**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
        D.C. 20549**
 **__________**
  **FORM
        10-KSB**
  **ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
  **For
        the fiscal year ended December 31, 2005**
  **Commission
        File Number 333-129835**
  **MUTUAL
        FEDERAL BANCORP, INC.**
 (Exact
        name of small business issuer as specified in its charter)
  **Federal**
                (State
                  or other jurisdiction of incorporation or organization)
              **33-1135091**(IRS
                  Employer Identification No.)
  **2212
        West Cermak Road**
 **Chicago,
        Illinois 60608**
 (Address
        of principal executive offices)
  **(773) 847-7747**
 (Issuer’s
        telephone number)
  Securities
        registered pursuant to Section 12(b) of the Act: 
**None**
  Securities
        registered pursuant to Section 12(g) of the Act: **None**
  Check
        whether the issuer is not required to file reports pursuant to Section 13
        or 15(d) of the Exchange Act.  o
  Check
        whether the issuer (1) filed all reports required to be filed by
        Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
        such shorter period that the registrant was required to file such reports),
        and
        (2) has been subject to such filing requirements for the past 90
        days.  Yes ̈Noý
  Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to the best of the registrant’s knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB
        or any amendment to this Form 10-KSB. ý
  Indicate
        by check mark whether the registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act). Yes ̈Noý
  The
        registrant’s revenues for its most recent fiscal year were
        $3,235,000.
  As
        of
        March 29, 2006, the aggregate market value of the voting common equity held
        by non-affiliates of the registrant was $0.
  There
        were no shares of common stock of the registrant outstanding as of
        March 29, 2006.
  Documents
        Incorporated by Reference: None
  Transitional
        Small Business Disclosure Format (check one):  Yes ̈Noý
  
  **MUTUAL
        FEDERAL BANCORP, INC.**
  **Form
        10-KSB for Fiscal Year Ended**
  **December 31,
        2005**
  **TABLE
        OF CONTENTS**
  **Page**Part
                  I
              
              1Item
                  1.
              Description
                  of Business
              1Item
                  2.
              Description
                  of Property
              24Item
                  3.
              Legal
                  Proceedings
              25Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              25Part II
              
              26Item
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              26Item
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operation
              26Item
                  7.
              Financial
                  Statements
              38Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              38Item
                  8a.
              Controls
                  and Procedures
              38Item
                  8b.
              Other
                  Information
              39Part III
              
              39Item
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section 16(a) of the Exchange Act
              39Item
                  10.
              Executive
                  Compensation
              42Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              45Item
                  12.
              Certain
                  Relationships and Related Transactions
              45Item
                  13.
              Exhibits
              45Item
                  14.
              Principal
                  Accountant Fees and Services
              45MUTUAL
                  FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
                  CONSOLIDATED FINANCIAL STATEMENTS
              F-1Signatures
              S-1Exhibit Index
 
 *Table
            of Contents*
  **PART
        I**
  **ITEM
                1.**
              **DESCRIPTION
                OF BUSINESS**
 
 **General**
  Mutual
        Federal Bancorp, Inc. is the proposed federally chartered mid-tier stock
        holding
        company of Mutual Federal Savings and Loan Association of Chicago, which
        is
        referred to herein as the Bank. Upon completion of the currently pending
        offering of common stock by Mutual Bancorp, Mutual Bancorp will own all of
        the
        issued and outstanding common stock of the Bank. In the future, as the Bank’s
        holding company, Mutual Bancorp will be authorized to pursue other business
        activities permitted by applicable laws and regulations for savings and loan
        holding companies, which may include the acquisition of banking and financial
        services companies.
  Through
        the Bank, our principal business consists of attracting retail deposits from
        the
        general public in the areas surrounding our office location in Chicago, Illinois
        and investing those deposits, together with funds generated from operations,
        primarily in one- to four-family fixed-rate residential mortgage loans and
        multifamily residential mortgage loans, and in investment securities. We
        also
        offer consumer loans secured by deposits as an accommodation to our customers.
        Our revenues are derived principally from interest on loans and securities,
        and
        from loan origination and servicing fees. Our primary sources of funds are
        deposits and principal and interest payments on loans and
        securities.
  **Business
        Strategy**
  Our
        business strategy is to operate as a well-capitalized and profitable community
        bank dedicated to providing quality customer service. A main focus of our
        business strategy has been to emphasize one- to four-family residential mortgage
        lending, and we intend to continue to emphasize this type of lending.
        Management, however, has determined to broaden the range of our products
        and
        services to enhance profitability, consistent with maintaining our safety
        and
        soundness. We intend to gradually introduce additional products and services,
        such as adjustable-rate mortgage loans, home equity lines of credit and
        educational IRA accounts. There can be no assurances that we will successfully
        implement our business strategy.
  Highlights
        of our business strategy are as follows:
  ·
            *Continuing
                to emphasize fixed-rate one- to four-family residential real estate
                lending*.
                Historically, we have emphasized fixed-rate one- to four-family
                residential lending within our market area. As of December 31, 2005,
                $24.4 million, or 63.7%, of our total loan portfolio consisted of
                fixed-rate one- to four-family residential mortgage loans. During
                the year
                ended December 31, 2005, we originated $9.8 million of one- to
                four-family residential mortgage loans. We originate all loans for
                portfolio and do not sell loans in the secondary market. While we
                will
                continue to emphasize one- to four-family lending, we also originate
                loans
                secured by multi-family properties. As of December 31, 2005,
                $13.8 million, or 36.1%, of our total loan portfolio consisted of
                multi-family residential mortgage loans. During the year ended
                December 31, 2005, we originated $6.7 million of multi-family
                residential mortgage loans.  ·
            *Seeking
                growth through expansion*.
                We believe our best opportunities for growth are through potential
                acquisitions or through*de
                novo*branching, although we currently have no specific plans to acquire
                an
                existing financial institution or open a*de
                novo*branch. The capital raised in our currently pending stock offering
                will
                enable us to identify and pursue potential  1
 *Table
            of Contents*
 acquisitions
                  or, should suitable acquisition opportunities not emerge, undertake
*de
                  novo*branching. Completing an acquisition or opening a new branch will
                  provide
                  us with an additional location, thereby increasing the potential
                  number of
                  households and businesses we could serve. An acquisition also may
                  provide
                  us with an opportunity to enhance our management depth and augment
                  our
                  current product offerings. Additionally, any future acquisition
                  may
                  provide us with an opportunity to pursue an alternate branding
                  strategy
                  for the Bank by capitalizing on the brand awareness a potential
                  target may
                  have already established in its market
                  area.
 Historically, we have not experienced rapid
                  growth in our
                  business, but rather have been able to grow our business consistently
                  over
                  time. While our business plan provides for us to seek to grow by
                  pursuing
                  acquisition opportunities as well as establishing new branches,
                  if we
                  ultimately are not successful in identifying and completing suitable
                  acquisitions or establishing new branches, we may not be able to
                  grow our
                  business as we hope.
 ·
            *Expanding
                and diversifying our lending portfolio*.
                While fixed-rate residential loans will continue to constitute a
                significant portion of our total loan portfolio, we intend to expand
                our
                loan origination capabilities to include adjustable-rate residential
                loans
                and home equity loans or lines of credit to our customers. We also
                intend
                to continue offering loans secured by multi-family properties using
                our
                personalized service to attract larger property
                owners.  ·
            *Offering
                new products and services*.
                We currently are developing and seek to develop in the future new
                services
                and deposit products for our customers, such as adjustable-rate mortgage
                loans, home equity lines of credit and educational IRA accounts.
                We expect
                to be able to begin offering these new products and services beginning
                in
                the second half of 2006. We believe that these new products will
                increase
                our deposit base and our fee income.  ·
            *Maintaining
                high asset quality*.
                Historically, we have maintained and will continue to emphasize strong
                asset quality by following conservative underwriting criteria and
                originating loans secured by real estate. Our non-performing assets
                at
                December 31, 2005 and December 31, 2004 were $184,000 and
                $306,000, respectively, or 0.29% and 0.47% of total
                assets.  ·
            *Maintaining
                high levels of interest earning assets*.
                We intend to maintain our high level of interest earning assets.
                At
                December 31, 2005, our interest earning assets were 97.0% of total
                assets and our average interest earning assets for 2005 were 139.5%
                of
                average interest-bearing liabilities. These ratios reflect our low
                level
                of fixed assets (as we operate from only one banking office) and
                non-accruing loans, strong capital position and the absence of real
                estate
                owned and goodwill on our balance sheet.  ·
            *Increasing
                our real estate lending capacity*.
                The additional capital raised in the stock offering will increase
                our
                lending capacity by enabling us to originate more loans and loans
                with
                larger balances. This will permit us to serve borrowers with larger
                lending needs and to originate larger loans than we have in the
                past.  ·
            *Remaining
                a community-oriented institution*.
                We were established in Chicago, Illinois in 1905 and have been operating
                continuously since that time. We have been, and continue to be, committed
                to meeting the financial needs of the communities in which we operate
                and
                remain dedicated to providing high-quality personal and efficient
                service
                to our customers.  2
 *Table
            of Contents*
  **Competition**
  We
        face
        intense competition within our market area both in making loans and attracting
        deposits. Cook County, Illinois, and specifically the Chicago metropolitan
        area
        have a high concentration of financial institutions including money centers
        and
        other large commercial banks, community banks and credit unions. Some of
        our
        competitors offer products and services that we currently do not offer, such
        as
        trust services, private banking and Internet banking. As of June 30, 2005,
        based on the FDIC’s annual Summary of Deposits Report, our market share of
        deposits represented 8.78% of the deposits in our zip code and 0.03% of deposits
        in Cook County.
  Our
        competition for loans and deposits comes principally from commercial banks,
        savings institutions, mortgage banking firms and credit unions in our market
        area. We face additional competition for deposits from short-term money market
        funds, brokerage firms, mutual funds and insurance companies. Our primary
        focus
        is to build and develop profitable customer relationships across all lines
        of
        business while maintaining our role as a community bank.
  **Market
        Area**
  We
        operate in a primarily urban market area that has a stable population and
        household base. Our primary deposit gathering area is concentrated in the
        communities immediately surrounding our headquarters located in the southwestern
        Chicago metropolitan area, which includes predominantly Hispanic neighborhoods.
        Our primary lending area is broader than our deposit-gathering area and includes
        all of Cook County. At December 31, 2005, 93% of our mortgage loan
        portfolio consisted of loans secured by real estate located in Cook County,
        Illinois.
  The
        economy of our market area is characterized by a large number of small retail
        establishments and small industry. Major employers in our immediate market
        area
        include county government facilities, large medical complexes, including
        hospitals, the University of Illinois at Chicago and a rail and trucking
        transportation hub.
  **Lending
        Activities**
  Historically,
        our principal lending activity has been the origination of first mortgage
        loans
        for the purchase or refinancing of one- to four-family residential real
        property. We retain all loans that we originate.
  One-
        to
        four-family residential real estate mortgage loans represented $24.4 million,
        or
        63.7%, of our loan portfolio at December 31, 2005. We also offer
        multifamily real estate loans. Multifamily real estate loans represented
        $13.8
        million, or 36.1% of our loan portfolio at December 31, 2005. We also have
        a small number of loans secured by deposit accounts (share loans) as an
        accommodation to customers.
  ***Loan
        Portfolio Composition*** .
        The
        following table sets forth the composition of our loan portfolio by type
        of loan
        and percentage of portfolio at the dates indicated.
  3
 *Table
            of Contents*
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent****(dollars
                  in thousands)**One-
                  to four-family residential mortgage
              
              $
              24,424
              
              
              63.70
              %
              $
              19,772
              
              
              69.21
              %
              $
              22,174
              
              
              72.37
              %Multi-family
              
              
              13,839
              
              
              36.10
              
              
              8,772
              
              
              30.71
              
              
              8,459
              
              
              27.61Total
                  mortgage loans
              
              
              38,263
              
              
              99.80
              
              
              28,544
              
              
              99.92
              
              
              30,633
              
              
              99.98Consumer
                  loans
              
              
              77
              
              
              .20
              
              
              24
              
              
              0.08
              
              
              5
              
              
              0.02Total
                  loans
              
              
              38,340
              
              
              100.00
              %
              
              28,568
              
              
              100.00
              %
              
              30,638
              
              
              100.00
              %Less:Deferred
                  loan origination fees, net
              
              
              89
              
              
              
              
              
              89
              
              
              
              
              
              89Undisbursed
                  portion of loans
              
              
              51
              
              
              
              
              
              3
              
              
              
              
              
              3Allowance
                  for loan losses
              
              
              170
              
              
              
              
              
              150
              
              
              
              
              
              150Total
                  loans, net
              
              $
              38,030
              
              
              
              
              $
              28,326
              
              
              
              
              $
              30,396
 
 ***Loan
        Portfolio Maturities and Yields*** .
        The
followingtable summarizes the remaining contractual maturity of our loans at
        December 31, 2005. The table does not include the effect of possible
        prepayments. We had no adjustable-rate loans at December 31,
        2005.
  **One-
                  to Four-Family**
              
              **Multi
                  Family**
              
              **Consumer**
              
              **Total****Amount**
              
              **Weighted
                  Average Rate**
              
              **Amount**
              
              **Weighted
                  Average Rate**
              
              **Amount**
              
              **Weighted
                  Average Rate**
              
              **Amount**
              
              **Weighted
                  Average Rate****(dollars
                  in thousands)**Due
                  during the years ending December 31, 2006
              
              $
              -
              
              
              -
              %
              $
              -
              
              
              -
              %
              $
              77
              
              
              3.51
              %
              $
              77
              
              
              3.51
              %2007
                  to 2008
              
              
              143
              
              
              7.07
              
              
              14
              
              
              11.50
              
              
              -
              
              
              -
              
              
              157
              
              
              7.472009
                  to 2010
              
              
              170
              
              
              7.17
              
              
              96
              
              
              6.14
              
              
              -
              
              
              -
              
              
              266
              
              
              6.792011
                  to 2015
              
              
              2,580
              
              
              6.48
              
              
              852
              
              
              6.75
              
              
              -
              
              
              -
              
              
              3,432
              
              
              6.542016
                  to 2025
              
              
              12,676
              
              
              5.95
              
              
              11,038
              
              
              6.57
              
              
              -
              
              
              -
              
              
              23,714
              
              
              6.242026
                  and beyond
              
              
              8,855
              
              
              6.11
              
              
              1,839
              
              
              6.37
              
              
              -
              
              
              -
              
              
              10,694
              
              
              6.16Total
              
              $
              24,424
              
              
              6.08
              %
              $
              13,839
              
              
              6.56
              %
              $
              77
              
              
              3.51
              %
              $
              38,340
              
              
              6.25
              %
 
 The
        following table sets forth the remaining contractual maturity of fixed-rate
        loans at December 31, 2005 that are contractually due after
        December 31, 2006. We had no adjustable-rate loans at December 31,
        2005.
  **Due
                  After December 31, 2006****Fixed**
              
