31, | 
|-------------------------------------------------------------- | ----------------------- | 
|
|
|Proceeds from exercise of stock options                        |                         | 
|Excess tax benefits realized on exercise of stock compensation |                         | 
|Purchase of treasury stock                                     |                         | 
|Cash dividends paid                                            |                         | 
|                                                               |                         | 
|Net cash provided by (used in) financing activities            |                         | 
|                                                               |                         | 
|Increase (decrease) in cash and cash equivalents               |                         | 
|Cash and cash equivalents at beginning of year                 |                         | 
|                                                               |                         | 
|Cash and cash equivalents at end of year                       |                         | 
|                                                               |                         | 
|Supplemental disclosure of cash flow information:              |                         | 
|Cash paid during the year for:                                 |                         | 
|Interest on deposits and borrowed funds                        |                         | 
|Income taxes                                                   |                         | 
|Summary of non-cash transactions:                              |                         | 
|Transfer of loans receivable to foreclosed real estate         |                         | 
|Loans receivable transferred to held for sale                  |                         | 
|Loans receivable swapped into mortgage-backed securities       |                         | 
|Treasury stock received for withholding tax liability          |                         | 
|related to stock option exercises (14,591, 10,411 and          |                         | 
|12,224 shares)                                                 |                         | 
|Treasury stock received for stock option exercises (50,156,    |                         | 
|36,149 and 34,143 shares)                                      |                         | 
|                                                               |                         | 
|Acquisitions:                                                  |                         | 
|Assets acquired                                                |                         | 
|Common stock issued                                            |                         | 
|                                                               |                         | 
|Cash paid                                                      |                         | 
|Cash acquired                                                  |                         | 
|                                                               |                         | 
|Net cash (paid) received from acquisitions                     |                         | 
|                                                               |                         | 

See
accompanying Notes to Consolidated Financial Statements.

67

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial
Statements

# 1. Summary of
Significant Accounting Policies

Principles
of Consolidation. The consolidated financial statements include the
accounts of MAF Bancorp, Inc. (Company) and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications of prior year amounts have been made to conform to the current
year presentation.

Use
of Estimates. The accounting and reporting policies of the Company conform
with U.S. generally accepted accounting principles (GAAP). The preparation of consolidated
financial statements in conformity with GAAP requires management to make estimates,
assumptions and judgments that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ materially from those
estimates.

Statement
of Cash Flows. Cash and cash equivalents include cash and due from banks,
interest-bearing deposits and federal funds sold. Generally, federal funds are sold for
one-day periods and interest-bearing deposits mature within one day to three months.

Restrictions
on Cash. Based on the types and amounts of deposits received, the Bank
maintains vault cash and non-interest bearing cash balances in accordance with Federal
Reserve Bank reserve requirements. The Banks reserve requirements of $20.6 million
at December 31, 2006 and $21.7 million at December 31, 2005 were met with funds on
deposit in a pass-through account at the Federal Home Loan Bank of Chicago as well as
vault cash on hand and in the branches.

The
Bank is also required to keep a compensating balance based on the average daily remittance
of checks issued for daily operating activities with a third party. This balance was $7.7
million at December 31, 2006 and $10.9 million at December 31, 2005.

Investment
and Mortgage-Backed Securities. All investment and mortgage-backed
securities are classified as available for sale or held to maturity. Investments and
mortgage-backed securities that are categorized as available for sale are carried at fair
value, with unrealized gains and losses reflected in stockholders equity, net of
tax. Held to maturity securities include mortgage-backed securities which the Company has
the positive intent and ability to hold to maturity. These investments are carried at
amortized cost, with no recognition of unrealized gains or losses in the consolidated
financial statements. Losses on securities that are deemed other-than-temporary are
recognized in the consolidated statement of operations, with a new cost basis established
in the consolidated statement of financial condition.

Interest
and dividends on investments and mortgage-backed securities, including amortization of
premiums, discounts, and purchase accounting adjustments to the earlier of call or
maturity, or in the case of mortgage-related securities, over the estimated life of the
security using the level-yield method are included in interest income. Gains and losses on
sales of investment securities, mortgage-backed securities, and equity securities are
determined using the specific identification method.

The
Bank executes swap transactions with the Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac) to exchange whole mortgage loans originated by the Bank for mortgage-backed
securities guaranteed by the agencies, for which the Bank pays a guarantee fee.

Bank-Owned
Life Insurance (BOLI). BOLI represents life insurance policies on the
lives of certain Company officers and employees for former officers or employees or which
we are the beneficiary. These policies are recorded as an asset on the consolidated
statements of financial condition at their cash surrender value, the amount that could be
realized currently. The change in cash surrender value and insurance proceeds received are
recorded as BOLI income in the consolidated statements of operations in non-interest
income and is not subject to income taxes.

Loans
receivable held for sale. The Bank sells, generally without recourse, whole
loans and participation interests in mortgage loans and home equity lines of credit that
it originates primarily to GSEs such as Fannie Mae and Freddie Mac and to a lesser extent,
private investors. The Bank sells various loans, with recourse, to the Federal Home Loan
Bank Mortgage Partnership Program (MPF) and

68

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

to a lesser extent, other
investors in which it retains a limited and specified level of credit risk. Loans
originated are identified as either held for investment or sale upon origination. Loans
which the Bank intends to sell before maturity are classified as held for sale, and are
carried at the lower of cost, adjusted for applicable deferred loan fees or costs, or
estimated market value, in the aggregate.

The
Bank enters into forward commitments, primarily with Fannie Mae, to sell mortgage loans
originated by the Bank at a specific time and specific price in the future. Loans subject
to forward sales are classified as held for sale. Unrealized losses and gains, if any, on
forward commitments are included in gain on sale of mortgage loans in the period the loans
are committed.

Loans
Receivable. Loans receivable are stated at unpaid principal balances less
unearned discounts, deferred loan origination fees and costs, loans in process and the
allowance for loan losses.

Interest
is recognized on an accrual basis. Loan fees and certain direct loan origination costs are
deferred at origination, and the net deferred fee or cost is amortized into interest
income using the level-yield method over the contractual life of the loans. Discounts on
loans receivable are amortized to interest income using the level-yield method over the
remaining period to contractual maturity, adjusted for anticipated prepayments. Purchase
accounting premiums or discounts are amortized into interest income over the contractual
term of loans receivable acquired, adjusted for anticipated prepayments, using the
level-yield method.

The
accrual of interest income for all loans is discontinued when there is clear indication
that the borrowers cash flow may not be sufficient to meet payments as they become
due or management becomes aware of facts or circumstances that may adversely impact the
collectibility of principal or interest on loans. A loan (whether considered impaired or
not) is classified as non-accrual when the borrower becomes 91 days past due. When a loan
is placed on non-accrual status, or is in the process of bankruptcy or foreclosure,
previously accrued but unpaid interest is reversed against interest income. Income is
subsequently recorded to the extent cash payments are received, if the entire principal
balance is considered collectible, or at a time when the loan is brought current in
accordance with its original terms.

The
Bank considers a loan impaired when, based on current information and events, it is
probable that the Bank will be unable to collect all amounts due according to the
contractual terms of the loan. For loans which are not individually significant (i.e.
loans under $1.0 million) and represent a homogeneous population, the Bank evaluates
impairment collectively based on management reports on the volume and extent of
delinquencies, as well as historical loss experience for these types of loans. The Bank
uses this criteria on one- to four-family residential loans, consumer loans, smaller
multi-family residential loans and land loans. Impairment for loans considered
individually significant, as well as commercial real estate and commercial business loans,
are measured based on the present value of expected future cash flows discounted at the
loans effective interest rate, or the fair value of the collateral if the loan is
collateral dependent. Charge-offs of principal occur when a loss has deemed to have
occurred as a result of the book value exceeding the fair value or net realizable value.

Allowance
for Loan Losses. We maintain an allowance for loan losses to cover
managements estimate of probable losses inherent in the Banks loan portfolio.
In evaluating the allowance for loan losses and determining the amount of any provision
for loan losses, management considers: (1) historical loss experience and the change
in size and the mix of the overall portfolio composition, (2) specific allocations
based upon probable losses identified during the review of the portfolio,
(3) delinquency trends in the portfolio and the composition of non-performing loans,
including the percent of non-performing loans with supplemental mortgage insurance, and
(4) subjective factors, including local and general economic business factors and
trends, industry and interest rate trends, new lending products and changes in
underwriting criteria and portfolio concentrations.

The
allowance for loan losses is established through a provision for loan losses that is
recorded in the consolidated statement of operations.

Foreclosed
Real Estate. Real estate properties acquired through, or in lieu of,
foreclosure are initially recorded at the lower of carrying value or fair value less the
estimated cost to dispose at the date of foreclosure, establishing a new cost basis.
Management periodically performs valuations and an allowance for loss is established if
the carrying value of a property exceeds its estimated fair value less

69

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

cost to dispose. At
December 31, 2006, foreclosed real estate included 17 one- to four-family residences
and one commercial real estate property.

Real
Estate Held for Development or Sale. The direct cost of material, labor,
overhead, real estate taxes, interest, design, engineering and project management during
construction and development are capitalized as real estate held for development or sale.
Real estate properties held for development or sale, are carried at the lower of cost,
including capitalized holding costs, or net realizable value. Gains and losses on
individual lot sales in a particular development are based on cash received less the
estimated cost of sales per lot. Cost of sales per lot is calculated as the current
investment in the particular development unit plus anticipated costs to complete the
development unit, which includes capitalized interest and real estate taxes, divided by
the total number of lots to be sold in the unit. Periodic reviews are made as to a
developments estimated costs to complete.

Premises
and Equipment. Land is carried at cost. Buildings, leasehold improvements,
furniture, fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization. Purchase of premises and equipment are recorded at market value for business
acquisitions. Buildings, furniture, fixtures, and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the lesser of the life of
the leasehold improvement or the term of the related lease. Maintenance and repairs are
charged to expense as incurred.

Affordable
Housing Investments. Affordable housing investments included in other
assets represent multi-family rental properties (affordable housing projects) in which a
subsidiary of the Bank has limited partner interests, generally 98-99%. The financial
condition, results of operations and cash flows of each LLP or LLC is consolidated in the
Companys financial statements. The properties are recorded at cost less accumulated
depreciation. The Company evaluates the recoverability of the carrying value on a regular
basis. If the recoverability was determined to be in doubt, a valuation allowance would be
established. Depreciation expense is provided on a straight-line basis over the estimated
useful life of the assets. The operations of the properties tend to generate an aggregate
net loss before income taxes, but contribute income tax credits, which lowers the
Companys effective tax rate. Once established, the credits on each property last for
ten years and reduce the consolidated federal income tax liability and expense of the
Company. The Company is obligated to keep the projects low-rent structure in place
for a period of time after the ten-year tax credit period.

Goodwill
and Intangibles. Goodwill represents the excess of the purchase price over
the fair value of the net identifiable assets acquired in business combinations or branch
acquisitions. Core deposit intangibles represent the value assigned to the core deposit
base acquired. The valuation techniques we use to determine the carrying value of tangible
and intangible assets and liabilities acquired in acquisitions and the estimated lives of
the identifiable intangible assets involve a number of subjective judgments such as
estimates for discount rates, projected future cash flows and time period of useful lives,
all of which are susceptible to change based on changes in economic conditions and other
factors.

Both
goodwill and core deposit intangibles are recognized as a result of the purchase method of
accounting for business combinations. Core deposit intangibles have finite lives and are
amortized on an accelerated basis to expense over the estimated life of the core deposit
which approximates ten years.

The
Company reviews long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. The impairment is measured based on the expected future cash flows from the
use of the asset and its eventual disposition. If expected future cash flows are less than
the carrying amount of the asset, an impairment loss is recognized based on current fair
values.

Goodwill
and indefinite life intangibles are no longer amortized but are subject to impairment
tests on at least an annual basis. Any impairment of goodwill or intangibles will be
recognized as an expense in the period of impairment. No impairment was identified as a
result of the Companys annual analysis in May 2006 or 2005.

70

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

Mortgage
Servicing Rights. Mortgage servicing rights are initially capitalized upon
acquisition, at fair value of allocated cost, and are subsequently amortized over the
estimated life of the loan servicing income stream, using the level-yield method. Mortgage
servicing rights that are retained when mortgage loans are sold are recorded by allocating
the previous carrying amount of the sold loan between the servicing rights retained and
the loans that are sold to a third party. This allocation is based upon the relative fair
values of the mortgage servicing rights and the loans sold. The estimated value takes into
consideration contractually known amounts, such as loan balance, term, contract rate, and
escrow funds with the Bank for the payment of taxes and insurance. The balance of mortgage
servicing rights is included in the consolidated statement of financial condition in
intangible assets. The Bank conducts periodic impairment analyses by evaluating the
present value of the future economic benefit to be derived from the servicing rights using
current information regarding interest rates, prepayment assumptions, ancillary income,
and the cost to service such loans. For purposes of measuring impairment, the mortgage
servicing rights are stratified based on the predominant risk characteristics of the
underlying loans. The Bank stratifies loans by interest rate, maturity, and whether the
loans are fixed or adjustable rate. A valuation allowance is recognized in the amount by
which the capitalized servicing rights for a specific stratum exceeds its estimated fair
value.

Income
Taxes. The Company and its subsidiaries file a consolidated federal income
tax return, except for MAF Realty Co., L.L.C.  IV, a REIT, which is required to file
a separate federal income tax return. The provision for income taxes is based upon net
income in the consolidated financial statements, rather than amounts reported on the
Companys tax return. Deferred income taxes are provided for all significant items of
income and expense that are recognized in different periods for financial reporting
purposes and income tax reporting purposes. The asset and liability approach is used for
the financial accounting and reporting of income taxes. This approach requires companies
to take into account changes in the tax rates when valuing the deferred income tax
accounts recorded on the consolidated statement of financial condition. In addition, it
provides that a deferred tax liability or asset shall be recognized for the estimated
future tax effects attributable to temporary differences. Temporary
differences include differences between financial statement income and tax return income
which are expected to reverse in future periods as well as differences between tax bases
of assets and liabilities and their amounts for financial reporting purposes which are
also expected to be settled in future periods. To the extent a deferred tax asset is
established which is not more likely than not to be realized, a valuation allowance shall
be established against such asset.

Derivative
Financial Instruments. The Company utilizes forward commitments to sell
mortgage loans as part of its mortgage loan origination hedging strategy. Loan commitments
and forward sales are accounted for as derivative instruments with adjustments included in
earnings as a component of gain on sale of loans at each period end. All derivatives are
recognized on the consolidated statement of financial condition at their fair value.