              **Total****(dollars
                  in thousands)**One-
                  to four-family residential mortgage loans
              
              $
              24,424
              
              $
              24,424Multi-family
              
              
              13,839
              
              
              13,839Total
                  mortgage loans
              
              
              38,263
              
              
              38,263Total
                  loans
              
              $
              38,263
              
              $
              38,263
 
 ***One-
        to Four-Family Residential Loans*** .
        Our
        primary lending activity consists of the origination of one- to four-family
        residential mortgage loans that are secured primarily by properties located
        in
        Cook County. At December 31, 2005, $24.4 million, or 63.7% of our loan
        portfolio, consisted of one- to four-family residential mortgage loans. Included
        within these one- to four-family loans were $774,000 in second mortgage loans
        at
        December 31, 2005. At December 31, 2005, the average balance of our
        one- to four-family loans was $88,000. Generally, one- to four-family
        residential mortgage loans are originated in amounts up to 80% of the appraised
        value of the property. All one- to four-family residential loans are fixed-rate
        loans generally originated for terms up to 20 years and for owner occupied
        one-
        to four-family residential loans, up to 30 years. At December 31, 2005, our
        largest loan secured by one- to four-family
  4
 *Table
            of Contents*
  real
        estate had a principal balance of $960,000 and was performing in accordance
        with
        its repayment terms. We currently do not offer adjustable-rate mortgage
        loans.
  All
        one-
        to four-family residential mortgage loans that we originate include
“due-on-sale” clauses, which give us the right to declare a loan immediately due
        and payable in the event that, among other things, the borrower sells or
        otherwise disposes of the real property subject to the mortgage and the loan
        is
        not repaid.
  Our
        second mortgage loans are fixed-rate and offered in amounts up to 80% of
        the
        appraised value of the property securing the loan (including prior liens)
        and
        only where we have secured a first-priority lien on the subject property.
        Our
        second mortgage loans generally are made with maturities of 15 years or less
        and
        are secured by the borrower’s property. Our procedures for underwriting these
        loans include an assessment of an applicant’s prior loan history, credit history
        and an assessment of the value of the collateral in relation to the proposed
        loan amount.
  Regulations
        limit the amount that a savings institution may lend relative to the appraised
        value of the real estate securing the loan, as determined by an appraisal
        of the
        property at the time the loan is originated. For all loans originated by
        the
        bank, we utilize outside independent appraisers approved by the bank’s board of
        directors. All borrowers are required to obtain title insurance. We also
        require
        homeowner’s insurance and fire and casualty insurance and, where circumstances
        warrant, flood insurance on properties securing real estate loans.
  ***Multi-Family
        Real Estate Loans*** .
        Loans
        secured by multi-family real estate totaled $13.8 million, or 36.1%, of our
        total loan portfolio at December 31, 2005. Multi-family real estate loans
        generally are secured by small apartment buildings with fewer than 10 units
        and
        includes two- to four-family residential properties that may also include
        a
        commercial or income-producing element, such as a first floor store-front
        business. Generally, all of our multi-family real estate loans are secured
        by
        properties located within our lending area. At December 31, 2005, we had 84
        multi-family real estate loans with an average principal balance of $165,000,
        and the largest multi-family real estate loan had a principal balance of
        $1.2
        million. As of December 31, 2005, none of our loans secured by multi-family
        real estate were non-performing. Multi-family real estate loans are offered
        with
        fixed interest rates. Multi-family loans generally are originated for terms
        of
        up to 20 years, and in some cases for owner-occupied multi-family properties,
        up
        to 30 years.
  We
        consider a number of factors in originating multi-family real estate loans.
        We
        evaluate the qualifications and financial condition of the borrower (including
        credit history), profitability and expertise, as well as the value and condition
        of the mortgaged property securing the loan. When evaluating the qualifications
        of the borrower, we consider the financial resources of the borrower, the
        borrower’s experience in owning or managing similar property and the borrower’s
        payment history with us and other financial institutions. In evaluating the
        property securing the loan, the factors we consider include the net operating
        income of the mortgaged property before debt service and depreciation, the
        debt
        service coverage ratio (the ratio of net operating income to debt service),
        and
        the ratio of the loan amount to the appraised value of the mortgaged property.
        Multi-family real estate loans are originated in amounts up to 75% of the
        lower
        of the sale price or the appraised value of the mortgaged property securing
        the
        loan and up to 80% if owner occupied. All multi-family real estate loans
        are
        appraised by outside independent appraisers approved by the bank’s board of
        directors. All multi-family borrowers are required to sign notes in their
        individual capacity.
  While
        loans secured by multi-family real estate offer larger balances and higher
        yields, such loans generally involve a greater degree of credit risk than
        one-
        to four-family residential mortgage loans. This increased credit risk is
        a
        result of several factors, including the concentration of principal in a
        limited
  5
 *Table
            of Contents*
  number
        of
        loans and borrowers, the effects of general economic conditions on income
        producing properties, and the increased difficulty of evaluating and monitoring
        these types of loans. Furthermore, the repayment of loans secured by
        multi-family real estate typically depends upon the successful operation
        of the
        real estate property securing the loan. If the cash flow from the project
        is
        reduced, the borrower’s ability to repay the loan may be impaired.
  ***Consumer
        Loans*** .
        We
        offer a small number of consumer loans, secured by deposits to our customers.
        Our consumer loans amounted to $77,000, or 0.2%, of our total loan portfolio
        at
        December 31, 2005.
  ***Origination
        and Servicing of Loans*** .
        Loan
        origination activities are primarily concentrated in Cook County. New loans
        are
        generated primarily from current and former borrowers, walk-in customers,
        customer referrals, realtors and other parties with whom we do business,
        and
        from the efforts of employees and advertising. Loan applications are
        underwritten and processed at our single banking office. We service all loans
        that we originate.
  ***Loan
        Approval Procedures and Authority*** .
        The
        loan approval process is intended to assess the borrower’s ability to repay the
        loan, the viability of the loan, and the adequacy of the value of the property
        that will secure the loan. To assess the borrower’s ability to repay, we review
        the employment and credit history and information on the historical and
        projected income and expenses of mortgagors. All one- to four-family loans
        up to
        $500,000 and all multi-family loans up to $400,000 may be approved by any
        two
        members of the loan committee of the board of directors, which committee
        consists of the President and three outside directors. All loans secured
        by
        deposits require the approval of the President. All other loans must be approved
        by the bank’s board of directors.
  **Non-Performing
        and Problem Assets**
  We
        commence collection efforts when a loan becomes 15 days past due with a
        system-generated late-charge notice. Subsequent delinquent notices are issued
        and the account is monitored on a regular basis thereafter. Personal, direct
        contact with the borrower is attempted early in the collection process as
        a
        courtesy reminder and later to determine the reason for the delinquency and
        to
        safeguard our collateral. When a loan is more than 30 days past due, the
        credit
        file is reviewed and, if deemed necessary, information is updated or confirmed
        and collateral re-evaluated. We make efforts to contact the borrower and
        develop
        a plan of repayment to cure the delinquency. A summary report of all loans
        90
        days or more past due is reported to the board of directors on a monthly
        basis.
        If no repayment plan is in process, the file is referred to counsel for the
        commencement of foreclosure or other collection efforts.
  Mortgage
        loans are reviewed on a regular basis and such loans are placed on non-accrual
        status when they become more than 90 days delinquent. When loans are placed
        on a
        non-accrual status, unpaid accrued interest is fully reversed, and further
        income is recognized only to the extent received.
  ***Non-Performing
        Loans and Non-Performing Assets*** .
        Our
        non-performing loans and non-performing assets are as shown in the table
        below
        for the periods indicated. At each date presented, we had no troubled debt
        restructurings (loans for which a portion of interest or principal has been
        forgiven and loans modified at interest rates materially less than current
        market rates).
  6
 *Table
            of Contents*
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****(dollars
                  in thousands)**Non-accrual
                  loans:One-
                  to four-family
              
              $
              184
              
              $
              306
              
              $
              201Multi-family
              
              
              —
              
              
              —
              
              
              —Consumer
              
              
              —
              
              
              —
              
              
              —Total
                  non-accrual loans
              
              $
              184
              
              $
              306
              
              $
              201Accruing
                  loans delinquent 90 days or more:One-
                  to four-family
              
              
              —
              
              
              —
              
              
              —Multi-family
              
              
              —
              
              
              —
              
              
              —Consumer
              
              
              —
              
              
              —
              
              
              —Total
                  non-performing loans
              
              $
              184
              
              $
              306
              
              $
              201Real
                  estate owned:One-
                  to four-family
              
              
              —
              
              
              —
              
              
              —Multi-family
              
              
              —
              
              
              —
              
              
              —Consumer
              
              
              —
              
              
              —
              
              
              —Total
                  real estate owned
              
              
              —
              
              
              —
              
              
              —Total
                  non-performing assets
              
              $
              184
              
              $
              306
              
              $
              201Allowance
                  for loan losses attributable to non-performing loans
              
              
              —
              
              
              —
              
              
              —Ratios:Non-performing
                  loans to total loans
              
              
              0.48
              %
              
              1.07
              %
              
              0.66
              %Non-performing
                  assets to total assets
              
              
              0.29
              
              
              0.47
              
              
              0.30
 
 The
        following table sets forth certain information with respect to our loan
        portfolio delinquencies at the dates indicated.
  **Loans
                  Delinquent for****60-89
                  Days**
              
              **90
                  Days and Over**
              
              **Total****Number**
              
              **Amount**
              
              **Number**
              
              **Amount**
              
              **Number**
              
              **Amount****(dollars
                  in thousands)****At
                  December 31, 2005**One-
                  to four-family
              
              
              4
              
              $
              301
              
              
              2
              
              $
              184
              
              
              6
              
              $
              485Multi-family
              
              
              1
              
              
              217
              
              
              —
              
              
              —
              
              
              1
              
              
              217Consumer
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              
              5
              
              $
              518
              
              
              2
              
              $
              184
              
              
              7
              
              $
              702**At
                  December 31, 2004**One-
                  to four-family
              
              
              6
              
              $
              336
              
              
              3
              
              $
              306
              
              
              9
              
              $
              642Multi-family
              
              
              1
              
              
              206
              
              
              —
              
              
              —
              
              
              1
              
              
              206Consumer
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              
              7
              
              $
              542
              
              
              3
              
              $
              306
              
              
              10
              
              $
              848**At
                  December 31, 2003**One-
                  to four-family
              
              
              7
              
              $
              402
              
              
              3
              
              $
              201
              
              
              10
              
              $
              603Multi-family
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Consumer
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
              
              
              7
              
              $
              402
              
              
              3
              
              $
              201
              
              
              10
              
              $
              603
 
 ***Real
        Estate Owned*** *.* Real
        estate we acquire as a result of foreclosure or by deed in lieu of foreclosure
        is classified as real estate owned until sold. When property is acquired
        it is
        recorded at fair market value at the date of foreclosure, establishing a
        new
        cost basis. Holding costs and declines in fair value result in charges to
        expense after acquisition. At December 31, 2005, we held no real estate
        owned.
  7
 *Table
            of Contents*
  ***Classified
        Assets*** .
        OTS
        regulations provide that loans and other assets considered to be of lesser
        quality be classified as “substandard,” “doubtful” or “loss” assets. An asset is
        considered “substandard” if it is inadequately protected by the current net
        worth and paying capacity of the obligor or of the collateral pledged, if
        any.
“Substandard” assets include those characterized by the “distinct possibility”
that the 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. Not all classified
        assets constitute non-performing assets.
  An
        insured institution is required to establish general allowances for loan
        losses
        in an amount deemed prudent by management for loans classified substandard
        or
        doubtful, as well as for other problem loans. General allowances represent
        loss
        allowances which have been established to recognize the inherent losses
        associated with lending activities, but which, unlike specific allowances,
        have
        not been allocated to particular problem assets. When an insured institution
        classifies problem assets as “loss,” it is required either to establish a
        specific allowance for losses equal to 100% of the amount of the asset so
        classified or to charge off such amount. An institution’s determination as to
        the classification of its assets and the amount of its valuation allowances
        is
        subject to review by the Office of Thrift Supervision which can order the
        establishment of additional general or specific loss allowances.
  At
        December 31, 2005, none of our assets were classified as substandard,
        doubtful or loss. The loan portfolio is reviewed on a regular basis to determine
        whether any loans require classification in accordance with applicable
        regulations.
  **Allowance
        for Loan Losses**
  Our
        allowance for loan losses is maintained at a level necessary to absorb probable
        incurred loan losses. Management, in determining the allowance for loan losses,
        considers the losses inherent in our loan portfolio and changes in the nature
        and volume of loan activities, along with the general economic and real estate
        market conditions. The Bank’s loan committee determines the type of loans to be
        evaluated for impairment on an individual basis and the types of loan to
        be
        evaluated on a collective basis based on similarities in loss performance,
        such
        as our one-to-four family residential loans and multifamily residential loans.
        We then utilize a two-tier approach: (1) for the types of loans to be
        evaluated on an individual basis, identification of impaired loans and
        establishment of specific loss allowances on such loans, and (2) for the
        types of loans to be evaluated on a collective basis, establishment of general
        valuation allowances.
  Once
        a
        loan becomes delinquent, we may establish a specific loan loss allowance
        should
        we determine that the loan is impaired. A loan will be considered impaired
        when,
        based on current information and events (such as, among other things,
        delinquency status, the size of the loan, the type and market value of
        collateral and the financial condition of the borrower), it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement. All loans identified as impaired are evaluated
        independently. We do not aggregate such loans for evaluation purposes. Specific
        allowances for impaired loans are established based on the present value
        of
        expected future cash flows discounted at the loan’s effective interest rate or,
        as a practical measure, at the loan’s observable market price or the fair value
        of the collateral if the loan is collateral dependent.
  General
        loan loss allowances are based upon historical loan loss experience as adjusted
        after evaluation of other factors that may or may not be present, including
        changes in the composition of the
  8
 *Table
            of Contents*
  loan
        portfolio, current national and local economic conditions, changes in lending
        policies and procedures and personnel changes in our lending management or
        staff. The allowance is increased through provisions charged against current
        earnings and recoveries of previously charged-off loans. Loans that are
        determined to be uncollectible are charged against the allowance. While
        management uses available information to recognize probable and reasonably
        estimable loan losses, future loss provisions may be necessary based on changing
        economic conditions or other factors. Payments received on impaired loans
        are
        applied first to accrued interest receivable and then to principal. The
        allowance for loan losses as of December 31, 2005 was maintained at a level
        that represents management’s best estimate of probable incurred losses in the
        loan portfolio.
  The
        following table sets forth activity in our allowance for loan losses for
        the
        periods indicated.
  **At
                  or for the Years Ended December 31,****2005**
              
              **2004**
              
              **2003****(dollars
                  in thousands)**Balance
                  at beginning of year
              
              $
              150
              
              $
              150
              
              $
              150Charge-offs:One-
                  to four-family
              
              
              —
              
              
              —
              
              
              —Multi-family
              
              
              —
              
              
              —
              
              
              —Consumer
              
              
              —
              
              
              —
              
              
              —Total
                  charge-offs
              
              
              —
              
              
              —
              
              
              —Recoveries:One-
                  to four-family
              
              
              —
              
              
              —
              
              
              —Multi-family
              
              
              —
              
              
              —
              
              
              —Consumer
              
              
              —
              
              
              —
              
              
              —Total
                  recoveries
              
              
              —
              
              
              —
              
              
              —Net
                  (charge-offs) recoveries
              
              
              —
              
              
              —
              
              
              —Provision
                  for loan losses
              
              
              20
              
              
              —
              
              
              —Balance
                  at end of year
              
              $
              170
              
              $
              150
              
              $
              150Ratios:Net
                  charge-offs to average loans outstanding
              
              
              —
              
              
              —
              
              
              —Allowance
                  for loan losses to non-performing loans
              
              
              0.92
              x
              
              0.49
              x
              
              0.75
              xAllowance
                  for loan losses to total loans
              
              
              0.44
              %
              
              0.53
              %
              
              0.49
              %
 
 The
        Bank
        has not charged-off a loan since 1996, when it charged-off a loan with an
        outstanding principal amount of $19,000. During 2005, credit quality improved,
        with non-performing loans decreasing to $184,000 at December 31, 2005, from
        $306,000 at December 31, 2004. Loans delinquent for 60-89 days decreased to
        $518,000 at December 31, 2005, from $542,000 at December 31,
        2004.
  During
        2005 the Bank’s loan portfolio increased $9.7 million, or 34.3%, to $38.0
        million at December 31, 2005, from $28.3 million at December 31, 2004.
        Based on the application of our allowance for loan losses methodology, as
        discussed previously, management determined that a provision of $20,000 for
        loan
        losses was adequate and necessary for the year ended December 31, 2005.
        During 2004, using the same methodology, management determined that no provision
        for loan losses was necessary for the year ended December 31,
        2004.
  ***Allocation
        of Allowance for Loan Losses*** .
        The
        following tables set forth the allowance for loan losses allocated by loan
        category, the total loan balances by category and the percent of loans in
        each
        category to total loans at the dates indicated. The allowance for loan losses
        allocated to each category is
  9
 *Table
            of Contents*
  not
        necessarily indicative of future losses in any particular category and does
        not
        restrict the use of the allowance to absorb losses in other
        categories.
  **At
                  December 31,****2005**
              
              **2004****Allowance
                  for Loan Losses**
              
              **Loan
                  Balances by Category**
              
              **Percent
                  of Loans in Each Category to Total Loans**
              
              **Allowance
                  for Loan Losses**
              
              **Loan
                  Balances by Category**
              
              **Percent
                  of Loans in Each Category to Total Loans****(dollars
                  in thousands)**One-
                  to four-family
              
              $
              60
              
              $
              24,424
              
              
              63.70
              %
              $
              62
              
              $
              19,772
              
              
              69.21
              %Multi-family
              
              
              110
              
              
              13,839
              
              
              36.10
              
              
              88
              
              
              8,772
              
              
              30.71Consumer
              
              
              —
              
              
              77
              
              
              0.20
              
              
              —
              
              
              24
              
              
              0.08Total
                  allowance
              
              $
              170
              
              $
              38,340
              
              
              100.00
              %
              $
              150
              
              $
              28,568
              
              
              100.00
              %
 
 Each
        quarter, management evaluates the total balance of the allowance for loan
        losses
        based on several factors that are not loan specific, but are reflective of
        the
        inherent losses in the loan portfolio. This process includes, but is not
        limited
        to, a periodic review of loan collectibility in light of historical experience,
        the nature and volume of loan activity, conditions that may affect the ability
        of the borrower to repay, underlying value of collateral, if applicable,
        and
        economic conditions in our immediate market area. First, we group loans by
        delinquency status. All loans 90 days or more delinquent are evaluated
        individually, based primarily on the value of the collateral securing the
        loan.
        Specific loss allowances are established as required by this analysis. All
        loans
        for which a specific loss allowance has not been assigned are segregated
        by type
        and delinquency status and a loss allowance is established by using loss
        experience data and management’s judgment concerning other matters it considers
        significant. The allowance is allocated to each category of loan based on
        the
        results of the above analysis.
  This
        analysis process is inherently subjective, as it requires us to make estimates
        that are susceptible to revisions as more information becomes available.
        Although we believe that we have established the allowance at levels to absorb
        probable and estimable losses, future additions may be necessary if economic
        or
        other conditions in the future differ from the current environment. In addition,
        the Office of Thrift Supervision, as an integral part of their examination
        process, periodically reviews our allowance for loan losses.
  **Investments**
  ***Investments
        and Mortgage-backed Securities*** .
        Our
        investment portfolio at December 31, 2005 included $8.6 million in
        U.S. government and agency obligations which are all classified as
        available-for-sale. Our investment policy objectives are to maintain liquidity,
        manage risk and maximize returns within the guidelines established by the
        bank’s
        board of directors, which specify eligible investments and approved securities
        dealers.
  Our
        investment portfolio also includes mortgage-backed securities and collateralized
        mortgage obligations, all of which are guaranteed by the United States
        government or agencies thereof, all of which are classified as
        available-for-sale. At December 31, 2005, our mortgage-backed securities
        portfolio totaled $12.2 million, or 19.0% of total assets. The portfolio
        consisted of $7.4 million in fixed-rate mortgage-backed securities, and $4.8
        million in adjustable-rate mortgage-backed securities, all guaranteed by
        the
        Federal Home Loan Mortgage Corporation, or FHLMC, the Federal National Mortgage
        Association, or FNMA, or the Government National Mortgage Association, or
        GNMA.
  10
 *Table
            of Contents*
  Our
        equity investments consist of 8,000 shares of FHLMC common stock and 10,000
        shares of FHLMC preferred stock, as well as shares of several mutual funds
        which
        are invested in U.S. government and agency obligations and mortgage-backed
        securities guaranteed by FHLMC, FNMA or GNMA.
  We
        initially acquired 1,263 shares of FHLMC Participating Preferred Stock, with
        a
        cost basis of $59,361 ($47.00 per share), in 1984 as a dividend distribution
        from the Federal Home Loan Bank of Chicago. Subsequent stock splits and
        conversions of the stock in 1988 to Senior Participating Preferred, and in
        1992
        to voting common stock, increased this investment to a total of 60,624 shares
        of
        common stock (with a split adjusted basis of $0.9792 per share). Based on
        the
        concentration of unrealized gains in this one equity security, we have
        consistently monitored the performance of the stock and related market
        conditions, and have periodically sold shares since 1998.
  The
        10,000 shares of FHLMC preferred stock was acquired in 1999 at a cost basis
        of
        $500,000 ($50.00 per share) and pays a non-cumulative annualized preferred
        dividend of 5.79%. It is callable in June 2009. While we do not currently
        plan to sell a significant portion of the remaining shares of FHLMC stock
        held
        in the investment portfolio, depending on liquidity or market conditions
        relating to the stock, we may decide that further sales are
        prudent.
  ***Available-for-Sale
        Portfolio*** .
        The
        following table sets forth the composition of our available-for-sale portfolio
        at the dates indicated.
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****Amortized
                  Cost**
              
              **Fair
                  Value**
              
              **Amortized
                  Cost**
              
              **Fair
                  Value**
              
              **Amortized
                  Cost**
              
              **Fair
                  Value****(in
                  thousands)****Investment
                  Securities:**U.S.
                  government and agency obligations
              
              $
              8,694
              
              $
              8,584
              
              $
              13,186
              
              $
              13,152
              
              $
              15,971
              
              $
              16,077Mutual
                  funds
              
              
              2,250
              
              
              2,195
              
              
              2,165
              
              
              2,151
              
              
              2,098
              
              
              2,103FHLMC
                  common stock
              
              
              8
              
              
              523
              
              
              15
              
              
              1,140
              
              
              39
              
              
              2,360FHLMC
                  preferred stock
              
              
              500
              
              
              505
              
              
              500
              
              
              546
              
              
              500
              
              
              518**Mortgage-backed
                  Securities:**GNMA
              
              
              2,162
              
              
              2,135
              
              
              2,931
              
              
              2,939
              
              
              945
              
              
              986FNMA
              
              
              5,757
              
              
              5,654
              
              
              6,388
              
              
              6,427
              
              
              5,476
              
              
              5,519FHLMC
              
              
              3,798
              
              
              3,721
              
              
              4,222
              
              
              4,208
              
              
              3,133
              
              
              3,133FNMA,
                  FHLMC collateralized mortgage obligations
              
              
              722
              
              
              711
              
              
              996
              
              
              1,033
              
              
              1,011
              
              
              1,018Total
                  securities available for sale
              
              $
              23,891
              
              $
              24,028
              
              $
              30,403
              
              $
              31,596
              
              $
              29,173
              
              $
              31,714
 
 ***Portfolio
        Maturities and Yields*** .
        The
        composition and maturities of the investment securities portfolio and the
        mortgage-backed securities portfolio at December 31, 2005 are summarized in
        the following table. Maturities are based on the final contractual payment
        dates
        and do not reflect the impact of prepayments or early redemptions that may
        occur. Mutual funds and FHLMC stock are not included because they do not
        have
        contractual maturity dates.
  11
 *Table
            of Contents*
  **One
                  Year or Less**
              
              **More
                  Than One Year Through Five Years**
              
              **More
                  Than Five Years Through Ten Years****Amortized
                  Cost**
              
              **Weighted
                  Average Yield**
              
              **Amortized
                  Cost**
              
              **Weighted
                  Average Yield**
              
              **Amortized
                  Cost**
              
              **Weighted
                  Average Yield****(dollars
                  in thousands)****Available-for-Sale****Investment
                  Securities:**U.S.
                  government and agency obligations
              
              $
              1,000
              
              
              3.97
              %
              $
              5,694
              
              
              3.26
              %
              $
              2,000
              
              
              3.25
              %**Mortgage-backed
                  Securities:**GNMA
              
              
              —
              
              
              —
              
              
              91
              
              
              6.82
              
              
              142
              
              
              4.79FNMA
              
              
              —
              
              
              —
              
              
              286
              
              
              6.30
              
              
              4,279
              
              
              4.71FHLMC
              
              
              —
              
              
              —
              
              
              367
              
              
              4.63
              
              
              2,360
              
              
              5.06FNMA,
                  FHLMC collateralized mortgage obligations
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
                  securities available for sale
              
              $
              1,000
              
              
              3.97
              %
              $
              6,438
              
              
              3.52
              %
              $
              8,781
              
              
              4.47
              %
 
 **More
                  Than Ten Years**
              
              **Total
                  Securities****Amortized
                  Cost**
              
              **Weighted
                  Average Yield**
              
              **Amortized
                  Cost**
              
              **Fair
                  Value**
              
              **Weighted
                  Average Yield****(dollars
                  in thousands)****Available-for-Sale****Investment
                  Securities:**U.S.
                  government and agency securities
              
              $
              —
              
              
              —
              %
              $
              8,694
              
              $
              8,584
              
              
              3.34
              %**Mortgage-backed
                  Securities:**GNMA
              
              
              1,929
              
              
              4.41
              
              
              2,162
              
              
              2,135
              
              
              4.54FNMA
              
              
              1,192
              
              
              4.45
              
              
              5,757
              
              
              5,654
              
              
              4.74FHLMC
              
              
              1,071
              
              
              4.58
              
              
              3,798
              
              
              3,721
              
              
              4.89FNMA,
                  FHLMC collateralized mortgage obligations
              
              
              722
              
              
              3.73
              
              
              722
              
              
              711
              
              
              3.73Total
                  securities available for sale
              
              $
              4,914
              
              
              4.47
              %
              $
              21,133
              
              $
              20,805
              
              
              4.13
              %
 
 **Sources
        of Funds**
  ***General*** .
        Deposits have traditionally been our primary source of funds for use in lending
        and investment activities. In addition to deposits, funds are derived from
        scheduled loan payments, investment calls, maturities and sales, loan
        prepayments, retained earnings and income on earning assets. During the twelve
        months ended December 31, 2005, sales of investment securities consisted of
        $484,000 of FHLMC common stock. During 2004, we sold $1.6 million of FHLMC
        common stock. While scheduled loan payments and income on earning assets
        are
        relatively stable sources of funds, deposit inflows and outflows can vary
        widely
        and are influenced by prevailing interest rates, market conditions and levels
        of
        competition. Borrowings from the Federal Home Loan Bank of Chicago may be
        used
        in the short term to compensate for reductions in deposits and to fund loan
        growth.
  ***Deposits*** .
        Deposits are not actively solicited outside of the Chicago metropolitan area,
        and a majority of our depositors are persons who work or reside in Cook County,
        Illinois. We offer deposit instruments, including passbook savings (without
        check drawing features) and fixed-term certificates of
  12
 *Table
            of Contents*
  deposit.
        Deposit account terms vary, with the principal differences being the minimum
        balance required, the amount of time the funds must remain on deposit and
        the
        interest rate. Beginning in 2003, we began offering non-interest-bearing
        checking accounts. We do not accept brokered deposits.
  Interest
        rates paid, maturity terms, service fees and withdrawal penalties are
        established on a periodic basis. Deposit rates and terms are based primarily
        on
        current operating strategies and market rates, liquidity requirements, rates
        paid by competitors and growth goals. To attract and retain deposits, we
        rely
        upon personalized customer service, long-standing relationships and generally
        rates in the upper half of those offered in our market area.
  The
        flow
        of deposits is influenced significantly by general economic conditions, changes
        in money market and other prevailing interest rates, competition and our
        single
        office location. We believe the products we offer allow us to be competitive
        in
        obtaining funds and responding to changes in consumer demand. Based on
        historical experience, management believes our deposits are relatively stable.
        However, the ability to attract and maintain certificates of deposit, and
        the
        rates paid on these deposits, have been and will continue to be significantly
        affected by market conditions. At December 31, 2005, $21.3 million, or
        49.1% of our deposit accounts were certificates of deposit, of which
        $18.1 million had maturities of one year or less.
  The
        following table sets forth the distribution of total deposit accounts, by
        account type, at the dates indicated.
  **At
                  December 31,****2005**
              
              **2004**
              
              **2003****Balance**
              
              **Percent**
              
              **Weighted
                  Average Rate**
              
              **Balance**
              
              **Percent**
              
              **Weighted
                  Average Rate**
              
              **Balance**
              
              **Percent**
              
              **Weighted
                  Average Rate****(dollars
                  in thousands)**Savings
                deposits
              
              $
              21,827
              
              
              50.15
              %
              
              1.20
              %
              $
              22,552
              
              
              50.60
              %
              
              1.15
              %
              $
              24,496
              
              
              52.09
              %
              
              1.09
              %Certificates
                of
                  deposit
              
              
              21,348
              
              
              49.05
              
              
              3.01
              
              
              21,936
              
              
              49.21
              
              
              2.03
              
              
              22,402
              
              
              47.64
              
              
              2.18Non-
                interest-
                bearing
                checking
                accounts
              
              
              350
              
              
              0.80
              
              
              —
              
              
              83
              
              
              0.19
              
              
              —
              
              
              128
              
              
              0.27
              
              
              —Total
                deposits
              
              $
              43,525
              
              
              100.00
              %
              
              2.08
              %
              $
              44,571
              
              
              100.00
              %
              
              1.58
              %
              $
              47,026
              
              
              100.00
              %
              
              1.60
              %
 
 The
        following table sets forth certificates of deposit by time remaining until
        maturity as of December 31, 2005.
  **Maturity****3
                  Months or Less**
              
              **Over
                  3 to 6 Months**
              
              **Over
                  6 to 12 Months**
              
              **Over
                  12 Months**
              
              **Total****(in
                  thousands)**Certificates
                  of deposit less than $100,000
              
              $
              5,878
              
              $
              3,608
              
              $
              3,498
              
              $
              2,374
              
              $
              15,358Certificates
                  of deposit of $100,000 or more(1)
              
              
              1,397
              
              
              2,188
              
              
              1,523
              
              
              882
              
              
              5,990Total
                  of certificates of deposit
              
              $
              7,275
              
              $
              5,796
              
              $
              5,021
              
              $
              3,256
              
              $
              21,348
 ____________
 (1)
              The
                  weighted average interest rates for these accounts, by maturity
                  period,
                  are: 2.78% for 3 months or less; 3.20% for 3 to 6 months; 3.66%
                  for 6 to
                  12 months; and 3.80% for over 12 months. The overall weighted average
                  interest rate for accounts of $100,000 or more was
                  3.30%.
  13
 *Table
            of Contents*
  The
        following table sets forth, by interest rate range, information concerning
        certificates of deposit at the dates indicated.
  **At
                  December 31, 2005****Period
                  to Maturity****Less
                  Than One Year**
              