Comprehensive
Income. Comprehensive income includes net income plus other comprehensive
income. Other comprehensive income includes revenues, expenses, gains and losses that
under GAAP are included in comprehensive income but excluded from net income. The Company
reports comprehensive income in its consolidated statement of changes in
stockholders equity.

Segments.
          The Company uses the management approach for determining segment reporting.
          Based on the management approach, the Company operates two separate lines of
          business, banking and real estate operations.

Stock
Option and Equity-based Plans. The
Company has various stock-based compensation plans pursuant to which stock options and
other equity-based awards have been granted.

Prior
to 2006, the Company applied APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plans. On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards, or SFAS,
No. 123R, Share-Based Payments. SFAS No. 123R requires the recognition of
compensation expense in an amount equal to the fair value of all share-based payments. The
Company elected to apply SFAS 123R on a modified prospective method, which requires the
Company to record compensation expense for options granted on or after January 1, 2006 and
over the remaining vesting period for previous awards that were partially unvested as of
the

71

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

date of adoption of SFAS No. 123R. See Note No. 16 Officer, Director and
Employee Benefit Plans for additional information regarding the impact on prior
years results.

Compensation
expense for restricted stock unit awards is recognized ratably over the period of service,
usually the vesting period, based on the fair value of the stock on the date of grant.

Earnings
Per Share. Earnings per share is determined by dividing net income for the
period by the weighted average number of shares outstanding. Stock options are considered
in the earnings per share calculations only if dilutive, and are the only adjustments made
to average shares outstanding in computing diluted earnings per share. Anti-dilutive stock
options not included in the computation of diluted earnings per share were 442,250,
1,109,150, and 393,750 at December 31, 2006, 2005 and 2004, respectively.

|                               | Year Ended December 31, 2006 | Year Ended December 31, 2005 | Year Ended December 31, 2004 | 
|------------------------------ | ---------------------------- | ---------------------------- | ---------------------------- | 
|
|
|Basic earnings per share:      |                              |                              |                              | 
|Income available to            |                              |                             
|common shareholders            |                              |                              | $84,583                      | 
|                               |                              |                              |                              | 
|Effect of dilutive securities- |                              |                             
|stock options                  |                              |                              |                              | 
|                               |                              |                              |                              | 
|Diluted earnings per share:    |                              |                             
|Income available to            |                              |                             
|common shareholders            |                              |                             
|plus assumed                   |                              |                             
|conversions                    |                              |                              | $ 84,583                     | 
|                               |                              |                              |                              | 

# 2. Business Combinations

On
February 1, 2006, the Company acquired EFC Bancorp, Inc. (EFC), in a cash and
stock transaction valued at $176.6 million including stock options. The Company paid $67.3
million in cash and issued 2.34 million common shares, and remaining options to purchase
EFC common stock were converted into options to purchase a total of 168,690 shares of the
Companys common stock. The acquisition was accounted for under the purchase method
as of the closing date. Goodwill and core deposit intangibles recorded was $97.4 million.
At January 31, 2006, EFC had $1.1 billion in total assets, $703.4 million in deposits and
$82.5 million in stockholders equity. The acquisition added seven offices to the
Banks branch network, with offices in Kane and Cook Counties, Illinois. The Company
funded the cash portion of the merger consideration primarily through an increase in its
unsecured term bank loan in the amount of $52 million.

72

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
following table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition of EFC (dollars in thousands):

|                           | 
|-------------------------- | 
|Cash                       | 
|Investment securities      | 
|FHLB of Chicago stock      | 
|Mortgage-backed securities | 
|Loans                      | 
|Allowance for loan losses  | 
|Premises                   | 
|Other assets               | 
|Goodwill                   | 
|Core deposit intangibles   | 
|                           | 
|Total assets acquired      | 
|                           | 
|Deposits                   | 
|Borrowings                 | 
|Other liabilities          | 
|                           | 
|Total liabilities assumed  | 
|                           | 
|Net assets acquired        | 
|                           | 

The
$83.9 million of goodwill and $13.5 million of core deposit intangible recorded in the
acquisition were assigned to the banking segment. The core deposit intangible has an
estimated life of ten years. The Company relied on a valuation report by an independent
third party in valuing the core deposit intangible.

On
November 1, 2004, the Company acquired Chesterfield Financial Corp. in a transaction
valued at $128.4 million including stock options. The Company paid $85.7 million in cash and
issued approximately 982,000 shares of MAF Bancorp common stock. Goodwill and core deposit
intangibles of $45.9 million were generated in the transaction. The merger provided three
additional branch locations in the Chicago area. At acquisition date, Chesterfield had
assets of $354.2 million, deposits of $270.7 million and stockholders equity of
$73.3 million.

# 3. Investment Securities
Available for Sale

Investment
securities available for sale are summarized below:

|                           | December 31, 2006 | December 31, 2005 |  
|-------------------------- | ----------------- | ----------------- | -
|
|
|
|U.S. Government securities |                   |                   | $
|Municipal securities       |                   |                   |  
|U.S. Agency securities     |                   |                   |  
|Asset-backed securities    |                   |                   |  
|Corporate debt securities  |                   |                   |  
|Bank trust preferred       |                   |                  
|securities                 |                   |                   |  
|GSE preferred stock and    |                   |                  
|other                      |                   |                   |  
|                           |                   |                   |  
|                           |                   |                   | $
|                           |                   |                   |  

The
Company did not have any investment securities classified as held to maturity or trading
at December 31, 2006 or 2005.

73

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
amortized cost and fair value of securities at December 31, 2006, by contractual
maturity, are shown in the table below. Expected maturities may differ from contractual
maturities because certain issuers have the right to call obligations prior to maturity
without penalty. At December 31, 2006, the Company had $177.5 million of investment
securities with call options, of which $132.7 million were callable within one year.

|                        | AmortizedCost | FairValue
|----------------------- | ------------- | ---------
|
|Debt securities:        |               |          
|Under one year          |               |          
|Over 1 to 5 years       |               |          
|Over 5 to 10 years      |               |          
|Over 10 years           |               |          
|                        |               |          
|Total debt securities   |               |          
|Asset-backed securities |               |          
|GSE preferred stock and |               |          
|other                   |               |          
|                        |               |          
|Total investment        |               |          
|securities              |               |          
|                        |               |          

Activity
in the sales of investment securities available for sale is as follows:

|                            | Year Ended December 31, | 
|--------------------------- | ----------------------- | 
|
|
|Total proceeds on sale      |                         | 
|                            |                         | 
|Gross realized gains        |                         | 
|Gross realized losses       |                         | 
|                            |                         | 
|Net gain on sale            |                         | 
|Impairment writedown deemed |                         | 
|other-than-temporary        |                         | 
|                            |                         | 
|Net gain (loss) on sale or  |                         | 
|writedown                   |                         | 
|                            |                         | 

During
2006, other-than-temporary impairment writedown of $3.6 million were recorded on
approximately $229.7 million of investments upon the decision to sell these securities as
part of a balance sheet restructuring program in December 2006. In 2005, the gain
represents a dissolution of stock in a regional ATM network and the sale of two marketable
equity securities. During 2004, the Company recorded a $2.0 million other-than-temporary
impairment write-down on two Freddie Mac floating-rate preferred stock securities with an
aggregate carrying value of $8.8 million. The Company recorded the write-down because the
current yields on these securities were below market interest rates, the fair value had
been below cost for an extended period, and a recovery in fair value was not assumed
within a reasonably short period of time.

The
following table discloses the securities in the Companys investment portfolio that
have unrealized losses aggregated by each category of investment as of December 31,
2006. The $229.7 million of securities identified as being part of the balance sheet
restructuring are not included in the table below as the unrealized losses were recorded
in the 2006 consolidated statement of operations.

|                           | Aggregate Unrealized Losses on Investment Securities | 
|-------------------------- | ---------------------------------------------------- | 
|
|
|
|U.S. Government securities |                                                      | 
|Municipal securities       |                                                      | 
|U.S. Agency securities     |                                                      | 
|Asset-backed securities    |                                                      | 
|GSE preferred stock        |                                                      | 
|                           |                                                      | 
|                           |                                                      | 
|                           |                                                      | 

74

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
following table discloses the securities in the Companys investment portfolio that
have unrealized losses aggregated by each category of investment as of December 31,
2005:

|                           | Aggregate Unrealized Losses on Investment Securities | 
|-------------------------- | ---------------------------------------------------- | 
|
|
|
|U.S. Government securities |                                                      | 
|Municipals                 |                                                      | 
|U.S. Agency securities     |                                                      | 
|Asset-backed securities    |                                                      | 
|Bank trust preferred       |                                                      | 
|securities                 |                                                      | 
|GSE preferred stock        |                                                      | 
|                           |                                                      | 
|                           |                                                      | 
|                           |                                                      | 

Because
the securities in the investment portfolio are classified as available for sale, and
carried at fair value with unrealized losses, net of related tax effects, recorded in
stockholders equity, any charge to earnings in the future if the securities were to
be sold or were deemed by management to be other-than-temporarily impaired would not be
expected to have a significant impact on stockholders equity at December 31, 2006.
None of the unrealized losses are related to credit deterioration, but rather market value
deterioration due to higher interest rates. See Note No. 4 Mortgage-Backed
Securities Available for Sale and Held to Maturity for further information regarding
the sale of mortgage-backed securities as part or our balance sheet restructuring.

# 4. Mortgage-Backed
Securities Available for Sale and Held to Maturity

Mortgage-backed
securities available for sale and held to maturity are summarized below:

|                        | December 31, 2006 | December 31, 2005 |  
|----------------------- | ----------------- | ----------------- | -
|
|
|
|Available for sale:     |                   |                   |  
|Pass-through            |                   |                  
|certificates:           |                   |                  
|Fannie Mae              |                   |                   | $
|Freddie Mac             |                   |                   |  
|Other                   |                   |                   |  
|Collateralized mortgage |                   |                  
|obligations:            |                   |                  
|Agency CMOs             |                   |                   |  
|Private issue CMOs      |                   |                   |  
|                        |                   |                   |  
|                        |                   |                   | $
|                        |                   |                   |  
|Held to maturity -      |                   |                  
|Fannie Mae              |                   |                  
|pass-through            |                   |                  
|certificates            |                   |                   | $
|                        |                   |                   |  

In
2006, the Bank did not swap any originated loans into mortgage-backed securities. During
2005, the Bank swapped $45.4 million of primarily fixed-rate loans it originated into
mortgage-backed securities which were sold in the same period. Additionally in 2005, the
Bank swapped $37.2 million of 15-year fixed-rate loans into mortgage-backed securities
that were added to the held to maturity portfolio. Included in mortgage-backed securities
held to maturity at December 31, 2006 and 2005 are $212.3 million and $243.2 million,
respectively, of loans originated by the Bank.

Activity
in the sales of mortgage-backed securities available for sale is as follows:

|                             | Year Ended December 31, |  |  
|---------------------------- | ----------------------- |  | -
|
|
|                             |                         |  |  
|Total proceeds on sale       |                         |  | $
|                             |                         |  |  
|Gross realized gains         |                         |  | $
|Gross realized losses        |                         |  |  
|                             |                         |  |  
|Net gain on sale             |                         |  |  
|                             |                         |  |  
|Impairment writedown deemed  |                         | 
|other-than-temporary         |                         |  |  
|                             |                         |  |  
|Net gain (loss) on  sale  or |                         | 
|writedown                    |                         |  | $
|                             |                         |  |  

75

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

During
2006, other-than-temporary impairment writedowns of $9.3 million were recorded on
approximately $301.7 million of mortgage-backed securities upon the decision to sell these
securities as part of a balance sheet restructuring program in December 2006.

The
following table discloses the securities in the Companys available for sale and held
to maturity portfolios that have unrealized losses aggregated by each category of
investment as of December 31, 2006. The $301.7 million of mortgage-backed securities
identified for sale as part of the balance sheet restructuring are not included in the
table below as the unrealized losses were recorded in the 2006 consolidated statement of
operations.

|                                     | Aggregate Unrealized Losses on Mortgage-Backed Securities | 
|------------------------------------ | --------------------------------------------------------- | 
|
|
|
|Available for sale:                  |                                                           | 
|Pass-through certificates:           |                                                           | 
|Fannie Mae                           |                                                           | 
|Freddie Mac                          |                                                           | 
|Other                                |                                                           | 
|                                     |                                                           | 
|Total pass-through certificates      |                                                           | 
|                                     |                                                           | 
|Collateralized mortgage obligations: |                                                           | 
|Agency CMOs                          |                                                           | 
|Private issue CMOs                   |                                                           | 
|                                     |                                                           | 
|Total CMOs                           |                                                           | 
|                                     |                                                           | 
|Total available for                  |                                                           | 
|sale                                 |                                                           | 
|                                     |                                                           | 
|Held to maturity -                   |                                                           | 
|Fannie Mae pass-through              |                                                           | 
|certificates                         |                                                           | 
|                                     |                                                           | 
|                                     |                                                           | 

The
following table discloses the securities in the Companys available for sale and held
to maturity portfolios that have unrealized losses aggregated by each category of
investment as of December 31, 2005:

|                                     | Aggregate Unrealized Losses on Mortgage-Backed Securities | 
|------------------------------------ | --------------------------------------------------------- | 
|
|
|
|Available for sale:                  |                                                           | 
|Pass-through certificates:           |                                                           | 
|Fannie Mae                           |                                                           | 
|Freddie Mac                          |                                                           | 
|Other                                |                                                           | 
|                                     |                                                           | 
|Total pass-through certificates      |                                                           | 
|                                     |                                                           | 
|Collateralized mortgage obligations: |                                                           | 
|Agency CMOs                          |                                                           | 
|Private issue CMOs                   |                                                           | 
|                                     |                                                           | 
|Total CMOs                           |                                                           | 
|                                     |                                                           | 
|Total available for sale             |                                                           | 
|                                     |                                                           | 
|Held to maturity -                   |                                                           | 
|Fannie Mae pass-through              |                                                           | 
|certificates                         |                                                           | 
|                                     |                                                           | 

Because
the securities identified in the table above are classified as available for sale, and
carried at fair value with unrealized losses, net of related tax effects, recorded in
stockholders equity, any charge to earnings in the future if the securities were to
be sold or were deemed by management to be other-than-temporarily impaired would not be
expected to have a significant impact on stockholders equity. None of the unrealized
losses are related to credit deterioration, but rather market value deterioration due to
higher interest rates.