              **One
                  to Two Years**
              
              **Two
                  to Three Years**
              
              **More
                  Than Three Years**
              
              **Total**
              
              **Percent
                  of Total****(dollars
                  in thousands)****Interest
                  Rate Range:**2.00%
                  to 2.99%
              
              $
              12,298
              
              $
              591
              
              $
              —
              
              $
              —
              
              $
              12,889
              
              
              60.38
              %3.00%
                  to 3.99%
              
              
              4,825
              
              
              1,053
              
              
              747
              
              
              158
              
              
              6,783
              
              
              31.774.00%
                  to 4.99%
              
              
              969
              
              
              224
              
              
              140
              
              
              3
              
              
              1,336
              
              
              6.265.00%
                  to 5.99%
              
              
              —
              
              
              —
              
              
              —
              
              
              340
              
              
              340
              
              
              1.59Total
              
              $
              18,092
              
              $
              1,868
              
              $
              887
              
              $
              501
              
              $
              21,348
              
              
              100.00
              %
 
 **Borrowings**
  Due
        to
        our current level of available funds for operations, we historically have
        not
        used borrowings. If needed, we may obtain advances from the Federal Home
        Loan
        Bank of Chicago provided certain standards related to creditworthiness are
        met.
  **Properties**
  The
        following table provides certain information with respect to our banking
        office
        as of December 31, 2004 and December 31, 2005:
  **Location**
              
              **Leased
                  or Owned**
              
              **Year
                  Acquired**
              
              **Net
                  Book Value of Real Property at December 31,
                  2005**
              
              **Net
                  Book Value of Real Property at December 31,
                  2004**2212
                  West Cermak Road
                Chicago,
                  Illinois 60608
              