76

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

During the fourth quarter of 2006,
the Bank evaluated its overall asset/liability position and identified $531.4 of
investment and mortgage-backed securities for sale as part of a balance sheet
restructuring plan approved by the Companys Board of Directors on December
19, 2006. The plan objectives were aimed at reducing the size of its investment portfolio,
repaying wholesale borrowings, managing liquidity and better positioning the Bank for the
current difficult and uncertain interest rate environment. When determining the securities
to sell, the Bank considered reducing its portfolio with the lowest coupon rates, which
have negatively impacted cash flows most dramatically due to rising short-term interest
rates. The Bank also sought to maintain its net duration position after repaying
borrowings. All of the securities identified for sale were rated AAA. To a lesser extent,
the Bank considered its collateral needs in selecting securities for sale.

The
Bank assessed the remainder of the investment and mortgage-backed portfolio relative to
its asset/liability and liquidity management objectives and its ability to more
effectively manage the current interest rate environment. Given this assessment, the Bank
maintains its intent and ability to hold the remaining available-for-sale investment and
mortgage-backed securities to the earlier of the recovery of the unrealized losses or
maturity.

# 5. Loans Receivable Held
For Sale

Loans
receivable held for sale are summarized as follows:

|                                | At December 31, | 
|------------------------------- | --------------- | 
|
|
|
|One- to four-family             |                 | 
|Fixed-rate                      |                 | 
|Adjustable-rate                 |                 | 
|                                |                 | 
|Total one- to four-family       |                 | 
|                                |                 | 
|Equity lines of credit and home |                 | 
|equity loans:                   |                 | 
|Equity lines of credit          |                 | 
|Home equity loans               |                 | 
|                                |                 | 
|Total equity loans              |                 | 
|                                |                 | 
|Total loans receivable held for |                 | 
|sale                            |                 | 
|                                |                 | 

# 6. Loans Receivable

Loans receivable
are summarized as follows:

|                                             | At December 31, | 
|-------------------------------------------- | --------------- | 
|
|
|One- to four-family                          |                 | 
|Equity lines of credit and home equity loans |                 | 
|Multi-family                                 |                 | 
|Commercial real estate                       |                 | 
|Construction                                 |                 | 
|Land                                         |                 | 
|Commercial business loans                    |                 | 
|Consumer loans                               |                 | 
|                                             |                 | 
|Loans receivable, net                        |                 | 
|                                             |                 | 

Loans
that have adjustable-rate features included in loans receivable totaled $5.80 billion at
December 31, 2006 and $5.88 billion at December 31, 2005. Netted in loans
receivable at December 31, 2006 and December 31, 2005 are net deferred loan origination
costs of $16.0 million and $23.3 million, respectively.

77

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

Allowance
for loan losses. Activity in the allowance for loan losses is summarized as
follows for the years indicated:

|                             | Year Ended December 31, | 
|---------------------------- | ----------------------- | 
|
|
|Balance at beginning of year |                         | 
|Provision for loan losses    |                         | 
|Balance acquired in          |                         | 
|acquisitions                 |                         | 
|Charge-offs                  |                         | 
|Recoveries                   |                         | 
|                             |                         | 
|Balance at end of year       |                         | 
|                             |                         | 

At
December 31, 2006, 2005 and 2004, the Bank had $66.5 million, $31.2 million and $31.5
million, respectively, in loans that were on non-accrual status. Interest income that
would have been recorded on non-accrual loans amounted to $2.6 million for the year ended
December 31, 2006, and $1.4 million for each years ended December 31, 2005 and 2004.
Interest income recognized on non-accrual loans and included in interest income was $2.0
million, $563,000 and $630,000, for the years ended December 31, 2006, 2005 and 2004,
respectively.

At
December 31, 2006 there were $4.1 million of commitments to lend additional funds to
borrowers whose loans were non-performing.

At
December 31, 2006, 2005 and 2004, the Company had $8.7 million, $2.1 million and $3.4
million of impaired loans, respectively. There were no specific reserves established for
these loans. The average balance of impaired loans for 2006, 2005 and 2004 was $3.6
million, $2.4 million and $2.7 million, respectively.

# 7. Real Estate Held for
Development or Sale

The
carrying value of the Companys investment in real estate held for development or
sale by project is as follows:

|                   | At December 31, | 
|------------------ | --------------- | 
|
|
|Springbank of      |                 | 
|Plainfield         |                 | 
|Future development |                 | 
|                   |                 | 
|                   |                 | 
|                   |                 | 

Income
from real estate operations by project for the years indicated is as follows:

|              | Year Ended December 31, | 
|------------- | ----------------------- | 
|
|
|Springbank of |                         | 
|Plainfield    |                         | 
|Shenandoah    |                         | 
|Tallgrass of  |                         | 
|Naperville    |                         | 
|              |                         | 
|              |                         | 
|              |                         | 

Interest
expense capitalized to real estate held for development or sale amounted to $729,000,
$173,000 and $8,000 for the years ended December 31, 2006, 2005 and 2004,
respectively.

78

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

# 8. Premises and Equipment

Premises
and equipment are summarized as follows:

|                                                |  | At December 31,
|----------------------------------------------- |  | ---------------
|
|
|Land                                            |  |                
|Office buildings                                |  |                
|Furniture, fixtures and equipment               |  |                
|Computer equipment                              |  |                
|Leasehold improvements                          |  |                
|                                                |  |                
|Total premises and equipment, at cost           |  |                
|Less: accumulated depreciation and amortization |  |                
|                                                |  |                
|                                                |  |                
|                                                |  |                

Depreciation
and amortization of premises and equipment, included in data processing expense and office
occupancy and equipment expense, totaled $17.1 million, $15.1 million and $13.7 million
for the years ended December 31, 2006, 2005 and 2004, respectively. Rent expense is
recorded on a straight line basis. As a result, actual rental payments during a period may
differ from rent expense recorded, due to lease escalation clauses or rent abatements.
Occupancy expense is reduced by rental income from leased premises totaling $832,000,
$930,000, and $982,000 for the years ended December 31, 2006, 2005 and 2004,
respectively.

The
Bank is obligated under non-cancelable operating leases primarily for office space. Rent
expense under these leases for the years ended December 31, 2006, 2005 and 2004, was
$8.0 million, $8.0 million, and $8.2 million, respectively. The projected minimum rental
expense over the remaining terms of original existing leases as of December 31, 2006
is as follows (in thousands):

|Year Ended December 31, |  
|----------------------- | -
|2007                    | $
|2008                    |  
|2009                    |  
|2010                    |  
|2011                    |  
|2012 and thereafter     |  

# 9. Goodwill and
Intangibles

The
changes in the carrying amount of goodwill, all recorded in the Banking segment, for the
years ended December 31, 2006 and 2005 are shown below. The adjustments to goodwill
relating to prior acquisitions primarily reflect tax adjustments that resulted from
provision to tax return changes and changes in the estimated amounts of tax reserves
relating to such acquisitions, as well as adjustments for 2005 relating to improved
information received on contingent liability reserves from prior acquisitions.

The
changes in the carrying amount of goodwill, all recorded in the Banking segment, for the
years ended December 31, 2006 and 2005 are as follows (in thousands):

|                                    | 
|----------------------------------- | 
|Balance at December 31, 2004        | 
|Adjustments related to prior        | 
|acquisitions                        | 
|                                    | 
|Balance at December 31, 2005        | 
|Addition related to EFC acquisition | 
|Adjustments related to prior        | 
|acquisitions                        | 
|                                    | 
|Balance at December 31, 2006        | 
|                                    | 

79

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
changes in the carrying amount of intangibles for the years ended December 31, 2006
and 2005 are as follows:

|                                        | Core DepositIntangibles | MortgageServicingRights | Total
|--------------------------------------- | ----------------------- | ----------------------- | -----
|
|Balance at December 31, 2004            |                         |                         | $    
|Additions                               |                         |                         |      
|Amortization expense                    |                         |                         |      
|Carrying value of servicing rights sold |                         |                         |      
|Valuation recovery                      |                         |                         |      
|                                        |                         |                         |      
|Balance at December 31, 2005            |                         |                         |      
|                                        |                         |                         |      
|Additions                               |                         |                         |      
|Amortization expense                    |                         |                         |      
|Carrying value of servicing rights sold |                         |                         |      
|                                        |                         |                         |      
|Balance at December 31, 2006            |                         |                         | $    
|                                        |                         |                         |      

The
following is a summary of intangible assets subject to amortization:

|                             | As of December 31, 2006 | As of December 31, 2005 |  
|---------------------------- | ----------------------- | ----------------------- | -
|
|
|                             |                         |                         |  
|Core deposit intangibles     |                         |                         | $
|Mortgage servicing rights(1) |                         |                         |  
|                             |                         |                         |  
|Total                        |                         |                         | $
|                             |                         |                         |  

---

|(1) | The estimated fair values of mortgage servicing rights at December 31, 2006 and
          2005 were $25.3 million and $29.0 million, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

Amortization
expense for core deposit intangibles and mortgage servicing rights for the year ended
December 31, 2006 and estimates for the five years thereafter are as follows. These
estimates relate to the carrying value of the Banks core deposit intangibles and
mortgage servicing rights as of December 31, 2006.

|                                     | CoreDepositIntangibles | MortgageServicingRights
|------------------------------------ | ---------------------- | -----------------------
|
|Aggregate amortization expense for   |                        |                        
|the year ended December 31, 2006     |                        |                        
|Estimated  amortization  expense for |                        |                        
|the year ending December 31,:        |                        |                        
|2007                                 |                        |                        
|2008                                 |                        |                        
|2009                                 |                        |                        
|2010                                 |                        |                        
|2011                                 |                        |                        

Loan
servicing and mortgage servicing rights. The Bank services loans for the
benefit of others pursuant to loan servicing agreements. Under these agreements, the Bank
typically collects from the borrower monthly payments of principal and interest, as well
as funds for the payment of real estate taxes and insurance. The Bank retains its loan
servicing fee from these payments and remits the balance of the principal and interest
payments to the various investors. Mortgage loans serviced for others are not included in
the accompanying consolidated statement of financial condition. The unpaid principal
balances of these loans were $2.7 billion, $2.9 billion and $3.6 billion, at
December 31, 2006, 2005 and 2004, respectively. Loan servicing fee income was $3.4
million, $2.3 million and $1.2 million for the years ended December 31, 2006, 2005 and
2004, respectively. Non-interest bearing custodial balances maintained in connection with
mortgage loans serviced for others (included in deposits) were $46.8 million and $41.2
million at December 31, 2006 and 2005, respectively.

80

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

# 10. Deposits

The
following table is a summary of the Companys deposits at December 31, 2006 and
2005. The weighted average rates are contractual rates and are not adjusted for the effect
of purchase accounting adjustments. The unamortized premium represents part of the
purchase accounting adjustments remaining from the acquisitions of Chesterfield,
St. Francis and Elgin to mark the deposits to fair value.

|                         | At December 31, 2006 | At December 31, 2005 |  
|------------------------ | -------------------- | -------------------- | -
|
|
|Commercial checking      |                      |                      | $
|Non-interest bearing     |                      |                     
|checking                 |                      |                      |  
|Interest bearing         |                      |                     
|checking                 |                      |                      |  
|Commercial money markets |                      |                      |  
|Money markets            |                      |                      |  
|Passbooks                |                      |                      |  
|                         |                      |                      |  
|                         |                      |                      |  
|                         |                      |                      |  
|Certificate accounts:    |                      |                     
|Up to 2.99%              |                      |                      |  
|3.00% to 3.99%           |                      |                      |  
|4.00% to 4.99%           |                      |                      |  
|5.00% and greater        |                      |                      |  
|                         |                      |                      |  
|                         |                      |                      |  
|                         |                      |                      |  
|Unamortized              |                      |                     
|premium(discount)        |                      |                      |  
|                         |                      |                      |  
|Total deposits           |                      |                      | $
|                         |                      |                      |  

The
aggregate amount of certificates of deposit with denominations of $100,000 or greater was
$1.04 billion and $751.1 million at December 31, 2006 and 2005, respectively.

Scheduled
maturities of certificate accounts at December 31, 2006 are as follows (in
thousands):

|                  | 
|----------------- | 
|                  | 
|12 months or less | 
|13 to 24 months   | 
|25 to 36 months   | 
|Over 36 months    | 
|                  | 
|                  | 
|                  | 

Interest
expense on deposit accounts is summarized as follows for the periods indicated:

|                          | Year Ended December 31, |  |  
|------------------------- | ----------------------- |  | -
|
|
|Interest-bearing checking |                         |  | $
|Money markets             |                         |  |  
|Passbooks                 |                         |  |  
|Certificates              |                         |  |  
|                          |                         |  |  
|                          |                         |  | $
|                          |                         |  |  

At
December 31, 2006, U.S. Treasury Notes, Freddie Mac and Fannie Mae mortgage-backed
securities, as well as mortgage loans with an aggregate carrying value of $136.8 million
and fair value of $136.4 million, were pledged as collateral for certain certificate
accounts.

81

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

# 11. Borrowed Funds

The
following table is a summary of the Companys borrowed funds at December 31,
2006 and 2005. The weighted average rates are contractual rates and are not adjusted for
the effect of purchase accounting adjustments.

|                               | At December 31, 2006 | At December 31, 2005 |             
|------------------------------ | -------------------- | -------------------- | ------------
|
|
|Fixed-rate advances from FHLBC |                      |                      |             
|due:                           |                      |                     
|Within 1 year                  |                      |                      | 2.76 - 5.14%
|1 to 2 years                   |                      |                      | 2.78 - 5.24 
|2 to 3 years                   |                      |                      | 3.53 - 4.85 
|3 to 4 years                   |                      |                      | 4.28 - 4.28 
|4 to 5 years                   |                      |                      | 4.36 - 4.36 
|                               |                      |                      |             
|Total fixed-rate advances      |                      |                      | 2.76 - 5.24 
|                               |                      |                      |             
|Adjustable-rate advances from  |                      |                     
|FHLBC due:                     |                      |                     
|Within 1 year                  |                      |                      | 5.29 - 5.52 
|1 to 2 years                   |                      |                      |            
|                               |                      |                      |             
|Total adjustable-rate          |                      |                     
|advances                       |                      |                      | 5.29 - 5.52 
|                               |                      |                      |             
|Total advances from FHLBC      |                      |                      | 2.76 - 5.52%
|                               |                      |                      |             
|Unsecured term bank loan       |                      |                      |             
|Other borrowings               |                      |                      |             
|Unamortized premium(discount)  |                      |                      |             
|                               |                      |                      |             
|Total borrowed funds           |                      |                      |             
|                               |                      |                      |             

Federal
Home Loan Bank of Chicago Advances. The Bank has adopted a collateral
pledge agreement whereby the Bank has agreed to at all times keep on hand, free of all
other pledges, liens, and encumbrances, first mortgages with unpaid principal balances
aggregating no less than 150% of the outstanding secured advances from the Federal Home
Loan Bank of Chicago (FHLBC). All stock in the FHLBC is pledged as additional
collateral for these advances. At December 31, 2006, no other securities were pledged for
these borrowings.

Included
in FHLBC advances at December 31, 2006 are $40.0 million of fixed-rate advances with
original scheduled maturities of 10 years, with interest rates ranging from 5.12% to 5.24%
which are putable at the discretion of the FHLBC within the next twelve months. At
inception, the Bank receives a lower cost of borrowing on such advances than on similar
termed non-putable advances, in return for granting the FHLBC the option to put the
advances back to the Bank prior to their final maturity. At

December 31, 2006, the
Bank had $100 million of adjustable rate advances indexed at the Prime rate ranging from
Prime minus 280 basis points to 287 basis points, a $50.0 million adjustable-rate advance
that is indexed at three-month London interbank offering rate (LIBOR) minus 6
basis points and $400.0 million of a short term advance at a FHLBC effective federal funds
rate minus 3 basis points, which was 5.29% at December 31, 2006. This last borrowing was funded
in late December as part of the balance sheet restructuring transaction and was repaid in
January 2007 with the proceeds from the sale of investments and mortgage-backed
securities. The table above shows all advances at their final contractual maturity.

Unsecured
Term Bank Loan. At December 31, 2006, the Company has an unsecured term
loan with a final maturity of December 31, 2015. The loan agreement provides for an
interest rate of one, two, three, six or twelve-month LIBOR plus 95 basis points at the
option of the Company at each reprice date. At December 31, 2006, the weighted
average interest rate was 6.32%. The next scheduled principal payment of $12.5 million is
due on December 31, 2007. Prepayments of principal are allowed without penalty at the
end of any repricing period. At December 31, 2006 and 2005, the balance of the unsecured
term loan was $147.5 million and $63.0 million, respectively.

Unsecured
Line of Credit. In conjunction with the term bank loan, the Company also
maintains a $60.0 million one-year unsecured revolving line of credit, which was renewed
until June 30, 2007. There was no balance drawn at December 31, 2006 and December 31,
2005.

82

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
term bank loan and line of credit agreements contain covenants that, among other things,
require the Company to maintain a minimum stockholders equity balance and to obtain
certain minimum operating results, as well as requiring the Bank to maintain well
capitalized regulatory capital levels and certain non-performing asset ratios. In
addition, the Company has agreed to certain restrictions on additional indebtedness and
agreed not to pledge any stock of the Bank or MAF Developments for any purpose. At
December 31, 2006, the Company was in compliance with these covenants after giving effect
to the waiver obtained from the lenders with respect to the net income impact of the balance sheet restructuring.

Reverse
Repurchase Agreements. The Bank enters into sales of securities under
agreements to repurchase the identical securities (reverse repurchase
agreements) with nationally recognized primary securities dealers and are treated as
financings. The securities underlying the agreements are delivered to the dealers who
arrange the transaction and are reflected as assets. The usual terms of agreements require
the seller, generally after a short period of time, to repurchase the same securities at a
predetermined price or yield. The following table presents certain information regarding
reverse repurchase agreements as of and for the periods indicated:

|                                    | Year Ended December 31, | 
|----------------------------------- | ----------------------- | 
|
|
|Balance at end of period            |                         | 
|Maximum month-end balance           |                         | 
|Average balance                     |                         | 
|Weighted  average  rate  at  end of |                         | 
|period                              |                         | 
|Weighted  average  rate on  average |                         | 
|balance                             |                         | 

At
December 31, 2006, reverse repurchase agreements totaled $400 million of which $300
million are adjustable-rate and $100 million are fixed-rate. The adjustable rate
agreements have remaining terms to maturity ranging from 3 months to 4 years. The interest
rate on $75.0 million of adjustable rate agreements is tied to the Prime rate and ranges
from Prime minus 280 basis points to Prime minus 284 basis points. The remaining $225.0
million have interest rates ranging from three-month LIBOR minus 26 basis points to
three-month LIBOR minus 58.5 basis points. The LIBOR-based repurchase agreements are
putable at the discretion of the lender quarterly starting in 2007. The rates on the
putable fixed rate repurchase agreements range from 4.31% to 4.65%, and these agreements
are putable at discretion of the lender quarterly at various dates in 2007 and 2008. The
remaining terms on the fixed-rate agreements range from 4 years to 8 years. At
December 31, 2006, reverse repurchase agreements were collateralized by investment
and CMO securities with a carrying value of $429.7 million and fair value of $425.8
million. Securities sold under agreements to repurchase were delivered for escrow to the
broker-dealer who arranged the transactions.

Scheduled
principal repayments on our long-term debt obligations including FHLBC advances, reverse
repurchase agreements and the unsecured term bank loan are as follows as of
December 31, 2006 (in thousands):

|           | FHLBCAdvances | ReverseRepurchaseAgreements | UnsecuredTerm BankLoan | Total    
|---------- | ------------- | --------------------------- | ---------------------- | ---------
|2007       |               |                             | $                      | 1,495,000
|2008       |               |                             |                        | 564,000  
|2009       |               |                             |                        | 36,000   
|2010       |               |                             |                        | 50,000   
|2011       |               |                             |                        | 10,000   
|2012 and   |               |                            
|thereafter |               |                             |                        |         
|           |               |                             |                        |          
|           |               |                             | $                      | 2,155,000
|           |               |                             |                        |          

Retail
repurchase agreements. For certain customers with significant funds
available for deposit at the Bank, the Bank offers retail repurchase
agreements under which the Bank collateralizes its obligation to repay the customer funds
with U.S. government or agency securities. The retail

83

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

repurchases, which totaled $69.8
million at December 31, 2006, are collateralized by U.S. government agency and CMO
securities with a carrying value and fair value of $74.7 million.

Interest
expense on borrowed funds is summarized as follows for the periods indicated:

|                              | Year Ended December 31, | 
|----------------------------- | ----------------------- | 
|
|
|FHLB of Chicago advances      |                         | 
|Reverse repurchase agreements |                         | 
|Unsecured term bank loan      |                         | 
|Unsecured line of credit      |                         | 
|Other borrowings              |                         | 
|                              |                         | 
|                              |                         | 
|                              |                         | 

# 12. Junior Subordinated
Debentures

The
following table summarizes the amount of junior subordinated debentures issued by the
Company to MAF Bancorp Capital Trust I and MAF Bancorp Capital Trust II as of December 31,
2006:

|                             |  | At December 31, 2006 |               
|---------------------------- |  | -------------------- | --------------
|
|MAF Bancorp Capital Trust I  |  |                      | April 15, 2005
|MAF Bancorp Capital Trust II |  |                      | August 4, 2005
|                             |  |                      |               
|                             |  |                      |               
|                             |  |                      |               

During
2005, the Company formed MAF Bancorp Capital Trust I and MAF Bancorp Capital Trust II (the
Trusts) as special purpose finance subsidiaries. The Trusts have issued $65.0
million in trust preferred securities. The proceeds from the sale of the preferred
securities, along with $2.0 million received from the Companys purchase of the
common equity securities of the Trusts, were invested in junior subordinated debentures of
the Company. The sole assets of the Trusts are the junior subordinated debentures. The
Trusts are unconsolidated subsidiaries in accordance with the guidance from the Financial
Accounting Standards Board (FASB) Interpretation No. 46 Revised,
Consolidation of Variable Interest Entities: (FIN 46R). The total
balance of the junior subordinated debentures issued to the Trusts is recorded as a
liability. Interest expense on the junior subordinated debentures is recorded in interest
expense in the consolidated statement of operations.

# 13. Derivative Financial
Instruments

The
Bank enters into forward commitments to sell mortgage loans for future delivery as a means
of limiting exposure to changing interest rates between the date a loan customer commits
to a given rate, or closes the loan, whichever is sooner, and the sale date, which is
generally 10 to 60 days after the closing date. These commitments to sell require the Bank
to deliver mortgage loans at stated coupon rates within the specified forward sale period,
and subject the Bank to risk to the extent the loans do not close. The Bank attempts to
mitigate this risk by collecting a non-refundable commitment fee, when possible, and by
estimating a percentage of fallout when determining the amount of forward commitments to
sell. The following is a summary of the Banks forward sales commitment activity for
the periods indicated:

|                                   | Year Ended December 31, | 
|---------------------------------- | ----------------------- | 
|
|
|Balance at beginning of year       |                         | 
|New forward commitments to deliver |                         | 
|loans                              |                         | 
|Loans delivered to satisfy forward |                         | 
|commitments                        |                         | 
|                                   |                         | 
|Balance at end of year             |                         | 
|                                   |                         | 

84

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

Loan
commitments and forward sales are accounted for as derivative instruments with adjustments
included in gain on sale of mortgage loans. At December 31, 2006 and 2005, the net
fair value adjustment of locked commitments and forward sales was ($171,000) and
($382,000), respectively.

# 14. Income Taxes

Income tax expenses is
summarized below:

|                 | Year Ended December 31, | 
|---------------- | ----------------------- | 
|
|
|Current:         |                         | 
|Federal          |                         | 
|State            |                         | 
|                 |                         | 
|                 |                         | 
|                 |                         | 
|Deferred:        |                         | 
|Federal          |                         | 
|State            |                         | 
|                 |                         | 
|                 |                         | 
|                 |                         | 
|Total income tax |                         | 
|expense          |                         | 
|                 |                         | 

Retained
earnings at December 31, 2006 include $95.0 million of tax bad debt reserves for
which no provision for income taxes has been made. This amount represents earnings legally
appropriated to bad debt reserves and deducted for federal income tax purposes and is
generally not available for payment of cash dividends by the Bank or other distributions
to shareholders of the Bank. If in the future this amount or a portion thereof, is used
for certain purposes other than to absorb losses on bad debts, an income tax liability
will be imposed on the amount so used at the then current corporate income tax rate. If
deferred taxes were required to be provided on this item, the amount of this deferred tax
liability would be approximately $37.3 million.

The
reasons for the differences between the effective income tax rate and the corporate
federal income tax rate are summarized in the following table:

|                                 | Percentage of Income Before Income Taxes | 
|-------------------------------- | ---------------------------------------- | 
|
|
|Federal income tax rate          |                                          | 
|Items affecting effective income |                                          | 
|tax rate:                        |                                          | 
|State income taxes, net of       |                                          | 
|federal benefit                  |                                          | 
|Bank-owned life insurance        |                                          | 
|Affordable housing tax credits   |                                          | 
|Other items, net                 |                                          | 
|                                 |                                          | 
|Effective income tax rate        |                                          | 
|                                 |                                          | 

The
higher effective income tax rate for 2006 primarily results from adjustments to tax
reserves for uncertainties associated with the Companys real estate investment trust
(REIT) subsidiary, which the Company has had in place since 1999. As part of its audit of
state income tax returns for 1999 to 2001, the Illinois Department of Revenue
(IDR) issued a proposed adjustment in January 2007 that reflected the
disallowance of the REIT dividends paid deduction for the years under examination.The
Company believes it has established adequate reserves to cover its tax liabilities, including these state income
tax uncertainties. The Company disagrees with the proposed IDR adjustment
 and intends to defend its tax filing positions.

85

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2006 and 2005 are
presented below:

|                                            | December 31, | 
|------------------------------------------- | ------------ | 
|
|
|Deferred tax assets:                        |              | 
|Deferred compensation                       |              | 
|Allowance for loan losses                   |              | 
|Unrealized loss on securities available     |              | 
|for sale                                    |              | 
|Book versus tax basis of securities         |              | 
|Book versus tax basis of loans receivable   |              | 
|Book versus tax basis of deposits           |              | 
|State net operating losses                  |              | 
|Other                                       |              | 
|                                            |              | 
|Total deferred tax assets                   |              | 
|Valuation allowance                         |              | 
|                                            |              | 
|Total deferred tax assets net of            |              | 
|valuation allowance                         |              | 
|Deferred tax liabilities:                   |              | 
|REIT dividends                              |              | 
|Loan origination fees and expenses          |              | 
|Book versus tax basis of land and fixed     |              | 
|assets                                      |              | 
|Book versus tax basis of capitalized        |              | 
|servicing                                   |              | 
|Book versus tax basis of intangible assets  |              | 
|Book versus tax basis of FHLBC stock        |              | 
|Book versus tax basis of loans receivable . |              | 
|Book versus tax basis of deposits           |              | 
|Other                                       |              | 
|                                            |              | 
|Total deferred tax liabilities              |              | 
|                                            |              | 
|Net deferred tax liability                  |              | 
|                                            |              | 

At
December 31, 2006, there are deferred tax assets relating to approximately $60.1
million of various state net operating loss carryforwards, of which $35.6 million relate
to pre-acquisition losses of acquired companies. The net operating losses expire during a
period that begins in 2007 and ends in 2021. The deferred tax assets associated with the
net operating loss carryforwards and certain other deferred deductible items are reduced by a 100% valuation allowance because
realization of these tax benefits is in doubt. The increase in the valuation allowance in 2006 primarily relates to net
operating losses incurred in 2006 and 2005. If the net operating losses with a related
valuation allowance are subsequently utilized, the related recognized tax benefits will be
allocated to reduce goodwill to the extent they relate to pre-acquisition net operating
losses of acquired companies.

# 15. Regulatory Capital

The
Bank is subject to regulatory capital requirements by the Office of Thrift Supervision
(OTS). Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary actions by regulators, which could have a
material impact on the Banks financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Banks assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting
practices.

Quantitative
measures established by the OTS to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios (as set forth in the table below) of three capital
requirements: a tangible capital (as defined in the regulations) to adjusted total assets
ratio, a core capital (as defined) to adjusted total assets ratio, and a risk-based
capital (as defined) to total risk-weighted assets ratio. The Bank met all capital
adequacy requirements to which it is subject as of December 31, 2006 and 2005.