              
              Owned
              
              
              1964
              
              $
              191,000
              
              $
              216,000
 
 The
        net
        book value of our premises, land and equipment was $305,000 at December 31,
        2005 and $357,000 at December 31, 2004.
  **Subsidiary
        Activities**
  Mutual
        Bancorp’s only subsidiary will be the Bank. The Bank currently operates one
        subsidiary, EMEFES Service Corporation, which provides insurance brokerage
        services to our customers. Brokerage commissions earned by EMEFES totaled
        approximately $4,000 for the twelve months ended December 31, 2005.
        Presently, there are no plans to expand the insurance brokerage
        operations.
  **Legal
        Proceedings**
  We
        are
        not involved in any pending legal proceedings as a defendant other than routine
        legal proceedings occurring in the ordinary course of business. At
        December 31, 2005, we were not involved in any legal proceedings, the
        outcome of which would be material to our financial condition or results
        of
        operations.
  14
 *Table
            of Contents*
  **Personnel**
  As
        of
        December 31, 2005, we had 15 full-time employees and three part-time
        employees. Our employees are not represented by any collective bargaining
        group.
        Management believes that we have good relations with our employees.
  **FEDERAL
        AND STATE TAXATION**
  **Federal
        Taxation**
  *General* .
        We are
        subject to federal income taxation in the same general manner as other
        corporations, with some exceptions discussed below. Our federal income tax
        returns have not been audited by the Internal Revenue Service during the
        past
        five years. The following discussion of federal income taxation is intended
        only
        to summarize certain pertinent federal income tax matters and is not a
        comprehensive description of the tax rules applicable to Mutual MHC, Mutual
        Bancorp or the Bank.
  *Method
        of Accounting* .
        For
        federal income tax purposes, Mutual MHC and the Bank currently report their
        income and expenses on the accrual method of accounting and use a tax year
        ending December 31 for filing their federal income tax
        returns.
  *Bad
        Debt Reserves* .
        Prior
        to the Small Business Protection Act of 1996 (the “1996 Act”), the Bank was
        permitted to establish a reserve for bad debts and to make annual additions
        to
        the reserve. These additions could, within specified formula limits, be deducted
        in arriving at our taxable income. The Bank was required to use the reserve
        method in computing its bad debt deduction beginning with its 1997 federal
        tax
        return (similar to commercial banks). Savings institutions were required
        to
        recapture any excess reserves over those established as of December 31,
        1987 (base year reserve). At December 31, 2005 the Bank had no remaining
        reserves subject to recapture.
  *Taxable
        Distributions and Recapture* .
        Prior
        to the 1996 Act, bad debt reserves created prior to January 1, 1988 were
        subject to recapture into taxable income if the Bank failed to meet certain
        thrift asset and definitional tests. Federal legislation has eliminated these
        thrift related recapture rules. At December 31, 2004, our total federal
        pre-1988 base year reserve was approximately $2.6 million. However, under
        current law, pre-1988 base year reserves remain subject to recapture if the
        Bank
        makes certain non-dividend distributions, repurchases any of its stock, pays
        dividends in excess of tax earnings and profits, or ceases to maintain a
        bank
        charter.
  *Alternative
        Minimum Tax* .
        The
        Internal Revenue Code of 1986, as amended (the “Code” or “Internal Revenue
        Code”), imposes a corporate alternative minimum tax (“AMT”) at a rate of 20% on
        a base of regular taxable income plus or minus certain AMT adjustments, plus
        certain tax preferences (“alternative minimum taxable income” or “AMTI”). The
        AMT is payable to the extent such AMTI is in excess of an exemption amount
        and
        the AMT exceeds the regular corporate income tax. Net operating losses can
        generally offset no more than 90% of AMTI. Certain payments of alternative
        minimum tax may be used as credits against regular tax liabilities in future
        years. The Bank has not been subject to the alternative minimum tax and has
        no
        such amounts available as credits for carryover.
  *Net
        Operating Loss Carryovers* .
        A
        financial institution may carry back net operating losses to the preceding
        two
        taxable years and forward to the succeeding 20 taxable years. At
        December 31, 2005, the Bank had no net operating loss carryforwards for
        federal income tax purposes.
  *Corporate
        Dividends-Received Deduction* .
        Mutual
        Bancorp may exclude from its income 100% of dividends received from the Bank
        as
        a member of the same affiliated group of corporations. The
  15
 *Table
            of Contents*
  corporate
        dividends-received deduction is 80% in the case of dividends received from
        corporations with which a corporate recipient owns at least 20% of the stock
        of
        the corporation but does not file a consolidated return with such corporation,
        and corporations which own less than 20% of the stock of a corporation
        distributing a dividend may deduct only 70% of dividends received or accrued
        on
        their behalf.
  **State
        Taxation**
  We
        are
        required to file Illinois income tax returns and pay tax at a stated tax
        rate of
        7.3% of Illinois taxable income. For these purposes, Illinois taxable income
        generally means federal taxable income subject to certain adjustments, including
        without limitation, the exclusion of interest income on United States
        obligations.
  **SUPERVISION
        AND REGULATION**
  **General**
  The
        Bank
        is subject to extensive regulation, examination and supervision by the OTS,
        as
        its primary federal regulator, and the Federal Deposit Insurance Corporation,
        or
        FDIC, as the insurer of its deposits. The Bank is a member of the Federal
        Home
        Loan Bank System and its deposit accounts are insured up to applicable limits
        by
        the Savings Association Insurance Fund, or SAIF, managed by the FDIC. The
        Bank
        must file reports with the OTS and the FDIC concerning its activities and
        financial condition in addition to obtaining regulatory approvals prior to
        entering into certain transactions such as mergers with, or acquisitions
        of,
        other financial institutions. There are periodic examinations by the OTS
        and,
        under certain circumstances, the FDIC to evaluate the Bank’s safety and
        soundness and compliance with various regulatory requirements. This regulatory
        structure 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 policies, whether by the OTS,
        the
        FDIC or Congress, could have a material adverse impact on us and our operations.
        Mutual MHC, as a savings and loan holding company, is required to file certain
        reports with, is subject to examination by, and otherwise must comply with
        the
        rules and regulations of the OTS. Mutual Bancorp will also be subject to
        those
        rules as well as the regulations of the Securities and Exchange Commission
        under
        the federal securities laws.
  Certain
        of the regulatory requirements that are or will be applicable to us are
        described below. This description of statutes and regulations is not intended
        to
        be a complete explanation of such statutes and regulations and their effects
        on
        us and is qualified in its entirety by reference to the actual statutes and
        regulations.
  **Regulation
        of Federal Savings Institutions**
  *Business
        Activities* .
        Federal
        law and regulations, primarily the Home Owners’ Loan Act and the regulations of
        the OTS, govern the activities of federal savings institutions, such as the
        Bank. These laws and regulations delineate the nature and extent of the
        activities in which federal savings institutions may engage. In particular,
        certain lending authority for federal savings institutions, commercial,
        non-residential real property loans and consumer loans, is limited to a
        specified percentage of an institution’s capital or assets.
  *Branching* .
        Federal
        savings institutions are authorized to establish branch offices in any state
        or
        states of the United States and its territories, subject to the approval
        of the
        OTS.
  16
 *Table
            of Contents*
  *Capital
        Requirements* .
        The
        OTS’s capital regulations require federal savings institutions to meet three
        minimum capital standards: a 1.5% tangible capital to total assets ratio,
        a 4%
        leverage ratio (3% for institutions receiving the highest rating on the CAMELS
        examination rating system) and an 8% risk-based capital ratio. In addition,
        the
        prompt corrective action standards discussed below also establish, in effect,
        a
        minimum of a greater than 2% tangible capital standard, a 4% leverage ratio
        (3%
        for institutions receiving the highest rating on the CAMELS system) and,
        together with the risk-based capital standard itself, a 4% Tier 1
        risk-based capital standard. The OTS regulations also require that, in meeting
        the tangible, leverage and risk-based capital standards, institutions generally
        must 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 requires federal savings institutions to maintain
        Tier 1 (core) and total capital (which is defined as core capital and
        supplementary capital) to risk-weighted assets of at least 4% and 8%,
        respectively. In determining the amount of risk-weighted assets, all assets,
        including certain off-balance sheet assets, recourse obligations, residual
        interests and direct credit substitutes, are multiplied by a risk-weight
        factor
        of 0% to 100%, assigned by the OTS capital regulation based on the risks
        believed inherent in the type of asset. Core (Tier 1) capital is defined as
        common stockholders’ equity (including retained earnings), certain noncumulative
        perpetual preferred stock and related surplus and minority interests in equity
        accounts of consolidated subsidiaries, less intangibles other than certain
        mortgage servicing rights and credit card relationships, non-withdrawable
        accounts and remaining goodwill. The components of supplementary capital
        currently include cumulative preferred stock, long-term perpetual preferred
        stock, mandatory convertible securities, subordinated debt and intermediate
        preferred stock, the allowance for loan and lease losses limited to a maximum
        of
        1.25% of risk-weighted assets and up to 45% of unrealized gains on
        available-for-sale equity securities with readily determinable fair market
        values. Overall, the amount of supplementary capital included as part of
        total
        capital cannot exceed 100% of core capital.
  The
        OTS
        also has authority to establish individual minimum capital requirements in
        appropriate cases upon a determination that an institution’s capital level is or
        may become inadequate in light of the particular circumstances. At
        December 31, 2005, the Bank met each of these capital
        requirements.
  *Prompt
        Corrective Regulatory Action* .
        The OTS
        is required to take certain supervisory actions against undercapitalized
        institutions, the severity of which depends upon the institution’s degree of
        undercapitalization. Generally, a savings institution that has a ratio of
        total
        capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
        capital to risk-weighted assets of less than 4% or a leverage ratio of less
        than
        4% (or less than 3% for institutions with the highest examination rating)
        is
        considered to be “undercapitalized.” A savings institution that has a total
        risk-based capital ratio of less than 6%, a Tier 1 capital ratio of less
        than 3% or a leverage ratio that is less than 3% is considered to be
“significantly undercapitalized” and a savings institution that has a tangible
        capital to assets ratio equal to or less than 2% is deemed to be “critically
        undercapitalized.” 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.” An institution must file a capital restoration
        plan with the OTS within 45 days of the date it 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,
        capital distributions and expansion. “Significantly undercapitalized” and
“critically undercapitalized” institutions are subject to more extensive
        mandatory regulatory actions. The OTS could also take any one of a number
        of
        discretionary supervisory actions, including the issuance of a capital directive
        and the replacement of senior executive officers and directors.
  17
 *Table
            of Contents*
  *Loans
        to One Borrower* .
        Federal
        law provides that savings institutions generally are subject to the limits
        on
        loans to one borrower applicable to national banks. A savings institution
        may
        not make a loan or extend credit, if not fully secured, 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 fully secured by specified readily-marketable collateral.
  *Standards
        for Safety and Soundness* .
        As
        required by statute, the federal banking agencies have adopted Interagency
        Guidelines prescribing Standards for Safety and Soundness. 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. If the OTS determines that a savings institution
        fails
        to meet any standard prescribed by the guidelines, the OTS may require the
        institution to submit an acceptable plan to achieve compliance with the
        standard. The Bank has not received any notice that it has failed to meet
        any
        standard prescribed by the guidelines.
  *Limitation
        on Capital Distributions* .
        OTS
        regulations impose limitations upon all capital distributions by a savings
        institution, including cash dividends, payments to repurchase its shares
        and
        payments to stockholders of another institution in a cash-out merger. Under
        the
        regulations, an application to and the prior approval of the OTS is required
        before any capital distribution if the institution does not meet the criteria
        for “expedited treatment” of applications under OTS regulations (i.e.,
        generally, examination and Community Reinvestment Act ratings in the two
        top
        categories), the total capital distributions for the calendar year exceed
        net
        income for that year plus the amount of retained net income for the preceding
        two years, the institution would be undercapitalized following the distribution
        or the distribution would otherwise be contrary to a statute, regulation
        or
        agreement with the OTS. If an application is not required, the institution
        must
        still provide prior notice to the OTS of the capital distribution if, like
        the
        bank, it is a subsidiary of a holding company. If the bank’s capital were ever
        to fall below its regulatory requirements or the OTS notified it that it
        was in
        need of increased supervision, its ability to make capital distributions
        could
        be restricted. In addition, the OTS could prohibit a proposed capital
        distribution that would otherwise be permitted by the regulation, if the
        agency
        determines that such distribution would constitute an unsafe or unsound
        practice.
  *Qualified
        Thrift Lender Test* .
        Federal
        law requires savings institutions to meet a qualified thrift lender test.
        Under
        the test, a savings institution 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 qualified thrift lender test is subject to certain
        operating restrictions and may be required to convert to a bank charter.
        Recent
        legislation has expanded the extent to which education loans, credit card
        loans
        and small business loans may be considered “qualified thrift investments.” As of
        December 31, 2005, the Bank maintained 99.3% of its portfolio assets in
        qualified thrift investments and, therefore, met the qualified thrift lender
        test.
  *Transactions
        with Related Parties* .
        Federal
        law limits the bank’s authority to lend to, and engage in certain other
        transactions with (collectively, “covered transactions”), “affiliates” (e.g.,
        any company that controls or is under common control with an institution,
        including Mutual Bancorp, Mutual MHC and their non-savings institution
        subsidiaries). The aggregate amount of covered transactions with any individual
        affiliate is limited 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. Loans and other
        specified transactions with affiliates are required to be secured by collateral
        in
  18
 *Table
            of Contents*
  an
        amount
        and of a type described in federal law. The purchase of low quality assets
        from
        affiliates is generally prohibited. Transactions with affiliates must be
        on
        terms and under circumstances that are 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 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 its executive officers, directors and 10%
        stockholders (“insiders”), as well as entities affiliated with such persons, is
        limited. The Bank is restricted both in the individual and the aggregate
        amount
        of loans it may make to insiders based, in part, on the bank’s capital position
        and the requirement that certain board approval procedures to be followed.
        Such
        loans must be made on terms substantially the same as those offered to
        unaffiliated individuals and not involve more than the normal risk of repayment.
        There is an exception for loans made pursuant to a benefit or compensation
        program that is widely available to all employees of the institution and
        does
        not give preference to insiders over other employees. There are additional
        restrictions applicable to loans to executive officers.
  *Enforcement* .
        The OTS
        has primary enforcement responsibility over federal savings institutions
        and has
        the authority to bring actions against the institution and all
        institution-affiliated parties, including stockholders, 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, to removal of officers and/or directors, to institution
        of
        receivership, conservatorship or termination of deposit insurance. Civil
        penalties cover a wide range of violations and can amount to $25,000 per
        day, or
        even $1 million per day in especially egregious cases. The FDIC has authority
        to
        recommend to the director of the OTS that enforcement action 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.
  *Assessments* .
        Federal
        savings institutions must pay assessments to the OTS to fund its operations.
        The
        general assessments, paid on a semi-annual basis, are based upon the savings
        institution’s: total assets, including consolidated subsidiaries, as reported in
        the institution’s latest quarterly thrift financial report; condition; and
        complexity of business.
  *Insurance
          of Deposit Accounts* *.*On February 1, 2006, the Federal Deposit Insurance Reform Act of 2005
          (the “Insurance Reform Act”) was signed into law. The Insurance Reform Act calls
          for the merger of the bank insurance fund and savings association insurance
          fund
          into a single deposit insurance fund (“DIF”), which is to take place by
          July 1, 2006. In addition, the Insurance Reform Act increases the deposit
          insurance coverage limit to $250,000 for certain retirement accounts (mostly
          IRA’s, Keogh accounts, “457” Plans for state employees and 401(k) accounts) and
          indexes future insurance coverage to inflation beginning in 2011. The Insurance
          Reform Act also allows the FDIC to raise or lower the designated reserve
          ratio
          between 1.15% and 1.50% on an annual basis. It also authorizes certain
          one-time
          premium assessment credits to insured institutions, awards DIF dividends
          under
          certain circumstances, and authorizes the FDIC to revise the current risk-based
          system for determining assessments. The FDIC is required to promulgate
          regulations implementing the requirements of the Insurance Reform Act by
          November 2006. Until the FDIC promulgates these regulations, it is uncertain
          what, if any, impact this legislation will have on our operations. Under
          current
          regulations, the FDIC maintains a risk-based assessment system by which
          institutions are assigned to one of three categories based on their
          capitalization and one of three subcategories based on examination ratings
          and
          other supervisory information. An institution’s assessment rate depends upon the
          categories to which it is assigned. Assessment rates for member institutions
          are
          determined semi-annually by the FDIC and currently range
 19
 *Table
            of Contents*
  from
        zero
        basis points of assessable deposits for the healthiest institutions to 27
        basis
        points of assessable deposits for the riskiest.  In
          addition to the assessment for deposit insurance, institutions are required
          to
          make payments on bonds issued in the late 1980s by the Financing Corporation
          to
          recapitalize the predecessor to the SAIF. During the calendar year ended
          December 31, 2005, Financing Corporation payments for SAIF members averaged
          0.00335% of assessable deposits. At December 31, 2005, the Bank had paid
          all fees and assessments for deposit insurance.
 The
        FDIC
        may terminate an institution’s insurance of deposits 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. We do
        not
        know of any practice, condition or violation that might lead to termination
        of
        deposit insurance.
  *Federal
        Home Loan Bank System* .
        The
        Bank is a member of the Federal Home Loan Bank System, which consists of
        12
        regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central
        credit facility primarily for member institutions. The Bank, as a member
        of the
        Federal Home Loan Bank of Chicago, is required to acquire and hold shares
        of
        capital stock in that Federal Home Loan Bank in an amount at least equal
        to 1.0%
        of the aggregate principal amount of its unpaid residential mortgage loans
        and
        similar obligations at the beginning of each year, or 5% of its advances
        (borrowings) from the Federal Home Loan Bank, whichever is greater. The Bank
        was
        in compliance with this requirement with an investment in Federal Home Loan
        Bank
        stock at December 31, 2005 of $500,000.
  The
        Federal Home Loan Banks are required to provide funds for the resolution
        of
        insolvent thrifts in the late 1980s and to contribute funds for affordable
        housing programs. These requirements could reduce the amount of dividends
        that
        the Federal Home Loan Banks pay to their members and could also result in
        the
        Federal Home Loan Banks imposing a higher rate of interest on advances to
        their
        members. If dividends were reduced, or interest on future Federal Home Loan
        Bank
        advances increased, our net interest income would likely also be
        reduced.
  *Community
        Reinvestment Act* .
        Under
        the Community Reinvestment Act, as implemented by OTS regulations, a savings
        institution 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 Community Reinvestment
        Act
        does not establish specific lending requirements or programs for financial
        institutions nor does it limit an institution’s discretion to develop the types
        of products and services that it believes are best suited to its particular
        community, consistent with the Community Reinvestment Act. The Community
        Reinvestment Act requires the OTS, in connection with its examination of
        a
        savings institution, to assess the institution’s record of meeting the credit
        needs of its community and to take such record into account in its evaluation
        of
        certain applications by such institution.
  The
        Community Reinvestment Act requires public disclosure of an institution’s rating
        and requires the OTS to provide a written evaluation of a bank’s Community
        Reinvestment Act performance utilizing a four-tiered descriptive rating system.
        The Bank received a “satisfactory” rating as a result of its most recent
        Community Reinvestment Act assessment.
  *Liquidity* .
        A
        federal savings institution is required to maintain a sufficient amount of
        liquid assets to ensure its safe and sound operation.
  20
 *Table
            of Contents*
  *Prohibitions
          Against Tying Arrangements* .
          Federal
          savings institutions are prohibited, subject to some exceptions, from extending
          credit to or offering any other service, or fixing or varying the consideration
          for such extension of credit or service, on the condition that the customer
          obtain some additional service from the institution or its affiliates or
          not
          obtain services of a competitor of the institution.
  **Holding
          Company Regulation**
  *General* .
          Mutual
          MHC is, and Mutual Bancorp will be, savings and loan holding companies
          within
          the meaning of federal law. As such, they are registered with the OTS and
          are
          subject to OTS regulations,
          examinations, supervision, reporting requirements and regulations concerning
          corporate governance and activities. In addition, the OTS has enforcement
          authority over Mutual Bancorp and Mutual MHC and their non-savings institution
          subsidiaries. Among other things, this authority permits the OTS to restrict
          or
          prohibit activities that are determined to be a serious risk to the
          bank.
  *Restrictions
        Applicable to Mutual Holding Companies* .
        According to federal law and OTS regulations, a mutual holding company, such
        as
        Mutual MHC, may generally engage in the following activities: (1) investing
        in the stock of a bank; (2) acquiring a mutual association through the
        merger of such association into a bank subsidiary of such holding company
        or an
        interim bank subsidiary of such holding company; (3) merging with or
        acquiring another holding company, one of whose subsidiaries is a bank; and
        (4) any activity approved by the Federal Reserve Board for a bank holding
        company or financial holding company or previously approved by OTS for multiple
        savings and loan holding companies.
  Recent
        legislation, which authorized mutual holding companies to engage in activities
        permitted for financial holding companies, expanded the authorized activities.
        Financial holding companies may engage in a broad array of financial service
        activities including insurance and securities.
  Federal
        law prohibits a savings and loan holding company, including a federal mutual
        holding company, from directly or indirectly, or through one or more
        subsidiaries, acquiring more than 5% of the voting stock of another savings
        institution, or its holding company, without prior written approval of the
        OTS.
        Federal law also prohibits a savings and loan holding company from acquiring
        more than 5% of a company engaged in activities other than those authorized
        for
        savings and loan holding companies by federal law; or acquiring or retaining
        control of a depository institution that is not insured by the Federal Deposit
        Insurance Corporation. 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 risk to the insurance funds, the convenience
        and needs of the community and competitive factors.
  The
        OTS
        is prohibited from approving any acquisition that would result in a multiple
        savings and loan holding company controlling savings institutions in more
        than
        one state, except: (1) the approval of interstate supervisory acquisitions
        by savings and loan holding companies; and (2) the acquisition of a savings
        institution in another state if the laws of the state of the target savings
        institution specifically permit such acquisitions. The states vary in the
        extent
        to which they permit interstate savings and loan holding company
        acquisitions.
  If
        the
        savings institution subsidiary of a savings and loan holding company fails
        to
        meet the qualified thrift lender test, the holding company must register
        with
        the Federal Reserve Board as a bank holding company within one year of the
        savings institution’s failure to so qualify.
  21
 *Table
            of Contents*
  *Stock
          Holding Company Subsidiary Regulation* .
          The OTS
          has adopted regulations governing the two-tier mutual holding company form
          of
          organization and subsidiary stock holding companies that are controlled
          by
          mutual holding companies. We intend to adopt this form of organization
          and it
          will continue in place after the stock offering. Mutual Bancorp is the
          proposed
          stock holding company subsidiary of Mutual MHC. Mutual Bancorp will be
          permitted
          to engage in activities that are permitted for Mutual MHC subject to the
          same
          restrictions and conditions.
  *Waivers
          of Dividends by Mutual Federal Bancorp MHC* .
          OTS
          regulations require Mutual MHC to notify the OTS if it proposes to waive
          receipt
          of dividends from Mutual Bancorp. The OTS reviews dividend waiver notices
          on a
          case-by-case basis, and, in general, does not object to any such waiver
          if:
          (i) the mutual holding company’s board of directors determines that such
          waiver is consistent with such d irectors’
          fiduciary duties to the mutual holding company’s members; (ii) for as long
          as the savings institution subsidiary is controlled by the mutual holding
          company, the dollar amount of dividends waived by the mutual holding company
          is
          considered as a restriction on the retained earnings of the savings institution,
          which restriction, if material, is disclosed in the public financial statements
          of the savings institution as a note to the financial statements; (iii) the
          amount of any dividend waived by the mutual holding company is available
          for
          declaration as a dividend solely to the mutual holding company, and, in
          accordance with SFAS 5, where the savings institution determines that the
          payment of such dividend to the mutual holding company is probable, an
          appropriate dollar amount is recorded as a liability; and (iv) the amount
          of any waived dividend is considered as having been paid by the savings
          institution in evaluating any proposed dividend under OTS capital distribution
          regulations. We anticipate that Mutual MHC will waive dividends that Mutual
          Bancorp may pay, if any.
  *Conversion
        of Mutual MHC to Stock Form* .
        OTS
        regulations permit Mutual MHC to convert from the mutual form of organization
        to
        the capital stock form of organization. There can be no assurance when, if
        ever,
        a conversion transaction will occur, and Mutual MHC’s board of directors has no
        current intention or plan to undertake a conversion transaction. In a conversion
        transaction a new holding company would be formed as the successor to Mutual
        MHC, Mutual MHC’s corporate existence would end, and certain depositors of the
        Bank would receive the right to subscribe for additional shares of the new
        holding company. In a conversion transaction, each share of Mutual Bancorp
        common stock held by stockholders other than Mutual MHC would be automatically
        converted into a number of shares of common stock of the new holding company
        based on an exchange ratio determined at the time of conversion that ensures
        that stockholders other than Mutual MHC own the same percentage of common
        stock
        in the new holding company as it owned in Mutual Bancorp immediately before
        conversion. Under OTS regulations, stockholders other than Mutual MHC would
        not
        be diluted because of any dividends waived by Mutual Bancorp (and waived
        dividends would not be considered in determining an appropriate exchange
        ratio),
        in the event Mutual MHC converts to stock form. The total number of shares
        held
        by stockholders other than Mutual MHC after a conversion transaction also
        would
        be increased by any purchases by stockholders other than Mutual MHC in the
        stock
        offering conducted as part of the conversion transaction.
  *Acquisition
        of Control* .
        Under
        the federal Change in Bank Control Act, a notice must be submitted to the
        OTS if
        any person (including a company), or group acting in concert, seeks to acquire
        “control” of a savings and loan holding company or savings institution. An
        acquisition of “control” can occur upon the acquisition of 10% or more of the
        voting stock of a savings and loan holding company or savings institution
        or as
        otherwise defined by the OTS. Under the Change in Bank Control Act, the OTS
        has
        60 days from the filing of a complete notice to act, taking into consideration
        certain factors, including the financial and managerial resources of the
        acquirer and the anti-trust effects of the acquisition. Any company that
        so
        acquires control would then be subject to regulation as a savings and loan
        holding company.
  22
 *Table
            of Contents*
  **Sarbanes-Oxley
          Act of 2002**
  Through
          the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, public companies (including
          publicly held holding companies such as Mutual Bancorp) became subject
          to a
          broad range of corporate governance and accounting measures. Sarbanes-Oxley’s
          principal provisions, many of which have been interpreted and implemented
          through recently adopted rules, provide for and include, among other things,
          corporate governance and responsibility measures, including the requirement
          that
          the chief executive officer and chief financial officer of a public company
          certify its financial statements.
  In
          addition, Section 404 of Sarbanes-Oxley, as implemented, requires that
          public companies report management’s evaluation of the effectiveness of the
          company’s internal control over financial reporting.
          Additionally, such companies’ senior management must evaluate, as of the end of
          each fiscal period, any change in the company’s internal control over financial
          reporting that occurred during the period that materially affected, or
          is
          reasonably likely to materially affect, the company’s internal control over
          financial reporting. Recently, however, the SEC has extended the
          Section 404 compliance deadline for smaller public companies, such as,
          following the offering, Mutual Bancorp, while the costs and other burdens
          of
          Section 404 on small issuers is further evaluated.
  Although
        we anticipate that we will incur additional expense in complying with the
        provisions of Sarbanes-Oxley and the resulting regulations, management does
        not
        expect that such compliance will have a material impact on our results of
        operations or financial condition.
  **Privacy
        Requirements of the GLBA**
  The
        Gramm-Leach-Bliley Act of 1999 provided for sweeping financial modernization
        for
        commercial banks, savings banks, securities firms, insurance companies, and
        other financial institutions operating in the United States. Among other
        provisions, the Gramm-Leach-Bliley Act places limitations on the sharing
        of
        consumer financial information with unaffiliated third parties. Specifically,
        the Gramm-Leach-Bliley Act requires all financial institutions offering
        financial products or services to retail customers to provide such customers
        with the financial institution’s privacy policy and provide such customers the
        opportunity to “opt out” of the sharing of personal financial information with
        unaffiliated third parties.
  **Anti-Money
        Laundering**
  The
        Uniting and Strengthening America by Providing Appropriate Tools Required
        to
        Intercept and Obstruct Terrorism Act of 2001 (referred to as the “USA PATRIOT
        Act”) significantly expanded the responsibilities of financial institutions,
        including savings and loan associations, in preventing the use of the U.S.
        financial system to fund terrorist activities. Title III of the USA PATRIOT
        Act requires financial institutions operating in the United States to develop
        and maintain new anti-money laundering compliance programs, due diligence
        policies and controls to ensure the detection and reporting of money laundering.
        Such required compliance programs are intended to supplement existing compliance
        requirements, also applicable to financial institutions, under the Bank Secrecy
        Act and the Office of Foreign Assets Control Regulations. The OTS will carefully
        review an institution’s compliance with the requirements of the Bank Secrecy Act
        when examining an institution or evaluating an application submitted by an
        institution. The OTS may require an institution to take various actions to
        ensure that it is meeting the requirements of the Bank Secrecy Act.
  **Federal
        Securities Laws**
  Upon
        completion of the offering, we will be subject to the information, proxy
        solicitation, insider trading restrictions and other requirements under the
        Securities Exchange Act of 1934.
  23
 *Table
            of Contents*
  The
          registration under the Securities Act of shares of common stock to be issued
          in
          the offering does not cover the resale of those shares. Shares of common
          stock
          purchased by persons who are not affiliates of Mutual Bancorp may be resold
          without registration. Shares purchased by an affiliate of Mutual Bancorp
          will be
          subject to the resale restrictions of Rule 144 under the Securities Act. If
          Mutual Bancorp meets the current public information requirements of
          Rule 144, each affiliate of Mutual Bancorp that complies with the other
          conditions of Rule 144, including those that require the affiliate’s sale
          to be aggregated with those of other persons, would be able to sell in
          the
          public market, without registration, a number of shares not to exceed,
          in any
          three-month period, the greater of 1% of the outstanding shares of Mutual
          Bancorp or the average weekly volume of trading in the shares during the
          preceding four calendar
  **Other
        Regulations**
  Interest
        and other charges collected or contracted for by the Bank are subject to
        federal
        laws concerning interest rates. The bank’s loan operations are also subject to
        federal laws applicable to credit transactions, such as the:
  ·
            Truth-In-Lending
                Act, governing disclosures of credit terms to consumer
                borrowers;  ·
            Home
                Mortgage Disclosure Act of 1975, requiring financial institutions
                to
                provide information to enable the public and public officials to
                determine
                whether a financial institution is fulfilling its obligation to help
                meet
                the housing needs of the community it
                serves;  ·
            Equal
                Credit Opportunity Act, prohibiting discrimination on the basis of
                race,
                creed or other prohibited factors in extending
                credit;  ·
            Fair
                Credit Reporting Act of 1978, governing the use and provision of
                information to credit reporting agencies;  ·
            Fair
                Debt Collection Act, governing the manner in which consumer debts
                may be
                collected by collection agencies; and  ·
            rules
                and regulations of the various federal agencies charged with the
                responsibility of implementing such federal
                laws.  The
        deposit operations of the Bank also are subject to the:
  ·
            Right
                to Financial Privacy Act, which imposes a duty to maintain confidentiality
                of consumer financial records and prescribes procedures for complying
                with
                administrative subpoenas of financial
                records;  ·
            Electronic
                Funds Transfer Act and Regulation E promulgated thereunder, which
                governs
                automatic deposits to and withdrawals from deposit accounts and customers’
                rights and liabilities arising from the use of automated teller machines
                and other electronic banking services;
                and  ·
            Check
                Clearing for the 21st Century Act (also known as “Check 21”), which,
                effective October 28, 2004, gives “substitute checks,” such as
                digital check images and copies made from that image, the same legal
                standing as the original paper check.  24
 *Table
            of Contents*
 **ITEM
                    2.**
                  **DESCRIPTION
                    OF PROPERTY**
  The
            Company is located and conducts its business at the Bank’s sole office at 2212
            West Cermak Road, Chicago, Illinois 60608. The Bank owns the building
            at that
            location. The Company believes that the current facilities are adequate
            to meet
            its present and immediately foreseeable needs.
  **ITEM
                  3.**
                **LEGAL
                  PROCEEDINGS**
 The
        Company and the Bank are not involved in any pending proceedings other than
        the
        legal proceedings occurring in the ordinary course of business. Such legal
        proceedings in the aggregate are believed by management to be immaterial
        to the
        Company’s business, financial condition, results of operations and cash
        flows.
  **ITEM
                    4.**
                  **SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY
                    HOLDERS**
 No
        matters were submitted to a vote of stockholders of Mutual Bancorp during
        the
        fourth quarter of the year ended December 31, 2005.
  25
 *Table
            of Contents*
  **PART II**
 **ITEM
                      5.**
                    **MARKET
                        FOR COMMON EQUITY AND RELATED STOCKHOLDER
                        MATTERS**
 Mutual
        Bancorp’s common stock will be traded on the Over-the-Counter Bulletin Board
        upon the completion of our currently pending stock offering. At present and
        at
        December 31, 2005, there was no established public trading market for
        Mutual Bancorp’s common stock and there are no holders of Mutual Bancorp common
        stock.
  **Dividend
        Policy**
  After
        the
        completion of the offering, our board of directors will have the authority
        to
        declare dividends on our common stock, subject to statutory and regulatory
        requirements. However, no decision has been made with respect to the payment
        of
        dividends. The payment of dividends in the future, if any, would depend upon
        a
        number of factors, including capital requirements, our financial condition
        and
        results of operations, tax considerations, statutory and regulatory limitations
        and general economic conditions. Special cash dividends, stock dividends
        or
        returns of capital may, to the extent permitted by OTS policy and regulations,
        be paid in addition to, or in lieu of, regular cash dividends. The Bank has
        filed consolidated federal and state income tax returns with Mutual MHC.
        As a
        result, we anticipate that any cash distributions made by Mutual Bancorp
        to its
        stockholders would be treated as cash dividends and not as a non-taxable
        return
        of capital for federal and state tax purposes.
  In
        the
        future, if we determine that dividends should be paid, our dividends may
        depend,
        in part, upon receipt of dividends from the Bank, because Mutual Bancorp
        initially will have no source of income other than dividends from the Bank,
        earnings from the investment of proceeds from the sale of shares of common
        stock, and interest payments with respect to the loan to the employee stock
        ownership plan. A regulation of the OTS imposes limitations on “capital
        distributions” by savings institutions. See “Supervision and
        Regulation—Regulation of Federal Savings Institutions—Limitation on Capital
        Distributions”.
  If
        in the
        future we decide to pay dividends to our stockholders, we also will be required
        to pay dividends to Mutual MHC, unless Mutual MHC elects to waive the receipt
        of
        dividends. We anticipate that Mutual MHC will waive receipt of any such
        dividends. Any decision to waive dividends will be subject to regulatory
        approval. Under OTS regulations, public stockholders would not be diluted
        for
        any dividends waived by Mutual MHC in the event Mutual MHC converts to stock
        form. See “Supervision and Regulation—Holding Company Regulation”.
  **ITEM
                        6.**
                      **MANAGEMENT’S
                          DISCUSSION AND ANALYSIS OR PLAN OF
                          OPERATION**
 **General**
  This
        discussion and analysis reflects our consolidated financial statements and
        other
        relevant statistical data and is intended to enhance your understanding of
        our
        financial condition and results of operations. You should read the information
        in this section in conjunction with our audited consolidated financial
        statements, which begin on page F-1, and the other business and financial
        information provided in this annual report.
  **Overview**
  Our
        results of operations depend primarily on our net interest income. Net interest
        income is the difference between the interest income we earn on our
        interest-earning assets, consisting primarily of loans, investment securities,
        mortgage-backed securities and other interest-earning assets (primarily
        cash
  26
 *Table
            of Contents*
  and
        cash
        equivalents), and the interest we pay on our interest-bearing liabilities,
        consisting of savings accounts and time deposits. Our results of operations
        also
        are affected by our provisions for loan losses, non-interest income and
        non-interest expense. Non-interest income currently consists primarily of
        gains
        and losses on the sale of securities and miscellaneous other income.
        Non-interest expense currently consists primarily of salaries and employee
        benefits, occupancy, data processing, and other operating expenses (consisting
        primarily of professional fees). Our results of operations also may be affected
        significantly by general and local economic and competitive conditions, changes
        in market interest rates, governmental policies and actions of regulatory
        authorities.
  **Forward-Looking
        Statements**
  This
        report contains forward-looking statements, which can be identified by the
        use
        of such words as estimate, project, believe, intend, anticipate, plan, seek,
        expect and similar expressions. These forward-looking statements
        include:
  ·
            statements
                of our goals, intentions and
                expectations;  ·
            statements
                regarding our business plans and prospects and growth and operating
                strategies;  ·
            statements
                regarding the asset quality of our loan and investment portfolios;
                and  ·
            estimates
                of our risks and future costs and
                benefits.  These
        forward-looking statements are subject to significant risks, assumptions
        and
        uncertainties, including, among other things, the following important factors
        that could affect the actual outcome of future events:
  ·
            significantly
                increased competition among depository and other financial
                institutions;  ·
            our
                ability to enter new markets successfully and take advantage of growth
                opportunities;  ·
            our
                ability to successfully implement our business
                plan;  ·
            inflation
                and changes in the interest rate environment that reduce our margins
                or
                reduce the fair value of financial
                instruments;  ·
            general
                economic conditions, either nationally or in our market area, that
                are
                worse than expected;  ·
            adverse
                changes in the securities markets;  ·
            legislative
                or regulatory changes that adversely affect our
                business;  ·
            changes
                in consumer spending, borrowing and savings
                habits;  ·
            changes
                in accounting policies and practices, as may be adopted by the bank
                regulatory agencies, the Financial Accounting Standards Board and
                the
                PCAOB; and  ·
            changes
                in our organization, compensation and benefit
                plans.  These
        risks and uncertainties should be considered in evaluating forward-looking
        statements, and undue reliance should not be placed on such statements. Because
        of these and other uncertainties, our
  27
 *Table
            of Contents*
  actual
        future results may be materially different from the results indicated by
        these
        forward-looking statements.
  **Critical
        Accounting Policies**
  We
        consider accounting policies involving significant judgments and assumptions
        by
        management that have, or could have, a material impact on the carrying value
        of
        certain assets or on income to be critical accounting policies. We consider
        our
        critical accounting policies to be those related to our allowance for loan
        losses.
  ***Allowance
        for Loan Losses*** .
        The
        allowance for loan losses is the estimated amount considered necessary to
        cover
        probable incurred losses in the loan portfolio at the balance sheet date.
        The
        allowance is established through a provision for loan losses that is charged
        against income. In determining the allowance for loan losses, management
        makes
        significant estimates and has identified this policy as one of our most
        critical.
  Management
        performs a quarterly evaluation of the adequacy of the allowance for loan
        losses. We consider a variety of factors in establishing this estimate
        including, but not limited to, current economic conditions, delinquency
        statistics, geographic and industry concentrations, the adequacy of the
        underlying collateral, the financial strength of the borrower, results of
        internal loan reviews and other relevant factors. This evaluation is inherently
        subjective as it requires material estimates that may be susceptible to
        significant change.
  The
        analysis has two components: specific and general allocations. Specific
        allocations are made for loans that are determined to be impaired. Impairment
        is
        measured by determining the present value of expected future cash flows or,
        for
        collateral-dependent loans, the fair value of the collateral adjusted for
        market
        conditions and selling expenses. The general allocation is determined by
        segregating the remaining loans by type of loan, risk weighting (if applicable)
        and payment history. We also analyze historical loss experience, delinquency
        trends, general economic conditions and geographic and industry concentrations.
        This analysis establishes factors that are applied to the loan groups to
        determine the amount of the general allowance for loan losses. Actual loan
        losses may be significantly more than the allowances we have established
        which
        could have a material negative effect on our financial results.
  **Selected
        Consolidated Financial and Other Data**
  The
        following tables set forth our selected historical financial and other data
        for
        the periods and at the dates indicated. The information should be read in
        conjunction with the Consolidated Financial Statements and Notes thereto
        contained elsewhere herein.
  **At
                  December 31,****2005**
              