86

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

The
Banks actual capital amounts and ratios, as well as minimum amounts and ratios
required for capital adequacy and prompt corrective action provisions are presented below:

|                                        | Actual | For Capital AdequacyPurposes | To Be Well CapitalizedUnder PromptCorrective ActionProvisions |        
|--------------------------------------- | ------ | ---------------------------- | ------------------------------------------------------------- | -------
|
|
|As of December 31, 2006:                |        |                              |                                                               |        
|Tangible capital (to total assets)      |        |                              | $                                                             | 789,888
|Core capital (to total assets)          |        |                              |                                                               | 789,888
|Total capital (to risk-weighted assets) |        |                              |                                                               | 804,554
|Core capital (to risk-weighted assets)  |        |                              |                                                               | 789,888
|                                        |        |                             
|As of December 31, 2005:                |        |                             
|Tangible capital (to total assets)      |        |                              |                                                               | 715,105
|Core capital (to total assets)          |        |                              |                                                               | 715,105
|Total capital (to risk-weighted assets) |        |                              |                                                               | 735,996
|Core capital (to risk-weighted assets)  |        |                              |                                                               | 715,105

OTS
regulations provide various standards under which the Bank may declare and pay dividends
to the Company. During 2007, the amount of dividends the Bank can pay to the Company
without prior approval of the OTS is limited to 2007 eligible net profits, as defined, and
adjusted retained 2006 and 2005 net income from the Bank and its subsidiaries. At December
31, 2006 under current OTS regulations, the Bank has $13.3 million of retained earnings
available for dividend declarations.

As
of December 31, 2006 and 2005, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain a minimum core capital to adjusted total assets, risk-based capital
to adjusted risk-weighted assets, and core capital to adjusted risk-weighted assets ratios
as set forth in the table above.

# 16. Officer, Director
and Employee Benefit Plans

Employee
Stock Ownership Plan (ESOP). The Mid America Bank, fsb ESOP covers
substantially all employees who met minimum service requirements and who have attained the
age of 21. Contributions to the ESOP by the Bank are currently made to purchase additional
common shares of the Companys stock. For the years ended December 31, 2006,
2005 and 2004, total contributions to the ESOP were $670,000, $720,000, and $680,000,
respectively, which were expensed. The ESOP purchased 14,647, 16,650 and 16,237 of the
Companys shares for the years ended December 31, 2006, 2005 and 2004
respectively.

Profit Sharing Plan/401(k) Plan. The Mid America Bank, fsb Profit Sharing/401(k)
          Plan allows employees to make pre-tax or after-tax contributions to the plan,
          subject to certain limitations. The Bank matches the pre-tax contributions of
          employees at a rate equal to 35%, up to a $1,200 maximum matching contribution
          per employee. The Bank, at its discretion, may make additional contributions to
          the plan. Employees contributions vest immediately while the Banks
          contributions vest gradually over a six-year period based on an employees
          years of service. The Bank made discretionary and matching contributions to the
          plan of $2.7 million, $2.9 million and $2.7 million for the years ended
          December 31, 2006, 2005, and 2004, respectively.

Qualified
Retirement Plans of Acquired Companies. As a result of the merger with EFC
Bancorp Inc. in 2006, the Company, through Mid America Bank, became the plan sponsor of
the Elgin Financial Center, S.B. ESOP and the Elgin Financial Center, S.B. 401(k) Plan.
The Elgin ESOP and 401(k) plans were merged into the Mid America Profit Sharing Plan, in 2006.

As
a result of the merger with Fidelity Bancorp in 2003, the Company, through Mid America
Bank, became the plan sponsor of the Fidelity Retirement Plan. The plan has been
terminated and distributions totaling $976,000 were made to plan participants during 2005.
The Company did not record any contribution expense for this plan during 2005 or 2004.

87

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

As
a result of the merger with Chesterfield Financial Corp. in 2004, the Company, through Mid
America Bank, became the plan sponsor of the Chesterfield ESOP and the Chesterfield Profit
Sharing Plan. The Chesterfield ESOP has been terminated and distributions totaling $5.5
million were made to plan participants during 2005. The Chesterfield Profit Sharing Plan
has been terminated and distributions were made to plan participants during 2006. The
Company did not record any contribution expense for these plans during 2006, 2005 or 2004.

As
a result of the merger with St. Francis Capital Corporation during 2003, the Company,
through Mid America Bank, became the plan sponsor of the St. Francis ESOP and the St.
Francis Savings and Retirement Plan. The St. Francis ESOP and St. Francis Savings and
Retirement Plan were merged into the Mid America ESOP and Mid America Profit Sharing Plan,
respectively, during 2004.

Incentive
Plan/Stock Option Plans. Prior to January 1, 2006, the Company elected to
apply Accounting Principles Board, or APB, No. 25 and related interpretations under SFAS
No. 123 Accounting for Stock-Based Compensation and SFAS No. 148
Accounting for Stock-Based Compensation  Transition and Disclosure.
Pursuant to the guidance in these pronouncements, we did not record compensation expense
under our plans related to stock options.

On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards, or SFAS,
No. 123R, Share-Based Payments. SFAS No. 123R requires the recognition of
compensation expense in an amount equal to the fair value of all share-based payments. The
Company elected to apply SFAS 123R on a modified prospective method, which requires the
Company to record compensation expense for options granted on or after January 1, 2006 and
over the remaining vesting period for previous awards that were partially unvested as of
the date of adoption of SFAS No. 123R. Also, under the modified prospective method, the
financial statements for prior periods do not reflect any adjusted amounts. The Company
utilized the Black-Scholes option-pricing model to determine the grant date value of stock
options.

Had
the Company elected to record compensation expense for stock option grants based on the
fair value at the grant dates for stock option awards under those plans consistent with
the method of SFAS No. 148, the Companys net income and earnings per share would
have been reduced to the pro-forma amounts indicated in the table below:

|                                                                          | Year Ended December 31, | 
|------------------------------------------------------------------------- | ----------------------- | 
|
|Net income                                                                |                         | 
|As reported                                                               |                         | 
|Add: Stock based employee compensation expense included in reported net   |                         | 
|income, net of tax effects                                                |                         | 
|Deduct: total stock option employee compensation expense determined using |                         | 
|Black-Scholes method for all awards, net of related tax effects           |                         | 
|                                                                          |                         | 
|Pro-forma                                                                 |                         | 
|                                                                          |                         | 
|Basic earnings per share                                                  |                         | 
|As reported                                                               |                         | 
|Pro-forma                                                                 |                         | 
|Diluted earnings per share                                                |                         | 
|As reported                                                               |                         | 
|Pro-forma                                                                 |                         | 
|                                                                          |                         | 

The fair value of each option grant
was estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants during the years ended December 31, 2005
and 2004: dividend yield of 2.05% and 1.88%; expected volatility of 24.67% and 25.91%;
risk-free interest rates of 4.42% and 4.20%; expected life of 7.5 years for each period.

The
MAF Bancorp Incentive Compensation Plan, or the Incentive Plan, was adopted in July 2003.
Under the Incentive Plan, a variety of different types of awards may be granted to
directors and employees, including stock options, stock appreciation rights, restricted
shares, performance shares, restricted and performance share units, cash awards, awards
under deferred compensation or similar plans, and other incentive awards. Stock options
have also been granted to employees and directors under prior stock option plans. Our
shareholders have approved all stock incentive plans. We generally issue treasury shares
to satisfy stock option exercises and upon vesting of RSUs, as available.

88

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements  (Continued)

The
plan provides that the total number of shares of common stock which may be issued pursuant
to awards under the plan may not exceed 800,000 shares, plus such number of shares of
common stock that have already been authorized and previously approved by the Companys
shareholders and are available for issuance under the Companys 2000 Stock Option Plan.

Of
the shares authorized for issuance under the Incentive Plan, up to 25% may be issued with
respect to awards of restricted stock and restricted stock units. In the case of stock
option awards, the option exercise price must be at least 100% of the fair market value of
the common stock on the date of grant, and the option term cannot exceed 10 years. Vesting
periods are determined at the discretion of the Companys Compensation Committee. For
the initial stock options awards granted under the Incentive Plan in 2003, the vesting
period was established as two years. The stock options awarded during 2005 and 2004 were
immediately vested on the date of grant.

All
current outstanding stock options have been granted at an exercise price equal to or
greater than the fair market value of the underlying common stock at the date of grant,
and may be exercisable for up to 10 years. We recorded expense for the year ended December
31, 2006 of $6,312 related to 500 options that became fully vested in December 2006. We
did not grant any stock options in 2006. In 2005 and 2004, stock options granted were
immediately vested and no associated compensation expense has been recorded for such
options in 2006, 2005 or 2004.

In
conjunction with the Companys acquisitions, certain outstanding stock options of the
acquired institutions were converted into stock options of the Company based on the
transactions exchange ratios and other terms of the merger agreements. The value of
these stock options was included in the purchase price of the transactions, and therefore
no compensation expense was recorded for such options in 2006, 2005 or 2004.

|                              | Year Ended December 31, | 
|----------------------------- | ----------------------- | 
|
|
|Beginning of year             |                         | 
|Options granted               |                         | 
|Acquiree options converted    |                         | 
|Options exercised             |                         | 
|Converted options exercised   |                         | 
|Options cancelled             |                         | 
|                              |                         | 
|End of year                   |                         | 
|                              |                         | 
|Options exercisable           |                         | 
|                              |                         | 
|Fair value of options granted |                         | 
|during year                   |                         | 
|                              |                         | 

At
December 31, 2006 the following stock options are outstanding:

|                | Options Outstanding | Options Exercisable | 
|--------------- | ------------------- | ------------------- | 
|
|$13.77 to 24.24 |                     |                     | 
|25.22 to 34.11  |                     |                     | 
|34.94 to 44.87  |                     |                     | 
|                |                     |                     | 
|                |                     |                     | 
|                |                     |                     | 

The
Company also granted restricted stock units (RSUs) to employees pursuant to
the Incentive Plan. An RSU award entitles a recipient to receive a like number of shares
of MAF Bancorp stock on certain designated vesting dates, assuming the recipient is still
employed with the Company on such dates. RSUs granted to employees in 2006 vest ratably
over a three-year or five-year period while RSUs granted to directors in 2006 vest over
one-year period. RSUs granted in 2005 vest ratably over a three-year period while RSUs
granted in 2004 vest on various dates during a period that ends five years from the date
of grant. The following is a summary of outstanding RSUs:

89

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

|                  | Year Ended December 31, | 
|----------------- | ----------------------- | 
|
|Beginning of Year |                         | 
|RSUs granted      |                         | 
|RSUs vested       |                         | 
|RSUs cancelled    |                         | 
|                  |                         | 
|End of year       |                         | 
|                  |                         | 

The
Company incurred compensation expense totaling $671,000, $343,000, and $201,000 in 2006,
2005 and 2004, respectively, relating to restricted stock awards. In addition to the
outstanding stock options and RSUs shown in the tables above, there were 75,553 shares
available for grant under the Incentive Plan as of December 31, 2006. Cancelled stock
options and RSUs increase the number of shares available for grant under the Incentive
Plan.

Stock
Option Gain Deferral Plan. The MAF Bancorp, Inc. Stock Option Gain Deferral
Plan (Gain Deferral Plan) was adopted during 1999 and terminated in 2005. The
Gain Deferral Plan combined traditional deferred compensation arrangements with stock
option exercise transactions by allowing designated executive officer participants to
defer to a future date, the receipt of shares representing the value of underlying MAF
Bancorp stock options. Dividends paid on MAF Bancorp shares deferred through the Gain
Deferral Plan were recorded as compensation expense and reinvested in MAF Bancorp shares.
The Companys obligation to issue the deferred MAF Bancorp shares in the future was
recorded in stockholders equity as the sum of (a) the number of shares
purchased with reinvested dividends multiplied by the purchase price of such shares, and
(b) the number of shares deferred in option exercise transactions multiplied by the
exercise price of the related stock options. On February 1, 2005, the Gain Deferral
Plan was terminated. The assets of the Plan, which were invested in shares of the
Companys common stock, were distributed in kind to the two Plan participants upon
termination.

Deferred
Compensation Plans.The Bank maintains deferred compensation plans for
directors, executive officers and certain other corporate officers. The deferred
compensation plans allow directors to defer all of their director compensation and other
participants to defer up to 25% of their salary and certain bonuses. Plan participants
have the option to have their deferred amounts earn interest at 110% (130% prior to
January 1, 2005) of the Moodys corporate bond rate or to earn a total return based
on an investment in MAF Bancorp common stock. The Bank also offers a deferred compensation
plan to other selected employees that has similar terms but provides for a lower interest
crediting rate and no stock investment option. In addition, the Bank is the successor to
various deferred compensation plans of acquired companies. The Company records
compensation expense relating to the interest credited on deferred compensation balances.
Amounts deferred remain the property of the Bank.

The
Company invests in bank-owned life insurance that may be used to satisfy obligations of
the deferred compensation plans, including certain death benefits. At December 31, 2006,
and 2005 the Company had an aggregate liability to the participants of the deferred
compensation plans totaling $18.7 million and $17.7 million, respectively, including the
value of common stock attributable to participants accounts based on the fair market
value of the common stock at the time of deferral. For the years ended December 31, 2006,
2005 and 2004, benefit expenses related to these plans were $1.1 million, $1.2 million and
$1.1 million, respectively.

Post
Retirement Benefits. The Bank sponsors a supplemental executive retirement
plan (SERP) for the purpose of providing certain retirement benefits to
executive officers and other corporate officers approved by the board of directors. The
annual retirement plan benefit under the SERP is calculated equal to 2% of final average
salary times the years of service after 1994, or such later date that a participant enters
the plan. Up to ten additional years of service are credited to participants in the event
of a change in control transaction although in no event may total years of service exceed
20 years. The maximum annual retirement benefit payable is equal to 40% of final average
salary. Benefits are payable in various forms in the event of retirement, death,
disability and separation from service, subject to certain conditions defined in the plan.
The SERP also provides for certain death benefits to the extent

90

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

such amounts exceed a
participants accrued benefit at the time of death. The plan is unfunded, however,
the Company funds life insurance policies that may be used to satisfy obligations of the
SERP.

The
Bank also provides a long-term medical plan for the purpose of providing employees post-
retirement medical benefits. If retirement occurs prior to age 65, but at least age 55
with 10 years of service, the retiree pays 100% of the premium cost of the plan for
lifetime. If retirement occurs at 65 or later, the retiree pays the following percentage
of premium costs based on service at retirement:

|Years of service | Contributionpercentage
|---------------- | ----------------------
|10-19            |                       
|20-24            |                       
|25-29            |                       
|30+              |                       

The
benefits under the retiree benefit plan are not pre-funded and there are no plan assets.
Benefits are funded on a pay-as-you-go basis. The Banks long-term Medical Plan was
amended January 1, 2005, to eliminate the retiree subsidy for all non-retired participants
effective January 1, 2006. Employees who retired prior to 2006 are grandfathered under the
subsidy provisions.

The
prescription contribution paid by Bank employees and directors is not actuarially
equivalent to Medicare Part D, as defined by the Medicare Prescription Drug Improvement
and Modernization Act of 2003. Therefore, the Bank does not qualify for the government
subsidy of 28%.