              **2004****(dollars
                  in thousands)****Selected
                  Financial Condition Data:**Total
                  assets
              
              $
              64,489
              
              $
              64,745Loans,
                  net
              
              
              38,030
              
              
              28,326Interest-bearing
                  deposits
              
              
              13
              
              
              2,607Securities
                  available-for-sale
              
              
              24,028
              
              
              31,596Federal
                  Home Loan Bank stock, at cost
              
              
              500
              
              
              477Deposits
              
              
              43,525
              
              
              44,571Equity
              
              
              18,336
              
              
              18,540
  28
 *Table
            of Contents*
  **Year
                  Ended December 31,****2005**
              
              **2004****(dollars
                  in thousands)****Selected
                  Operating Data:**Total
                  interest and dividend income
              
              $
              3,235
              
              $
              3,193Total
                  interest expense
              
              
              788
              
              
              728Net
                  interest income
              
              
              2,447
              
              
              2,465Provision
                  for loan losses
              
              
              20
              
              
              —Net
                  interest income after provision for loan losses
              
              
              2,427
              
              
              2,465Total
                  non-interest income
              
              
              520
              
              
              1,609Total
                  non-interest expense
              
              
              1,762
              
              
              1,627Income
                  before income tax expense
              
              
              1,185
              
              
              2,447Income
                  tax expense
              
              
              442
              
              
              921Net
                  income
              
              $
              743
              
              $
              1,526
 
 **At
                  or for the Years Ended**
                **December 31,****2005**
              
              **2004****Selected
                  Financial Ratios and Other Data:***Performance
                  Ratios:*Return
                  on average assets
              
              
              1.15
              %
              
              2.25
              %Return
                  on average equity
              
              
              4.06
              
              
              8.08Average
                  interest rate spread(1)
              
              
              3.45
              
              
              3.44Net
                  interest margin(2)
              
              
              3.95
              
              
              3.85Efficiency
                  ratio(3)
              
              
              70.93
              
              
              65.16Non-interest
                  expense to average total assets
              
              
              2.72
              
              
              2.39Average
                  interest-earning assets to average interest-bearing
                  liabilities
              
              
              139.46
              
              
              135.80*Asset
                  Quality Ratios:*Non-performing
                  assets to total assets
              
              
              0.29
              %
              
              0.47
              %Non-performing
                  loans to total loans
              
              
              0.48
              
              
              1.07Allowance
                  for loan losses to non-performing loans
              
              
              0.92x
              
              
              0.49xAllowance
                  for loan losses to total loans
              
              
              0.44
              %
              
              0.53
              %*Capital
                  Ratios:*Equity
                  to total assets
              
              
              28.43
              %
              
              28.64
              %Tangible
                  capital
              
              
              28.36
              
              
              28.02Tier 1
                  (core) capital
              
              
              28.36
              
              
              28.02Tier 1
                  risk-based ratio(4)
              