Members
of the board of directors pay a portion of the cost for both pre-65 and post-65 coverage,
which the case of pre-65 coverage is comparable to the cost paid by current employees.

The
following table sets forth the change in benefit obligations and the related assumptions
for the SERP and long-term medical plan for the periods indicated:

|                                                 | Year Ended December 31, | 
|------------------------------------------------ | ----------------------- | 
|
|
|
|                                                 |                         | 
|Projected benefit obligation - beginning of year |                         | 
|Service cost                                     |                         | 
|Interest cost                                    |                         | 
|Plan amendments                                  |                         | 
|Actuarial losses                                 |                         | 
|Benefits paid                                    |                         | 
|                                                 |                         | 
|Projected benefit obligation - end               |                         | 
|of year                                          |                         | 
|                                                 |                         | 
|Funded status                                    |                         | 
|Unrecognized transition obligation               |                         | 
|Unrecognized prior-service cost                  |                         | 
|Unrecognized loss                                |                         | 
|                                                 |                         | 
|Accrued benefit cost                             |                         | 
|                                                 |                         | 
|Weighted average assumptions:                    |                         | 
|Discount rate                                    |                         | 
|Discount rate at the end of the year             |                         | 
|Rate of compensation increase                    |                         | 
|                                                 |                         | 

91

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

SFAS
158, Employers Accounting for Defined Benefit Pension and other
Post-retirement Plans, requires employers to recognize the underfunded or overfunded
status of a defined benefit post-retirement plan as an asset or liability in its statement
of financial position and to recognize changes in the funded status in the year in which
the changes occur through accumulated other comprehensive loss. Additionally, SFAS No. 158
requires employers to measure the funded status of a plan as of the date of its year-end
statement of financial position. The incremental effect of applying SFAS No. 158 on our
consolidated balance sheet in relationship to the SERP and long-term medical plans were as
follows:

|                                                 | Adjustments |  |   |          
|------------------------------------------------ | ----------- |  | - | ---------
|
|
|Accrued expenses and other liabilities           |             |  | $ | 145,526  
|Accumulated other comprehensive loss, net of tax |             |  |   | (8,172   
|Total stockholders' equity                       |             |  |   |          
|                                                 |             |  |   | 1,072,449

The
components of the net periodic benefit cost of post retirement plans are as follows:

|                                   | Year Ended December 31, | 
|---------------------------------- | ----------------------- | 
|
|
|
|Service cost                       |                         | 
|Interest cost                      |                         | 
|Amortization of prior-service cost |                         | 
|Unrecognized net loss              |                         | 
|                                   |                         | 
|Net periodic benefit cost          |                         | 
|                                   |                         | 

The projected
future benefit payments related to the SERP and long-term medical plan for the next five
years and the total payments thereafter are as follows (in thousands):

|For the year endedDecember 31, | SERP | Long-TermMedical
|------------------------------ | ---- | ----------------
|2007                           |      |                 
|2008                           |      |                 
|2009                           |      |                 
|2010                           |      |                 
|2011                           |      |                 
|2012 - 2016                    |      |                 

# 17. Commitments and
Contingencies

The
Bank is a party to various financial instruments with off-balance sheet risk in the normal
course of its business. These instruments include commitments to extend credit, standby
letters of credit, and forward commitments to sell loans. These financial instruments
carry varying degrees of credit and interest-rate risk in excess of amounts recorded in
the financial statements. The contractual amounts of credit-related financial instruments,
such as commitments to extend credit and letters of credit, represent the amounts of
potential loss should the contract be fully drawn upon, the customer default, or the value
of any existing collateral become worthless.

Commitments
to originate and purchase loans of $487.9 million at December 31, 2006, represent amounts
which the Bank plans to fund within the normal commitment period of 30 to 90 days of which
$205.1 million were fixed-rate, with rates averaging 6.78%, and $282.8 million were
adjustable-rate loans with rates averaging 7.12%. At December 31, 2006, prospective
borrowers had locked the interest rate on $36.8 million of fixed-rate loans, with rates
averaging 6.72%, and $53.6 million of adjustable-rate loans, with rates averaging 7.05%.
At December 31, 2006 the bank also had outstanding commitments to originate $55.9 million
of floating-rate equity lines of credit, with rates averaging 8.36%. Because the credit
worthiness of each customer is reviewed prior to extension of the commitment, the Bank
adequately controls its credit risk on these commitments, as it does for loans recorded on
the balance sheet. As part of its effort to control interest-rate risk on these
commitments, the Bank generally sells fixed-rate mortgage loan commitments, for future
delivery, at a specified price and at a specified future date. Such commitments for future
delivery present a risk to the Bank, in the event it cannot deliver the

92

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

loans during the
delivery period. This could lead to the Bank being charged a fee for non-performance, or
being forced to reprice the mortgage loans at a lower rate, causing a loss to the Bank.
The Bank seeks to mitigate this potential loss by charging potential borrowers, when
possible, a fee to fix the interest rate. The Bank also estimates a percentage of fallout
when determining the amount of forward commitments to enter into. At December 31,
2006, forward commitments to sell mortgage and equity loans for future delivery were
$109.3 million, of which $69.2 million are related to loans held for sale, and $40.1
million are unfunded as of December 31, 2006.

The
Bank has approved, but unused home equity lines of credit of $1.17 billion at
December 31, 2006. Approval of equity lines is based on underwriting standards that
generally do not allow total borrowings, including the equity line of credit, to exceed
100% of the current appraised value of the customers home, which is similar to
guidelines used when the Bank originates first mortgage loans, and are a means of
controlling its credit risk on the loan. However, the Bank offers home equity lines of
credit up to 100% of the homes current appraised value, less existing liens, at a
commensurately higher interest rate. In addition, the Bank has $643.1 million in approved,
but unused commercial business lines.

At
December 31, 2006, the Bank had standby letters of credit, excluding land
development, totaling $97.1 million, one of which totals $6.5 million to enhance an
industrial revenue bond financing of commercial real estate in the Banks market. At
December 31, 2006, the Bank had pledged investment and mortgage-backed securities
with an aggregate carrying value and fair value of $13.1 million and $12.8 million
respectively, as collateral for this letter of credit. Standby letters of credit are
conditional commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in these transactions is essentially the same as
that involved in extending a loan to a customer in the normal course of business, as
performance under the letters of credit creates a first position lien in favor of the
Bank. Additionally, at December 31, 2006, the Company had standby letters of credit
totaling $14.0 million, which ensure the completion of land development improvements
on behalf of MAF Developments, Inc.

At
December 31, 2006, the Bank had $16.8 million of credit risk related to loans sold to the
MPF program and $28.6 million of loans sold with recourse to investors. There were no
losses incurred in 2006, 2005 or 2004. There are no expected losses and no reported
liability at December 31, 2006 and 2005 for such exposure. Additionally the Bank had $17.7
million of credit risk related to loans with private mortgage insurance in force in the
Banks captive reinsurance subsidiary.

In
addition to financial instruments with off-balance sheet risk, the Bank is exposed to
varying risks with concentrations of credit. Concentrations of credit include significant
lending activities in specific geographical areas and large extensions of credit to single
borrowers. The Banks loan portfolio primarily consists of loans secured by real
estate within its market area. At December 31, 2006 and 2005, loans representing
76.3% and 76.8%, respectively, of the Banks total loans receivable were secured by
real estate located in the State of Illinois and 20.2% and 19.6% respectively, were
secured by real estate located in the State of Wisconsin.

The
Company is also subject to various contingent tax liabilities relating to tax positions it
takes in the filing of its tax returns that may be disallowed by taxing authorities based
on their differing interpretation of applicable tax law. The Company believes it has
established adequate reserves for such tax uncertainties.

There
are various matters of litigation pending against the Bank that have arisen during the
normal course of business. Management believes that the liability, if any, resulting from
these matters will not be material to the consolidated financial position or results of
operation of the Bank.

# 18. Segment Information

The
Company utilizes the management approach for segment reporting. This approach
is based on the way that management of the Company organizes lines of business for making
operating decisions and assessing performance.

93

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

Currently,
the Company has two segments. The Banking segment includes lending and deposit gathering
operations, as well as other financial services offered to individuals and business
customers. The Real Estate Operations segment consists primarily of acquiring, obtaining
necessary zoning and regulatory approvals, and improving raw land into developed
residential lots for sale to builders.
 All goodwill is assigned to the Banking segment.
Selected segment information is included in the table below:

|                            | Year Ended December 31, 2006 | 
|--------------------------- | ---------------------------- | 
|
|
|Interest income             |                              | 
|Interest expense            |                              | 
|                            |                              | 
|Net interest income         |                              | 
|Provision for loan losses   |                              | 
|                            |                              | 
|Net interest income after   |                              | 
|provision                   |                              | 
|Non-interest income         |                              | 
|Non-interest expense before |                              | 
|depreciation                |                              | 
|Depreciation expense        |                              | 
|                            |                              | 
|Income before income taxes  |                              | 
|Income tax expense          |                              | 
|                            |                              | 
|Net income                  |                              | 
|                            |                              | 
|Average assets              |                              | 
|                            |                              | 
|Total revenues              |                              | 
|                            |                              | 
|                            |                              | 

|                            | Year Ended December 31, 2005 | 
|--------------------------- | ---------------------------- | 
|
|
|Interest income             |                              | 
|Interest expense            |                              | 
|                            |                              | 
|Net interest income         |                              | 
|Provision for loan losses   |                              | 
|                            |                              | 
|Net interest income         |                              | 
|after provision             |                              | 
|Non-interest income         |                              | 
|Non-interest expense before |                              | 
|depreciation                |                              | 
|Depreciation expense        |                              | 
|                            |                              | 
|Income before income taxes  |                              | 
|Income tax expense          |                              | 
|                            |                              | 
|Net income                  |                              | 
|                            |                              | 
|Average assets              |                              | 
|                            |                              | 
|Total revenues              |                              | 
|                            |                              | 
|                            |                              | 

|                            | Year Ended December 31, 2004 | 
|--------------------------- | ---------------------------- | 
|
|
|Interest income             |                              | 
|Interest expense            |                              | 
|                            |                              | 
|Net interest income         |                              | 
|Provision for loan losses   |                              | 
|                            |                              | 
|Net interest income after   |                              | 
|provision                   |                              | 
|Non-interest income         |                              | 
|Non-interest expense before |                              | 
|depreciation                |                              | 
|Depreciation expense        |                              | 
|                            |                              | 
|Income before income taxes  |                              | 
|Income tax expense          |                              | 
|                            |                              | 
|Net income                  |                              | 
|                            |                              | 
|Average assets              |                              | 
|                            |                              | 
|Total revenues              |                              | 
|                            |                              | 

# 19. Fair Values of
Financial Instruments

SFAS
No. 107, Disclosures about Fair Value of Financial Instruments requires the
disclosure of estimated fair values of all asset, liability and off-balance sheet
financial instruments. The estimated fair value amounts under SFAS No. 107 have been
determined as of a specific point in time utilizing available market information,
assumptions and appropriate valuation methodologies. Accordingly, the estimated fair
values presented herein are not necessarily representative of the underlying value of the
Company. Rather the disclosures are limited to reasonable estimates of the fair value of
only the Companys financial instruments. The use of assumptions and various
valuation techniques, as well as the absence of

94

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

secondary markets for certain financial
instruments, will likely reduce the comparability of fair value disclosures between
financial institutions. The Company does not plan to sell most of its assets or settle
most of its liabilities at these values.

The
estimated fair values of the Companys financial instruments as of December 31,
2006 and 2005 are set forth in the following table below.

|                          | December 31, 2006 | December 31, 2005 |  
|------------------------- | ----------------- | ----------------- | -
|
|
|Financial assets:         |                   |                   |  
|Cash and cash equivalents |                   |                   | $
|Investment securities     |                   |                  
|available for sale        |                   |                   |  
|Stock in FHLB of Chicago  |                   |                   |  
|Mortgage-backed           |                   |                  
|securities available      |                   |                  
|for sale                  |                   |                   |  
|Mortgage-backed           |                   |                  
|securities                |                   |                  
|held to maturity          |                   |                   |  
|Loans receivable held     |                   |                  
|for sale                  |                   |                   |  
|Loans receivable          |                   |                   |  
|Interest receivable       |                   |                   |  
|Bank-owned life insurance |                   |                   |  
|Mortgage loan servicing   |                   |                  
|rights                    |                   |                   |  
|                          |                   |                   |  
|Total financial assets    |                   |                   | $
|                          |                   |                   |  
|Financial liabilities:    |                   |                  
|Non-maturity deposits     |                   |                   | $
|Deposits with stated      |                   |                  
|maturities                |                   |                   |  
|Borrowed funds            |                   |                   |  
|Junior subordinated       |                   |                  
|debentures                |                   |                   |  
|Interest payable          |                   |                   |  
|                          |                   |                   |  
|Total financial           |                   |                  
|liabilities               |                   |                   | $
|                          |                   |                   |  

The
following methods and assumptions are used by the Company in estimating the fair value
amounts for its financial instruments.

Cash
and cash equivalents. The carrying value of cash and cash equivalents approximates
fair value due to the relatively short period of time between the origination of the
instruments and their expected realization.

Investment
securities and mortgage-backed securities. The fair values of these financial
instruments were estimated using quoted market prices, when available. The fair value of
FHLBC stock is based on its redemption value.

Loans
receivable. The fair value of loans receivable held for investment is estimated based
on contractual cash flows adjusted for prepayment assumptions, discounted using the
current rate at which similar loans would be made to borrowers with similar credit ratings
and remaining terms to maturity. The fair value of mortgage loans held for sale is based
on estimated values that could be obtained in the secondary market.

Interest
receivable and payable. The carrying value of interest receivable, net of the reserve
for uncollected interest, and interest payable, approximates fair value due to the
relatively short period of time between accrual and expected realization.

Deposits.       
          The fair value of deposits with no stated maturity, such as demand deposit,
          passbook savings, checking and money market accounts, are disclosed as the
          amount payable on demand. The fair value of fixed-maturity deposits is the
          present value of the contractual cash flows discounted using interest rates
          currently being offered for deposits with similar remaining terms to maturity.

Borrowed
funds. The fair value of FHLBC advances and reverse repurchase agreements is the
present value of the contractual cash flows, discounted by the current rate offered for
similar remaining maturities. The carrying value of the unsecured term bank loan
approximates fair value due to the short term to repricing and adjustable rate nature of
the loan.

95

---

# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

Commitments
to extend credit and standby letters of credit. The fair value of commitments to
extend credit is estimated based on current levels of interest rates versus the committed
rates. As of December 31, 2006 and 2005, the fair value of the Banks mortgage
loan commitments of $487.9 million and $756.4 million, respectively, was $1.1 million and
($817,000), respectively, which represents the differential between the committed value
and value at current rates. The fair value of the standby letters of credit approximate
the recorded amounts of related fees and are not material at December 31, 2006 and
2005.