              
              72.36
              
              
              76.91
 ____________
 (1)
              The
                  average interest rate spread represents the difference between
                  the
                  weighted-average yield on interest-earning assets and the weighted-average
                  cost of interest-bearing liabilities for the
                  period.
 (2)
              The
                  net interest margin represents other net interest income as a percent
                  of
                  average interest-earning assets for the
                  period.
 (3)
              The
                  efficiency ratio represents other expense as a percent of net interest
                  income plus other income less securities
                  gains.
 (4)
              Tier 1
                  risk-based ratio represents Tier 1 capital of the Bank divided by its
                  risk-weighted assets as defined in federal regulations on required
                  capital.
  29
 *Table
            of Contents*
  **Comparison
        of Financial Condition at December 31, 2005 and December 31,
        2004**
  Our
        total
        assets decreased by $256,000, or 0.4%, to $64.5 million at December 31,
        2005, from $64.7 million at December 31, 2004. Loans receivable increased
        $9.7 million, or 34.3%, to $38.0 million at December 31, 2005, from $28.3
        million at December 31, 2004, reflecting an increase in multi-family
        residential mortgage loans of $5.1 million, or 57.8%, to $13.8 million at
        December 31, 2005, from $8.8 million at December 31, 2004, and an
        increase in one-to-four family residential mortgage loans of $4.7 million,
        or
        23.5%, to $24.4 million, from $19.8 million. Cash and cash equivalents decreased
        $2.4 million, or 66.1%, to $1.3 million at December 31, 2005, from $3.7
        million at December 31, 2004, and securities available for sale decreased
        $7.6 million, or 24.0%, to $24.0 million at December 31, 2005, from $31.6
        million at December 31, 2004.
  While
        multi-family residential properties have always comprised a large part of
        our
        immediate market area, the increase in both multi-family and one-to-four
        family
        residential mortgage loans during 2005 is the result of our continued focus
        in
        this area as a result of the efforts of a new loan officer, as well as an
        increase in the dollar amount of multi-family mortgage loan referrals that
        have
        been generated from our new borrowers. Management also believes the increase
        in
        loans is the result of borrowers seeking to lock in financing at current
        rates
        in a rising interest rate environment.
  Total
        deposits decreased $1.0 million, or 2.4%, to $43.5 million at December 31,
        2005, from $44.6 million at December 31, 2004. The decrease in deposits
        resulted, in management’s opinion, primarily from increased competition for
        funds based on rate and increasing returns in other markets. We did not utilize
        any brokered deposits during 2005 or 2004.
  Equity
        decreased $204,000, or 1.1%, to $18.3 million at December 31, 2005, from
        $18.5 million at December 31, 2004, reflecting net income of $743,000,
        offset by a $647,000 decrease in accumulated unrealized gains in the fair
        value
        of securities available-for-sale, and a $300,000 dividend paid to Mutual
        MHC.
  **Comparison
        of Operating Results for the Years Ended December 31, 2005 and
        2004**
  ***General*** .
        Net
        income decreased $783,000, or 51.3%, to $743,000 for the year ended
        December 31, 2005, from $1.5 million for the year ended December 31,
        2004. The decrease in net income reflected a $1.1 million decrease in gains
        on
        the sale of securities and a $135,000 increase in operating expenses, primarily
        from a $113,000 increase in salaries and employee benefits. Return on average
        assets was 1.15% for the year ended December 31, 2005, compared to 2.25%
        for the year ended December 31, 2004, and return on equity was 4.06% and
        8.08% for these same two periods.
  ***Interest
        Income*** .
        Interest and dividend income stayed approximately the same, at $3.2 million
        for
        the years ended December 31, 2005 and 2004. A 25 basis point increase in
        the average yield on interest-earning assets, from 4.98% in 2004 to 5.23%
        in
        2005, was offset by a $2.2 million, or 3.4%, decrease in the average balance
        of
        interest-earning assets.
  Interest
        income and fees from loans receivable increased $136,000, or 6.9%, to $2.1
        million for the year ended December 31, 2005, from $2.0 million for the
        year ended December 31, 2004. The increase was due to an increase in the
        average balance of loans of $2.5 million, or 8.3%, to $32.0 million in 2005,
        from $29.6 million in 2004, partially offset by a nine basis point decrease
        in
        the average yield on loans to 6.55% in 2005, from 6.64% in 2004.
  Interest
        and dividend income from securities and deposits decreased $94,000, or 7.6%,
        to
        $1.1 million for the year ended December 31, 2005 from $1.2 million for the
        year ended December 31, 2004.
  30
 *Table
            of Contents*
  The
        decrease resulted from a decrease in the average balance of these investments
        of
        $4.6 million, or 13.5%, to $29.9 million in 2005, from $34.5 million in 2004,
        partially offset by an increase in the average yield on securities and deposits
        to 3.80% in 2005, from 3.56% in 2004.
  ***Interest
        Expense*** .
        Total
        interest expense increased $60,000, or 8.2%, to $788,000 for 2005, from $728,000
        for 2004. The increase in interest expense resulted from an increase in the
        average cost of deposits to 1.78% in 2005, from 1.54% in 2004, partially
        offset
        by a $2.8 million decrease in the average balance of interest-bearing deposits.
        Interest expense on certificates of deposit increased $58,000, or 12.5%,
        due to
        a 36 basis point increase in the average rate paid on such deposits from
        2.05%
        for the year ended December 31, 2004, to 2.41% for the year ended
        December 31, 2005. This was partially offset by a decrease in the average
        balance of certificates of deposit of $953,000, or 4.2%, to $21.7 million
        in
        2005, from $22.6 million in 2004.
  ***Net
        Interest Income*** .
        Net
        interest income decreased $18,000, or 0.7%, to $2.45 million for the year
        ended
        December 31, 2005, from $2.47 million for the year ended December 31,
        2004. Our net interest margin increased to 3.95% during 2005, from 3.85%
        during
        2004, and our interest rate spread increased to 3.45% in 2005, from 3.44%
        in
        2004. The average yield on interest earning assets increased from 4.98% in
        2004
        to 5.23% in 2005, but was partially offset by the $2.2 million decrease in
        average interest earning assets, with interest income increasing by $42,000.
        At
        the same time the average rate paid on deposits increased from 1.54% in 2004
        to
        1.78% in 2005, and, despite a $2.8 million drop in average deposit balances,
        caused interest expense to increase by $60,000 in 2005. The combination of
        both
        factors resulted in the $18,000 total reduction in net interest income between
        periods.
  ***Provision
        for Loan Losses*** .
        We make
        provisions for loan losses, which are charged to operations, so that our
        allowance for loan losses is maintained at a level necessary to absorb probable
        incurred loan losses at the date of the financial statements. While the Bank
        has
        not had a loan charge-off since 1996, the Bank evaluates the level of the
        allowance for loan losses quarterly. Management, in determining the allowance
        for loan losses and the resulting provision necessary, considers the losses
        inherent in our loan portfolio and changes in the nature and volume of loan
        activities, along with the general economic and real estate market conditions,
        as well as peer group data. The Bank’s loan committee determines the type of
        loans to be evaluated for impairment on an individual basis and the types
        of
        loan to be evaluated on a collective basis based on similarities in loss
        performance, such as our one-to-four family residential loans and multifamily
        residential loans. We then utilize a two-tier approach: (1) for the types
        of loans to be evaluated on an individual basis, identification of impaired
        loans and establishment of specific loss allowances on such loans, and
        (2) for the types of loans to be evaluated on a collective basis,
        establishment of loan loss allocations on pools of loans.
  Once
        a
        loan becomes delinquent, we may establish a specific loan loss allowance
        should
        we determine that the loan is impaired. A loan will be considered impaired
        when,
        based on current information and events (such as, among other things,
        delinquency status, the size of the loan, the type and market value of
        collateral and the financial condition of the borrower), it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement. All loans identified as impaired are evaluated
        independently. We do not aggregate such loans for evaluation purposes. Specific
        allowances for impaired loans are established based on the present value
        of
        expected future cash flows discounted at the loan’s effective interest rate or,
        as a practical measure, at the loan’s observable market price or the fair value
        of the collateral if the loan is collateral dependent.
  Loan
        loss
        allocations on pools of loans are based upon historical loan loss experience
        as
        adjusted after evaluation of other factors that may or may not be present,
        including changes in the composition of the loan portfolio, current national
        and
        local economic conditions, changes in lending policies and procedures, peer
        group information, and personnel changes in our lending management or staff.
        Since we
  31
 *Table
            of Contents*
  do
        not
        have recent loss experience, determining the amount of the allowance for
        loan
        losses necessarily involves a high degree of judgment.
  Assumptions
        and allocation percentages based on loan types and classification status
        have
        been consistently applied. We have allocated the allowance among categories
        of
        loan types as well as classification status at each period-end date. During
        the
        year ended December 31, 2005, our loan portfolio increased by $9.7 million,
        including a $5.1 million increase in our multi-family residential mortgage
        loans. Management believes multi-family loans present higher inherent risks
        than
        one-to-four family residential mortgage loans because historically multi-family
        loans have higher rates of default and because repayments may be affected
        to a
        greater degree by general economic conditions and interest rates. However,
        our
        strict underwriting standards, including a 75% maximum loan-to-value ratio
        on
        non-owner-occupied properties, and the fact that our multifamily loans generally
        have ten units or less, partially mitigates this risk.
  During
        2005, credit quality improved, with non-performing loans decreasing to $184,000
        at December 31, 2005, from $306,000 at December 31, 2004. Loans
        delinquent for 60-89 days decreased to $518,000 at December 31, 2005, from
        $542,000 at December 31, 2004. There were no impaired loans at
        December 31, 2005. Typically non-performing loans are assigned a higher
        percentage of allowance allocation. However, due to the low percentage of
        such
        loans and the absence of recent loss history, the balance needed in the
        allowance over the period has remained relatively stable even as the loan
        portfolio increased.
  The
        allowance for loan losses was $170,000, or 0.44% of gross loans outstanding
        at
        December 31, 2005, as compared with $150,000, or 0.53% of loans outstanding
        at December 31, 2004. In reviewing the allowance at December 31, 2005,
        we considered the growth in the loan portfolio, in particular the multi-family
        category, the reduction in non-performing loans and delinquent loans, and
        the
        fact that there were no non-performing or delinquent multi-family loans.
        After
        an evaluation of these factors, including the reallocation, management
        determined that it needed an additional $20,000 provision for loan losses,
        allocated to multi-family loans, for the year ended December 31, 2005. In a
        similar evaluation of the allowance for loan losses at December 31, 2004,
        management determined that there was no need for a provision for the year
        then
        ended.
  Although
        we believe that we use the best information available to establish the allowance
        for loan losses, future additions to the allowance may be necessary based
        on
        estimates that are susceptible to change as a result of changes in economic
        conditions and other factors. In addition, the Office of Thrift Supervision,
        as
        an integral part of its examination process, periodically reviews our allowance
        for loan losses.
  ***Non-Interest
        Income*** .
        Non-interest income decreased $1.1 million, or 67.7%, to $520,000 for the
        year
        ended December 31, 2005, from $1.6 million for year ended December 31,
        2004. The decrease was due primarily to a $1.1 million decrease in gains
        on
        sales of FHLMC common stock.
  We
        initially acquired 1,263 shares of FHLMC Participating Preferred Stock, with
        a
        cost basis of $59,361 ($47.00 per share), in 1984 as a dividend distribution
        from the Federal Home Loan Bank of Chicago. Subsequent stock splits and
        conversions of the stock in 1988 to Senior Participating Preferred, and in
        1992
        to voting common stock, increased this investment to a total of 60,624 shares
        of
        common stock (with a split adjusted basis of $0.9792 per share). Based on
        the
        concentration of unrealized gains in this one equity security, we have
        consistently monitored the performance of the stock and related market
        conditions, and have periodically sold shares since 1998. During the year
        ended
        December 31, 2005, we sold 7,468 shares for a gain of $483,000, compared to
        sales of 25,000 shares for a gain of $1.6 million during the year ended
        December 31, 2004. The proceeds from the gains in both years, net of
        related
  32
 *Table
            of Contents*
  income
        taxes, were used to fund dividends to Mutual MHC in order to fund strategic
        plans for future growth.
  At
        December 31, 2005, we held 8,000 shares of FHLMC common stock, as well as
        10,000 shares of FHLMC preferred stock paying a non-cumulative annualized
        preferred dividend of 5.79%. While we do not currently plan to sell a
        significant portion of the remaining shares of FHLMC stock held in the
        investment portfolio, depending on liquidity or market conditions relating
        to
        the stock, we may decide that further sales are prudent.
  ***Non-Interest
        Expense*** .
        Non-interest expense increased $135,000, or 8.3%, to $1.8 million for the
        year
        ended December 31, 2005 compared to $1.6 million for the prior year.
        Compensation and employee benefits increased $113,000, or 12.0%, to $1.1
        million
        in 2005, from $940,000 in 2004, reflecting new employees, salary increases
        and
        higher benefit costs, including those associated with health
        insurance.
  Occupancy
        expense decreased $16,000, or 7.7%, to $193,000 in 2005, from $209,000 in
        2004,
        and data processing costs increased $6,000, or 6.2%, to $103,000 in 2005,
        from
        $97,000 in 2004. Professional fees, including legal, accounting and consulting
        fees, increased $13,000, or 10.4%, to $138,000 in 2005, from $125,000 in
        2004,
        and miscellaneous other expenses increased $19,000, or 7.4%, to $275,000
        in
        2005, from $256,000 in 2004. The ratio of non-interest expense to average
        assets
        was 2.72% for the year ended December 31, 2005, compared to 2.39% for the
        same 2004 period.
  ***Income
        Tax Expense*** .
        The
        provision for income taxes decreased $479,000, to $442,000 for the year ended
        December 31, 2005 from $921,000 for the prior year, due primarily to our
        lower level of income before income taxes of $1.2 million for the year ended
        December 31, 2005 compared with $2.4 million for the same period in 2004.
        The effective tax rates for the periods ended December 31, 2005 and 2004
        were 37.30% and 37.64%, respectively.
  **Average
        Balance Sheet**
  The
        following tables set forth average balance sheets, average yields and costs,
        and
        certain other information for the periods indicated. No tax-equivalent yield
        adjustments were made, as their effects were not material. All average balances
        are based on an average of daily balances. Non-accrual loans were included
        in
        the computation of average balances, but have been reflected in the table
        as
        loans carrying a zero yield. The yields set forth below include the effect
        of
        deferred fees, discounts and premiums that are amortized or accreted to interest
        income or expense.
  33
 *Table
            of Contents*
  **At
                    December 31,**
                ****
                ****
                **For
                    the Years Ended December 31,******
                ****
                ****
                **2005**
                ****
                ****
                **2005**
                ****
                **2004******
                ****
                ****
                **Yield/Rate**
                ****
                ****
                **Average
                    Outstanding Balance**
                ****
                ****
                **Interest**
                ****
                ****
                **Yield/Rate**
                ****
                ****
                **Average
                    Outstanding Balance**
                ****
                ****
                **Interest**
                ****
                ****
                **Yield/Rate****(dollars
                    in thousands)****Interest-earning
                    assets:**Loans
                
                
                6.25
                %
                $
                32,041
                
                $
                2,099
                
                
                6.55
                %
                $
                29,582
                
                $
                1,963
                
                
                6.64
                %Securities
                    available for sale
                
                
                4.16
                
                
                26,671
                
                
                1,031
                
                
                3.87
                
                
                28,152
                
                
                1,136
                
                
                4.04Federal
                    Home Loan Bank Stock
                
                
                3.00
                
                
                489
                
                
                23
                
                
                4.70
                
                
                462
                
                
                28
                
                
                6.06Interest-earning
                    deposits
                
                
                2.34
                
                
                2,702
                
                
                82
                
                
                3.03
                
                
                5,893
                
                
                66
                
                
                1.12Total
                    interest-earning assets
                
                
                5.42
                %
                
                61,903
                
                $
                3,235
                
                
                5.23
                %
                
                64,089
                
                $
                3,193
                
                
                4.98
                %Non-interest-earning
                    assets
                
                
                
                
                
                2,801
                
                
                
                
                
                
                
                
                3,874Total
                    assets
                
                
                
                
                $
                64,704
                
                
                
                
                
                
                
                $
                67,963**Interest-Bearing
                    Liabilities:****(1)**Savings
                    deposits
                
                
                1.20
                %
                $
                22,730
                
                $
                267
                
                
                1.17
                %
                $
                24,582
                
                $
                265
                
                
                1.08
                %Certificates
                    of deposit
                
                
                3.01
                
                
                21,658
                
                
                521
                
                
                2.41
                
                
                22,611
                
                
                463
                
                
                2.05Total
                    interest-bearing liabilities
                
                
                2.08
                %
                
                44,388
                
                $
                788
                
                
                1.78
                %
                
                47,193
                
                $
                728
                
                
                1.54
                %Non-interest-bearing
                    liabilities.
                