# 20. Related Party
Transactions

The
Company, through its subsidiary bank, has made loans and had transactions with certain of
its directors and officers. All such loans and transactions were made in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with other persons
and did not involve more than the normal risk of collectibility or present other
unfavorable features. We had loans and commitments to extend credit to directors and
executive officers of $3.3 million and $3.1 million at December 31, 2006 and 2005,
respectively. During 2006, we originated new loans and commitments totaling $246,000 to
such persons.

A
director of the Company is a partner in a law firm that provides legal services to the
Company and the Bank. Total fees paid to this law firm were $315,360, $316,720 and
$387,660 for the years ended December 31, 2006, 2005 and 2004, respectively. The same law
firm leases office space from the Company and paid rents in the amount of $115,992 for
each of the years ended December 31, 2006, 2005 and 2004.

The
Company and the Bank also employ various relatives of certain executive officers and
directors and pay them compensation commensurate with their positions at the Bank and the
Company.

# 21. Parent Company Only
Financial Information

The
information as of December 31, 2006, and 2005, and for the years ended
December 31, 2006, 2005, and 2004, presented below should be read in conjunction with
the other Notes to Consolidated Financial Statements.

|                                                 | At December 31, | 
|------------------------------------------------ | --------------- | 
|
|
|Assets:                                          |                 | 
|Cash and cash equivalents                        |                 | 
|Investment securities                            |                 | 
|Equity in net assets of subsidiaries             |                 | 
|Other assets                                     |                 | 
|                                                 |                 | 
|Total assets                                     |                 | 
|                                                 |                 | 
|Liabilities and Stockholders' Equity:            |                 | 
|Liabilities:                                     |                 | 
|Borrowed funds                                   |                 | 
|Junior subordinated debentures                   |                 | 
|Accrued expenses                                 |                 | 
|                                                 |                 | 
|Total liabilities                                |                 | 
|                                                 |                 | 
|Stockholders' equity:                            |                 | 
|Common stock                                     |                 | 
|Additional paid-in capital                       |                 | 
|Retained earnings, substantially restricted      |                 | 
|Accumulated other comprehensive loss, net of tax |                 | 
|Treasury stock                                   |                 | 
|                                                 |                 | 
|Total stockholders' equity                       |                 | 
|                                                 |                 | 
|Total liabilities and stockholders' equity       |                 | 
|                                                 |                 | 
|                                                 |                 | 

96

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated Financial Statements - (Continued)

|                                                | Year Ended December 31, | 
|----------------------------------------------- | ----------------------- | 
|
|
|Dividend income from subsidiaries               |                         | 
|Interest income                                 |                         | 
|Interest expense                                |                         | 
|                                                |                         | 
|Net interest and dividend income                |                         | 
|Gain on sale of investments, net                |                         | 
|Non-interest expense                            |                         | 
|Net income before income tax benefit and equity |                         | 
|in undistributed earnings of subsidiaries       |                         | 
|Income tax benefit                              |                         | 
|                                                |                         | 
|Net income before equity in undistributed       |                         | 
|earnings of subsidiaries                        |                         | 
|Equity (deficit) in undistributed earnings of   |                         | 
|subsidiaries                                    |                         | 
|                                                |                         | 
|Net income                                      |                         | 
|                                                |                         | 

|                                                 | December 31, | 
|------------------------------------------------ | ------------ | 
|
|
|Operating activities:                            |              | 
|Net income                                       |              | 
|Deficit (equity) in undistributed earnings of    |              | 
|subsidiaries                                     |              | 
|Gain on sale of investment securities            |              | 
|Net decrease (increase) in other assets and      |              | 
|liabilities, net of effects from                 |              | 
|acquisitions                                     |              | 
|                                                 |              | 
|Net cash provided by operating activities        |              | 
|                                                 |              | 
|Investing activities:                            |              | 
|Proceeds from sale and maturities of investment  |              | 
|securities                                       |              | 
|Loans to subsidiaries less repayments, net       |              | 
|Investments in unconsolidated subsidiaries       |              | 
|Purchases of investment securities               |              | 
|Payment for acquisitions, net of cash acquired   |              | 
|                                                 |              | 
|Net cash used in investing activities            |              | 
|                                                 |              | 
|Financing activities:                            |              | 
|Proceeds from:                                   |              | 
|Exercise of stock options                        |              | 
|Borrowings                                       |              | 
|Issuance of junior subordinated debentures       |              | 
|Repayment of borrowings                          |              | 
|Purchase of treasury stock                       |              | 
|Cash dividends paid                              |              | 
|                                                 |              | 
|Net cash used in financing activities            |              | 
|                                                 |              | 
|Increase (decrease) in cash and cash equivalents |              | 
|Cash and cash equivalents at beginning of year   |              | 
|                                                 |              | 
|Cash and cash equivalents at end of year         |              | 
|                                                 |              | 

97

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# MAF Bancorp, Inc. and
SubsidiariesNotes to Consolidated
Financial Statements - (Continued)

# 22. Selected Quarterly
Financial Data (Unaudited)

The
following are the consolidated results of operations on a quarterly basis:

|                           | Year Ended December 31, 2006 | Year Ended December 31, 2005 |  
|-------------------------- | ---------------------------- | ---------------------------- | -
|
|
|Interest income            |                              |                              | $
|Interest expense           |                              |                              |  
|                           |                              |                              |  
|Net interest income        |                              |                              |  
|Provision for loan losses  |                              |                              |  
|                           |                              |                              |  
|Net interest income        |                              |                             
|after provision for        |                              |                             
|loan losses                |                              |                              |  
|Net gain (loss) on sale or |                              |                             
|writedown of assets        |                              |                              |  
|Income (loss)  from real   |                              |                              |  
|estate operations          |                              |                              |  
|Deposit account service    |                              |                             
|charges                    |                              |                              |  
|Other income               |                              |                              |  
|                           |                              |                              |  
|Total non-interest         |                              |                             
|income                     |                              |                              |  
|Non-interest expense       |                              |                              |  
|                           |                              |                              |  
|Income before income       |                              |                             
|taxes                      |                              |                              |  
|Income tax expense         |                              |                              |  
|                           |                              |                              |  
|Net income                 |                              |                              | $
|                           |                              |                              |  
|Basic earnings per share   |                              |                              | $
|Diluted earnings per share |                              |                              |  
|Dividends declared per     |                              |                             
|common share               |                              |                              |  

98

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# Item 9.      
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

# Item 9A. Controls and
Procedures

As
of December 31, 2006, our Chief Executive Officer and Chief Financial Officer carried
out an evaluation under their supervision, with the participation of other members of
management as they deemed appropriate, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures as contemplated by Rule 13a-15(e)
under the Securities Exchange Act of 1934. Based upon, and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective, in all material respects,
in timely alerting them to material information relating to the Company (and its
consolidated subsidiaries) and in ensuring that information required to be included in the
periodic reports the Company files or submits to the SEC under the Securities Exchange Act
is recorded, processed, summarized and reported as required.

As
of December 31, 2006, we also evaluated the effectiveness of our internal controls
over financial reporting as required by Section 404 of the Sarbanes-Oxley Act and
Rule 13a-15(f) under the Securities Exchange Act of 1934. The report of our Chief
Executive Officer and Chief Financial Officer regarding managements internal control
assessment is included in Item 8 and incorporated herein by reference.

In
order to produce reliable financial statements, management is responsible for establishing
and maintaining effective internal controls over financial reporting. Management evaluates
the effectiveness of its system of internal control over financial reporting and tests for
reliability of recorded financial information through a program of ongoing internal
audits. Actions are taken to address potential control deficiencies that are identified.
Any system of internal control, no matter how well designed, has inherent limitations,
including the possibility that a control can be circumvented or overridden and
misstatements due to error or fraud may occur and not be detected. Also, because of
changes in conditions, internal control effectiveness may vary over time. Accordingly,
even an effective system of internal control will provide only reasonable assurance with
respect to financial statement preparation. Our Chief Executive Officer and Chief
Financial Officer concluded that our system of internal control over financial reporting
at December 31, 2006 is designed and operating effectively at this reasonable assurance
level.

The
audit committee, consisting entirely of independent directors, meets regularly with
management, internal auditors and the independent registered public accounting firm, and
reviews audit plans and results, as well as managements actions taken in discharging
responsibilities for accounting, financial reporting, and internal control. KPMG LLP,
independent registered public accounting firm, and the Companys internal auditors
have direct and confidential access to the audit committee.

# Item 9B.      
Other Information

None.

# PART III

# Item 10. Directors,
Executive Officers and Corporate Governance

Information
regarding our directors is included in our proxy statement under the headings
Information About Directors and Others, Transactions with Certain
Related Persons and Other Information, Corporate Governance Matters 
Audit Committee and the information included therein is incorporated herein by
reference. Information regarding the executive officers of the Company included in this
Form 10-K is included in Item 1. Business. Information regarding beneficial
ownership reporting compliance is included in the Companys proxy statement under the
heading Section 16(a) Beneficial Ownership Reporting Compliance and the
information included therein is incorporated by reference.

There
have been no material changes to the procedures by which security holders may recommend
nominees to our board of directors.

99

---

The
Company has adopted a code of ethics as required by the listing standards of the NASDAQ
National Market and the SEC. This code applies to all of its directors, officers and
employees. The Company has also adopted a charter for each of its audit committee,
administrative/compensation committee and nominating and corporate governance committee
and has posted the code of ethics, the committee charters and other governance information
on the Companys website at www.mafbancorp.com. The Company will post on its website
any amendments to the code of ethics and waivers, if any, applicable to any of its
directors or executive officers. The foregoing information will also be available in print
and free of charge to any shareholder who requests such information.

# Item 11. Executive
Compensation

Information
regarding compensation of executive officers and directors is included in the
Companys proxy statement under the headings Directors
Compensation, and Executive Compensation and the information included
therein is incorporated herein by reference.

The
information regarding compensation committee interlocks and insider participation is
included in the registrants proxy statement under the headings Compensation
Committee Interlocks and Insider Participation and the information included therein
under the heading Compensation Committee Report is incorporated herein
by reference (except that the Compensation Committee Report shall not be deemed to be
filed with the Securities and Exchange Commission).

# Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information
regarding security ownership of certain beneficial owners and management is included in
the Companys proxy statement under the headings Security Ownership of Certain
Beneficial Owners, and Information About Directors and Others, and the
information included therein is incorporated herein by reference.

# Equity Compensation Plans

The
following table summarizes certain information about the equity compensation plans of the
Company as of December 31, 2006:

|Plan Category                             | Number Of SecuritiesTo Be Issued UponExercise OfOutstanding Options,Warrants And Rights | Weighted-AverageExercise Price OfOutstandingOptions, WarrantsAnd Rights | Number Of Securities RemainingAvailable For Future Issuance
Under Equity CompensationPlans (Excluding SecuritiesReflected In Column (A)
|----------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by     |                                                                                         |                                                                         |                                                                                                                                        
|security holders                          |                                                                                         |                                                                         |                                                                                                                                        
|Equity compensation plans not approved by |                                                                                         |                                                                        
|security holders                          |                                                                                         |                                                                         |                                                                                                                                        
|                                          |                                                                                         |                                                                         |                                                                                                                                        
|Total                                     |                                                                                         |                                                                         |                                                                                                                                        
|                                          |                                                                                         |                                                                         |                                                                                                                                        

---

| | (1) | Includes 46,344 stock options exercisable at a weighted average price of $21.31
                    per share relating to options granted under plans of acquired entities that were
                    converted into MAF Bancorp stock options. No further grants will be made under
                    such plans.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes 128,987 restricted stock units granted to certain employees and
                    non-employee directors.
| | --- | --------------------------------------------------------------------------------------------------------------------

| | (3) | Represents shares reserved for issuance under deferred compensation plans, which shares may be issued to executive
                    officers and directors, if any, electing to defer cash compensation otherwise
                    payable to them. The number of shares allocated to plan participants is
                    determined based on the fair market value of shares at the time of compensation
                    deferral.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 13. Certain
Relationships and Related Transactions, and Director Independence

Information
regarding certain relationships and related party transactions is included in the
Companys proxy statement under the heading Transactions with Certain Related
Persons and Other Information, and the information included therein is incorporated
herein by reference.

The
information regarding the independence of the Companys directors is included in the
Companys proxy statement under the heading Corporate Governance Matters - Director
Independence, and the information included therein is incorporated herein by reference.

100

---

# Item 14. Principal
Accountant Fees and Services

Information
regarding fees paid to the independent auditors and the pre-approval policies and
procedures of the Companys audit committee is included in the Companys proxy
statement under the heading Proposal 2  Ratification of Independent
Auditors, and the information included therein is incorporated herein by reference.

# PART IV

# Item 15. Exhibits and
Financial Statements Schedules

(a)(1) Financial
Statements

The
following consolidated financial statements of the registrant and its subsidiaries are
filed as a part of this document under Item 8. Financial Statements and
Supplementary Data.

Consolidated
Statements of Financial Condition at December 31, 2006 and 2005.

Consolidated Statements
of Operations for the years ended December 31, 2006, 2005 and 2004.

Consolidated
Statements of Changes in Stockholders Equity for the years ended December 31,
2006, 2005 and 2004.

Consolidated
Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004.

Notes to Consolidated Financial Statements.

Report
of Management Regarding Internal Control Over Financial Reporting.

Report
of Independent Registered Public Accounting Firm.

Report of Independent Registered Public Accounting Firm.

(a)(2) Financial
Statement Schedules

All
schedules are omitted because they are not required or are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits

The
following exhibits are either filed as part of this report or are incorporated herein by
reference:

| | 3.1 | Restated Certificate of Incorporation.  (Incorporated herein by reference to Exhibit 3.1 to
 Registrant's Form 8-K (File No. 0-18121) dated December 19, 2000).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | Amended and Restated By-laws of Registrant.  (Incorporated herein by reference to Exhibit No. 3 to
Registrant's September 30, 2003 Form 10-Q (File No. 0-18121)).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | Certain instruments defining the rights of the holders of long-term debt of the Company
and of a subsidiary, involving a total amount of indebtedness not in excess of 10% of the
total assets of the Company and its subsidiaries on a consolidated basis, have not been
filed as Exhibits. The Company hereby agrees to furnish a copy of any of these agreements
to the Commission upon request.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

101

---

Exhibit No. 10. Material
Contracts

| | 10.1 | Credit Agreement dated as of July 17, 2006, between MAF Bancorp, Inc. and Harris, N.A. (Incorporated
herein by reference to Exhibit 10.1 to Registrant's September 30, 2006 Form 10-Q (File No. 0-18121)).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | Mid America Bank, fsb Management Recognition and Retention Plan and Trust Agreement. (Incorporated herein
by reference to Exhibit No. 10.4 to Registrant's June 30, 1992 Form 10-K (File No. 0-18121)).*
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | MAF Bancorp, Inc. 1990 Incentive Stock Option Plan, as amended.  (Incorporated herein by reference to
Exhibit No. 10.2 to Registrant's June 30, 1999 Form 10-Q and to Exhibit A to Registrant's Proxy Statement,
dated March 23, 1998 (File No. 0-18121), relating to the 1998 Annual Meeting of Shareholders).*
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | Amendment dated May 23, 2000 to the MAF Bancorp, Inc. 1990 Incentive Stock Option Plan, as amended.
              (Incorporated herein by reference to Exhibit No. 10.3 to Registrant's December 31, 2000 Form 10-K (File
              No. 0-18121)).*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | MAF Bancorp, Inc. 1993 Amended and Restated Premium Price Stock Option Plan, as amended.  (Incorporated
              herein by reference to Exhibit 10.4 to Registrant's December 31, 2005 Form 10-K (File No. 0-18121)).*
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Amendment dated June 22, 1999 to the MAF Bancorp, Inc. 1993 Amended and Restated Premium Price Stock
              Option Plan, as amended. (Incorporated herein by reference to Exhibit No. 10.3 to Registrant's June 30,
              1999 Form 10-Q (File No. 0-18121)).*
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Amendment dated May 23, 2000 to the MAF Bancorp, Inc. 1993 Amended and Restated Premium Price Stock Option
              Plan, as amended. (Incorporated herein by reference to Exhibit No. 10.5 to Registrant's December 31, 2000
              Form 10-K (File No. 0-18121)).*
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 | MAF Bancorp, Inc. 2000 Stock Option Plan.  (Incorporated herein by reference to Exhibit B filed as part of
              Registrant's Proxy Statement dated March 23, 2001 (File No. 0-18121), relating to the 2001 Annual Meeting
              of Shareholders).*
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 | MAF Bancorp, Inc. Incentive Compensation Plan (Incorporated herein by reference to Exhibit 10.1
to Registrant's Form S-4/A dated October 14, 2003, Registration No. 333-108742).*
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 | Form of Non-Qualified Stock Option Agreement. (Incorporated herein by reference to Exhibit 10.9 to
              Registrant's December 31, 2004 Form 10-K (File No. 0-18121)).*
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11 | Form of Incentive Stock Option Agreement. (Incorporated herein by reference to Exhibit 10.10 to
              Registrant's December 31, 2004 Form 10-K (File No. 0-18121)).*
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 | Form of Long-Term Incentive Compensation Award Agreement.  (Incorporated herein by reference to Exhibit
              10.12 to Registrant's December 31, 2005 Form 10-K (File No. 0-18121)).*
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 | Form of Restricted Stock Unit Award Agreement.*+
| | ----- | ------------------------------------------------

| | 10.14 | Amended and Restated EFC Bancorp, Inc. 1998 Stock-Based Incentive Plan (Incorporated herein by reference
              to Appendix A to the EFC Bancorp, Inc. Proxy Statement, dated March 26, 1999, relating to the 1999 Annual
              Meeting of Shareholders (File No. 1-13605)). *
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 | Amendment dated November 15, 2005 to the amended and restated EFC Bancorp, Inc. 1998 Stock- Based Incentive
Plan. *+
| | ----- | --------------------------------------------------------------------------------------------------------------------

---

| | * | Indicates management contracts or compensatory plans or arrangements required to be
                    filed as an exhibit.
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | + | Filed herewith.
| | - | ---------------

102

---

| | 10.16 | Mid America Federal Savings and Loan Association Deferred Compensation Trust Agreement. (Incorporated
herein by reference to Exhibit No. 10.8 to Registrant's June 30, 1990 Form 10-K (File No. 0-18121)).*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17 | Amendment dated May 16, 2001 to the Mid America Bank, fsb Deferred Compensation Trust Agreement.
              (Incorporated herein by reference to Exhibit No. 10.2 to Registrant's June 30, 2001 Form 10-Q (File No. 0-18121)).*
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.18 | Mid America Bank, fsb Directors' Deferred Compensation Plan. (Incorporated herein by reference to Exhibit
              No. 10.10 to Registrant's December 31, 1997 Form 10-K (File No. 0-18121)).*
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.19 | Mid America Bank, fsb Executive Deferred Compensation Plan. (Incorporated herein by reference to Exhibit
              No. 10.11 to Registrant's December 31, 1997 Form 10-K (File No. 0-18121)).*
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.20 | Deferred Compensation Agreement dated January 1, 1999 between St. Francis Bank, F.S.B. and Thomas R. Perz.
(Incorporated herein by reference to Exhibit No. 10.25 to Registrant's Form 10-K for the year ended
December 31, 2003 (File No. 0-18121)).*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.21 | Deferred Compensation Agreements dated January 1, 1998, January 1, 1996, January 19, 1994 and November 18,
              1987 between St. Francis Capital Corporation, St. Francis Bank, F.S.B., Bank Wisconsin and Thomas R.
              Perz.  (Incorporated herein by reference to Exhibit No. 10.26 to Registrant's Form 10-K for the year ended
              December 31, 2003 (File No. 0-18121)).*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.22 | Mid America Bank, fsb Supplemental Executive Retirement Plan, as amended. (Incorporated herein by
              reference to Exhibit No. 10.13 to Registrant's December 31, 1998 Form 10-K (File No. 0-18121)).*
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.23 | Amendment dated March 27, 2001 to the Mid America Bank, fsb Supplemental Executive Retirement Plan, as
              amended.  (Incorporated herein by reference to Exhibit No. 10.1 to Registrant's March 31, 2001 Form 10-Q
              (File No. 0-18121)).*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.24 | Amendment dated January 24, 2006 to the Mid America Bank, fsb Supplemented Executive
Retirement Plan, as amended. *+
| | ----- | --------------------------------------------------------------------------------------------------------------------

| | 10.25 | Fidelity Federal Savings Bank Supplemental Retirement Plan, as amended. (Incorporated
herein by reference to Exhibit No. 10.33 to Registrants Form 10-K for the year
ended December 31, 2003 (File No. 0-18121)).*
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.26 | Form of Employment Agreement, as amended, between MAF Bancorp, Inc. and Allen Koranda, Kenneth Koranda and
 Jerry Weberling.  (Incorporated herein by reference to Exhibit No. 10.29 to Registrant's December 31, 2005 Form
10-K (File No. 0-18121)).*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.27 | Form of Employment Agreement, as amended, between Mid America Bank, fsb and Allen Koranda, Kenneth Koranda
and Jerry Weberling.  (Incorporated herein by reference to Exhibit No. 10.30 to Registrant's December
31, 2005 Form 10-K (File No. 0-18121)).*
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.28 | Form of Special Termination Agreement, as amended, between MAF Bancorp, Inc., and various officers.
              (Incorporated herein by reference to Exhibit No. 10.31 to Registrant's December 31, 2005 Form 10-K (File
              No. 0-18121)).*
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.29 | Form of Special Termination Agreement, as amended, between Mid America Bank, fsb, and various officers.
              (Incorporated herein by reference to Exhibit No. 10.32 to Registrant's December 31, 2005 Form 10-K (File
              No. 0-18121)).*
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | * | Indicates management contracts or compensatory plans or arrangements required to be
                    filed as an exhibit.
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | + | Filed herewith.
| | - | ---------------

103

---

| | 10.30 | Special Termination Agreement between MAF Bancorp, Inc. and Edward A. Karasek (Incorporated herein by
              reference to Exhibit No. 10.2 to Registrant's September 30, 2006 Form 10-Q (File No. 0-18121)).*
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.31 | Special Termination Agreement between Mid America Bank, fsb, and Edward A. Karasek (Incorporated herein by
              reference to Exhibit No. 10.3 to Registrant's September 30, 2006 Form 10-Q (File No. 0-18121)).*
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.32 | Special Termination Agreement between MAF Bancorp, Inc. and James S. Eckel (Incorporated herein by
              reference to Exhibit No. 10.4 to Registrant's September 30, 2006 Form 10-Q (File No. 0-18121)).*
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.33 | Special Termination Agreement between Mid America Bank, fsb, and James S. Eckel (Incorporated herein by
 reference to Exhibit No. 10.5 to Registrant's September 30, 2006 Form 10-Q (File No. 0-18121)).*
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.34 | Employment Agreement between MAF Bancorp, Inc. and Thomas R. Perz. (Incorporated herein by reference to
              Exhibit No. 10.38 to Registrant's Form 10-K for the year ended December 31, 2003 (File No. 0-18121)).*
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.35 | Employment Agreement between Mid America Bank, fsb and Thomas R. Perz. (Incorporated herein by reference
              to Exhibit No. 10.39 to Registrant's Form 10-K for the year ended December 31, 2003 (File No. 0-18121)).*
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.36 | Agreement Regarding Post-Employment Restrictive Covenants between MAF Bancorp, Inc. and Thomas R. Perz.
(Incorporated herein by reference to Exhibit No. 10.40 to Registrant's Form 10-K for the year ended December 31,
2003 (File No. 0-18121)).*
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 12.1 | Statements re: Computation of ratio of earnings to fixed charges. +
| | ---- | -------------------------------------------------------------------

| | 21.1 | Subsidiaries of the Registrant.+
| | ---- | --------------------------------

| | 23.1 | Consent of KPMG LLP.+
| | ---- | ---------------------

| | 24.1 | Power of Attorney (Included on Signature Page).
| | ---- | -----------------------------------------------

| | 31.1 | Certification of Chief Executive Officer.+
| | ---- | ------------------------------------------

| | 31.2 | Certification of Chief Financial Officer.+
| | ---- | ------------------------------------------

| | 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | * | Indicates management contracts or compensatory plans or arrangements required to be
                    filed as an exhibit.
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | + | Filed herewith.
| | - | ---------------

104

---

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|    |  | 
|--- |  | 
|    |  | 
|    |  | 
|    |  | 
|By: |  | 
|    |  | 
|    |  | 
|    |  | 
|    |  | 
|    |  | 

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Allen H. Koranda or Kenneth Koranda or either of them, his true and lawful
attorney-in-fact and agents, with full power of substitution and re-substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming said attorneys-in-fact and agents or their substitutes or substitute may
lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                                                                  |  | 
|----------------------------------------------------------------- |  | 
|/s/ Allen H. Koranda                                              |  | 
|Allen H. Koranda                                                  |  | 
|Chairman of the Board and                                         |  | 
|Chief Executive Officer(Principal Executive Officer)              |  | 
|                                                                  |  | 
|/s/ Jerry A. Weberling                                            |  | 
|Jerry A. Weberling                                                |  | 
|Executive Vice President and                                      |  | 
|Chief Financial Officer and Director(Principal Financial Officer) |  | 
|                                                                  |  | 
|/s/ Christine Roberg                                              |  | 
|Christine Roberg                                                  |  | 
|First Vice President and Controller                               |  | 
|(Principal Accounting Officer)                                    |  | 
|                                                                  |  | 
|/s/ Kenneth R. Koranda                                            |  | 
|Kenneth R. Koranda                                                |  | 
|Vice Chairman of the Board                                        |  | 
|                                                                  |  | 
|/s/ Robert J. Bowles, M.D.                                        |  | 
|Robert J. Bowles, M.D.                                            |  | 
|Director                                                          |  | 
|                                                                  |  | 
|/s/ David C. Burba                                                |  | 
|David C. Burba                                                    |  | 
|Director                                                          |  | 

105

---

|                          |  | 
|------------------------- |  | 
|/s/ Terry A. Ekl          |  | 
|Terry A. Ekl              |  | 
|Director                  |  | 
|                          |  | 
|                          |  | 
|/s/ Leo M. Flanagan, Jr.  |  | 
|Leo M. Flanagan, Jr.      |  | 
|Director                  |  | 
|                          |  | 
|                          |  | 
|/s/ Joe F. Hanauer        |  | 
|Joe F. Hanauer            |  | 
|Director                  |  | 
|                          |  | 
|                          |  | 
|/s/ Barbara L. Lamb       |  | 
|Barbara L. Lamb           |  | 
|Director                  |  | 
|                          |  | 
|/s/ Edward W. Mentzer     |  | 
|Edward W. Mentzer         |  | 
|Director                  |  | 
|                          |  | 
|/s/ Thomas R. Perz        |  | 
|Thomas R. Perz            |  | 
|Director                  |  | 
|                          |  | 
|/s/ Raymond S. Stolarczyk |  | 
|Raymond S. Stolarczyk     |  | 
|Director                  |  | 
|                          |  | 
|/s/ Lois B. Vasto         |  | 
|Lois B. Vasto             |  | 
|Director                  |  | 
|                          |  | 
|/s/ Andrew J. Zych        |  | 
|Andrew J. Zych            |  | 
|Director                  |  | 

106

---

EXHIBIT INDEX

| | Exhibit No. 10.13 | Form of Restricted Stock Unit Award Agreement.*+
| | ----------------- | ------------------------------------------------

| | Exhibit No. 10.15 | Amendment dated November 15, 2005 to the amended and restated EFC Bancorp, Inc. 1998
Stock- Based Incentive Plan.*+
| | ----------------- | -------------------------------------------------------------------------------------------------------------------

| | Exhibit No. 10.24 | Amendment dated January 24, 2006 to the Mid America Bank, fsb Supplemented Executive
Retirement Plan, as amended.*+
| | ----------------- | -------------------------------------------------------------------------------------------------------------------

| | Exhibit No. 12.1 | Statements re: Computation of ratio of earnings to fixed charges.+
| | ---------------- | ------------------------------------------------------------------

| | Exhibit No. 21.1 | Subsidiaries of the Registrant.+
| | ---------------- | --------------------------------

| | Exhibit No. 23.1 | Consent of KPMG LLP.+
| | ---------------- | ---------------------

| | Exhibit No. 31.1 | Certification of Chief Executive Officer.+
| | ---------------- | ------------------------------------------

| | Exhibit No. 31.2 | Certification of Chief Financial Officer.+
| | ---------------- | ------------------------------------------

| | Exhibit No. 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
C.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.+
| | ---------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | * | Filed herewith.
| | - | ---------------

| | + | Indicates management contracts or compensatory plans or arrangements required to be
                    filed as an exhibit.
| | - | ----------------------------------------------------------------------------------------------------------------------------

---