                
                
                
                
                2,023
                
                
                
                
                
                
                
                
                1,875Total
                    liabilities
                
                
                
                
                
                46,411
                
                
                
                
                
                
                
                
                49,068Stockholders’
                    equity
                
                
                
                
                
                18,293
                
                
                
                
                
                
                
                
                18,895Total
                    liabilities and stockholders’ equity
                
                
                
                
                $
                64,704
                
                
                
                
                
                
                
                $
                67,963**Net
                    interest income**
                
                
                
                
                
                
                
                $
                2,447
                
                
                
                
                
                
                
                $
                2,465**Net
                    interest rate spread****(2)**
                
                
                
                
                
                
                
                
                
                
                
                3.45
                %
                
                
                
                
                
                
                
                3.44
                %**Net
                    interest-earning assets****(3)**
                
                
                
                
                $
                17,515
                
                
                
                
                
                
                
                $
                16,896**Net
                    interest margin****(4)**
                
                
                
                
                
                
                
                
                
                
                
                3.95
                %
                
                
                
                
                
                
                
                3.85
                %**Ratio
                    of interest-earning assets to interest-bearing
                    liabilities**
                
                
                
                
                
                
                
                
                
                
                
                139.46
                %
                
                
                
                
                
                
                
                135.80
                %
 ____________
 (1)
              Non
                  interest-bearing checking deposits are included in non-interest-bearing
                  liabilities.
 (2)
              Net
                  interest rate spread represents the difference between the yield
                  on
                  average interest-earning assets and the cost of average interest-bearing
                  liabilities.
 (3)
              Net
                  interest-earning assets represents total interest-earning assets
                  less
                  total interest-bearing liabilities.
 (4)
              Net
                  interest margin represents net interest income divided by average
                  total
                  interest-earning assets.
  **Rate/Volume
        Analysis**
  The
        following table presents the dollar amount of changes in interest income
        and
        interest expense for the major categories of our interest-earning assets
        and
        interest-bearing liabilities. Information is provided for each category of
        interest-earning assets and interest-bearing liabilities with respect to
        (i) changes attributable to changes in volume (i.e., changes in average
        balances multiplied by the prior-period average rate) and (ii) changes
        attributable to rate (i.e., changes in average rate multiplied by prior-period
        average balances). For purposes of this table, changes attributable to both
        rate
        and volume, which cannot be segregated, have been allocated proportionately
        to
        the change due to volume and the change due to rate.
  34
 *Table
            of Contents*
  **Years
                    Ended December 31, 2005 vs. 2004****Increase
                    (Decrease) Due to**
                
                **Total
                    Increase****Volume**
                
                **Rate**
                
                **(Decrease)****(in
                    thousands)****Interest-Earning
                    Assets:**Loans
                
                $
                161
                
                $
                (25
                )
                $
                136Securities
                    available for sale
                
                
                (61
                )
                
                (44
                )
                
                (105
                )Federal
                    Home Loan Bank Stock
                
                
                2
                
                
                (7
                )
                
                (5
                )Interest-earning
                    deposits
                
                
                (21
                )
                
                37
                
                
                16Total
                    interest-earning assets
                
                
                81
                
                
                (39
                )
                
                42**Interest-Bearing
                    Liabilities:**Savings
                    deposits
                
                
                (19
                )
                
                21
                
                
                2Certificates
                    of deposit
                
                
                (19
                )
                
                77
                
                
                58Total
                    interest-bearing liabilities
                
                
                (38
                )
                
                98
                
                
                60Change
                    in net interest income
                
                $
                119
                
                $
                (137
                )
                $
                (18
                )
  **Management
        of Market Risk**
  ***General*** .
        The
        majority of our assets and liabilities are monetary in nature. Consequently,
        our
        most significant form of market risk is interest rate risk. Our assets,
        consisting primarily of mortgage loans, have longer maturities than our
        liabilities, which consist primarily of deposits. As a result, a principal
        part
        of our business strategy is to manage interest rate risk and reduce the exposure
        of our net interest income to changes in market interest rates. Our board
        of
        directors has approved a series of policies for evaluating interest rate
        risk
        inherent in our assets and liabilities; for determining the level of risk
        that
        is appropriate given our business strategy, operating environment, capital,
        liquidity and performance objectives; and for managing this risk consistent
        with
        these policies. Senior management regularly monitors the level of interest
        rate
        risk and reports to the board of directors on our compliance with our
        asset/liability policies and on our interest rate risk position.
  We
        have
        sought to manage our interest rate risk in order to control the exposure
        of our
        earnings and capital to changes in interest rates. During the low interest
        rate
        environment that has existed in recent years, we have managed our interest
        rate
        risk by maintaining a high equity-to-assets ratio and building and maintaining
        portfolios of shorter-term fixed rate residential loans and second mortgage
        loans. By maintaining a high equity-to-assets ratio, we believe that we are
        better positioned to absorb more interest rate risk in order to improve our
        net
        interest margin. However, maintaining high equity balances reduces our return
        on
        equity ratio, and investments in shorter-term assets generally bear lower
        yields
        than longer-term investments.
  ***Net
        Portfolio Value*** .
        In past
        years, many savings institutions have measured interest rate sensitivity
        by
        computing the “gap” between the assets and liabilities that are expected to
        mature or reprice within certain time periods, based on assumptions regarding
        loan prepayment and deposit decay rates formerly provided by the OTS. However,
        the OTS now requires the computation of amounts by which the net present
        value
        of an institution’s cash flow from assets, liabilities and off balance sheet
        items (the institution’s net portfolio value or “NPV”) would change in the event
        of a range of assumed changes in market interest rates. The OTS provides
        all
        institutions that file a Consolidated Maturity/Rate Schedule as a part of
        their quarterly Thrift Financial Report with an interest rate sensitivity
        report
        of net portfolio value. The OTS simulation model uses a discounted cash flow
        analysis and an option-based pricing approach to measuring the interest rate
        sensitivity of net portfolio value. Historically, the OTS model estimated
        the
        economic value of each type of asset, liability and off-balance sheet contract
        under the assumption that the United States Treasury yield curve increases
        or
        decreases instantaneously by 100 to 300 basis points in 100 basis point
        increments. A basis point equals one-hundredth of one percent, and 100 basis
        points equals one percent. An increase in interest rates from 3% to 4% would
        mean, for
  35
 *Table
            of Contents*
  example,
        a 100 basis point increase in the “Change in Interest Rates” column below. The
        OTS provides us the results of the interest rate sensitivity model, which
        is
        based on information we provide to the OTS to estimate the sensitivity of
        our
        net portfolio value.
  The
        table
        below sets forth, as of December 31, 2005, the estimated changes in our NPV
        and our net interest income that would result from the designated instantaneous
        changes in the U.S. Treasury yield curve. Computations of prospective effects
        of
        hypothetical interest rate changes are based on numerous assumptions including
        relative levels of market interest rates, loan prepayments and deposit decay,
        and should not be relied upon as indicative of actual results.
  **Change
                  In**
              
              **NPV**
              
              **Net
                  Portfolio Value as a Percentage of Present Value of
                  Assets****Interest
                  Rates (Basis Points)**
              
              **Estimated
                  NPV**
              
              **Amount**
                **of
                  Change**
              
              **Percentage**
                **Change**
              
              **NPV
                  Ratio**
              
              **Change
                  in Basis Points****(dollars
                  in thousands)**+300
              
              $
              15,063
              
              $
              (6,339
              )
              
              -30
              %
              
              24.73
              %
              
              -702
              bp+200
              
              
              17,166
              
              
              (4,236
              )
              
              -20
              
              
              27.22
              
              
              -453+100
              
              
              19,327
              
              
              (2,075
              )
              
              -10
              
              
              29.61
              
              
              -214Unchanged
              
              
              21,402
              
              
              —
              
              
              —
              
              
              31.76
              
              
              —-100
              
              
              23,027
              
              
              1,625
              
              
              +8
              
              
              33.32
              
              
              +157-200
              
              
              24,098
              
              
              2,696
              
              
              +13
              
              
              34.28
              
              
              +253
 
 The
        table
        above indicates that at December 31, 2005, in the event of a 200 basis
        point decrease in interest rates, we would experience a 13% increase in net
        portfolio value. In the event of a 200 basis point increase in interest rates,
        we would experience a 20% decrease in net portfolio value.
  Certain
        shortcomings are inherent in the methodology used in the above interest rate
        risk measurement. Modeling changes in net portfolio value requires making
        certain assumptions that may or may not reflect the manner in which actual
        yields and costs respond to changes in market interest rates. In this regard,
        the net portfolio value table presented assumes that the composition of our
        interest-sensitive assets and liabilities existing at the beginning of a
        period
        remains constant over the period being measured and assumes that a particular
        change in interest rates is reflected uniformly across the yield curve
        regardless of the duration or repricing of specific assets and liabilities.
        Accordingly, although the net portfolio value table provides an indication
        of
        our interest rate risk exposure at a particular point in time, such measurements
        do not provide a precise forecast of the effect of changes in market interest
        rates on net interest income and will differ from actual results.
  **Liquidity
        and Capital Resources**
  We
        maintain liquid assets at levels we consider adequate to meet our liquidity
        needs. We adjust our liquidity levels to fund deposit outflows, pay real
        estate
        taxes on mortgage loans, repay our borrowings and to fund loan commitments.
        We
        also adjust liquidity as appropriate to meet asset and liability management
        objectives.
  Our
        primary sources of liquidity are deposits, amortization and prepayment of
        loans,
        maturities of investment securities and other short-term investments, and
        earnings and funds provided from operations. While scheduled principal
        repayments on loans are a relatively predictable source of funds, deposit
        flows
        and loan prepayments are greatly influenced by market interest rates, economic
        conditions, and rates offered by our competition. We set the interest rates
        on
        our deposits to maintain a desired level of total
  36
 *Table
            of Contents*
  deposits.
        In addition, we invest excess funds in short-term interest-earning assets,
        which
        provide liquidity to meet lending requirements.
  A
        portion
        of our liquidity consists of cash and cash equivalents, which are a product
        of
        our operating, investing and financing activities. At December 31, 2005,
        $1.3 million of our assets were invested in cash and cash equivalents. Our
        primary sources of cash are principal repayments on loans, proceeds from
        the
        calls and maturities of investment securities and increases in deposit
        accounts.
  Our
        cash
        flows are derived from operating activities, investing activities and financing
        activities as reported in our consolidated statements of cash flows included
        with our consolidated financial statements included elsewhere in this
        prospectus.
  Our
        primary investing activities are the origination of loans and the purchase
        of
        investment securities. During the year ended December 31, 2005, our loan
        originations, net of collected principal, totaled $9.7 million. During the
        year
        ended December 31, 2004, there was a net decrease that totaled $2.1
        million. We did not sell any loans during the years ended December 31, 2005
        and 2004. Cash received from calls and maturities of securities totaled $8.4
        million and $11.8 million for the years ended December 31, 2005 and 2004,
        respectively. We purchased $1.9 million and $13.1 million in securities during
        the years ended December 31, 2005 and 2004, respectively, and sold $484,000
        and $1.6 million in securities during the same two periods.
  Deposit
        flows are generally affected by the level of interest rates, the interest
        rates
        and products offered by us and by local competitors, and other factors. There
        was a net decrease in total deposits of $1.0 million and $2.5 million for
        the
        years ended December 31, 2005 and 2004, respectively. Management attributes
        these decreases primarily to the competitive rate environment.
  Liquidity
        management is both a daily and long-term function of business management.
        If we
        require funds beyond our ability to generate them internally, borrowing
        agreements exist with the Federal Home Loan Bank of Chicago, which provide
        an
        additional source of funds. At December 31, 2005 and December 31,
        2004, we had no outstanding advances from the Federal Home Loan Bank of Chicago.
        Our available borrowing limit at December 31, 2005, was $10.0
        million.
  At
        December 31, 2005, we had outstanding commitments to originate loans of
        $2.0 million. At December 31, 2005, certificates of deposit scheduled to
        mature in less than one year totaled $18.1 million. Based on prior experience,
        management believes that a significant portion of such deposits will remain
        with
        us, although there can be no assurance that this will be the case. In the
        event
        we do not retain a significant portion of our maturing certificates of deposit,
        we will have to utilize other funding sources, such as Federal Home Loan
        Bank of
        Chicago advances, in order to maintain our level of assets. Alternatively,
        we
        would reduce our level of liquid assets, such as our cash and cash equivalents.
        In addition, the cost of such deposits may be significantly higher if market
        interest rates are higher at the time of renewal.
  **Off-Balance
        Sheet Arrangements**
  In
        the
        ordinary course of business, the Bank is a party to credit-related financial
        instruments with off-balance-sheet risk to meet the financing needs of its
        customers. These financial instruments include commitments to extend credit.
        The
        Bank follows the same credit policies in making commitments as it does for
        on-balance-sheet instruments.
  Commitments
        to extend credit are agreements to lend to a customer as long as there is
        no
        violation of any condition established in the contract. Commitments generally
        have fixed expiration dates
  37
 *Table
            of Contents*
  or
        other
        termination clauses and may require payment of a fee. Therefore, the total
        commitment amounts do not necessarily represent future cash requirements.
  At
        December 31, 2005 and December 31, 2004, the Bank had $2.0 million and
        $1.1 million, respectively, of commitments to grant mortgage loans.
  **Impact
        of Recent Accounting Pronouncements**
  FASB
        Statement 123(R), “Shares Based Payment,” addresses the accounting for
        share-based payment transactions in which an enterprise receives employee
        services in exchange for (a) equity instruments of the enterprise or
        (b) liabilities that are based on the fair value of the enterprise’s equity
        instruments or that may be settled by the issuance of such equity instruments.
        Statement 123(R) requires an entity to recognize the grant-date fair-value
        of
        stock options and other equity-based compensation issued to employees in
        the
        income statement. The revised Statement generally requires that an entity
        account for those transactions using the fair-value-based method; and eliminates
        an entity’s ability to account for share-based compensation transactions using
        the intrinsic value method of accounting in APB Opinion No. 25, “Accounting
        for Stock Issued to Employees,” which was permitted under Statement 123, as
        originally issued. The revised Statement requires entities to disclose
        information about the nature of the share-based payment transactions and
        the
        effects of those transactions on the financial statements. Statement 123(R)
        is
        effective for the Bank for fiscal year 2006. The adoption of Statement 123(R)
        is
        expected to reduce reported net income and earnings per share if we have
        a stock
        award program in place after the proposed statement becomes
        effective.
  **Impact
        of Inflation and Changing Prices**
  Our
        financial statements and related notes have been prepared in accordance with
        U.S. generally accepted accounting principles (“GAAP”). GAAP generally requires
        the measurement of financial position and operating results in terms of
        historical dollars without consideration for changes in the relative purchasing
        power of money over time due to inflation. The impact of inflation is reflected
        in the increased cost of our operations. Unlike industrial companies, our
        assets
        and liabilities are primarily monetary in nature. As a result, changes in
        market
        interest rates have a greater impact on performance than the effects of
        inflation.
  **ITEM
                7.**
              **FINANCIAL
                STATEMENTS**
  See
        Index
        to Financial Statements on page F-1.
  **ITEM
                  8.**
                **CHANGES IN AND DISAGREEMENTS
                  WITH
                  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE**
 Not
        Applicable.
  **ITEM
                    8A.**
                  **CONTROLS AND
                    PROCEDURES**
 As
        of the
        end of the period covered by this report, we carried out an evaluation, under
        the supervision, and with the participation of our management, including
        our
        Chief Executive Officer and Chief Financial Officer, of the effectiveness
        of the
        design and operation of our disclosure controls and procedures as contemplated
        by Exchange Act Rule 13a-15. Based upon, and as of the date of that
        evaluation, the Chief Executive Officer and Chief Financial Officer concluded
        that the Bank’s disclosure controls and procedures are effective, in all
        material respects, in timely alerting them to material information relating
        to
        the Bank (and its consolidated subsidiary) required to be included in the
        periodic reports the Bank is required to file and submit to the SEC under
        the
        Exchange Act.
  38
 *Table
            of Contents*
  **ITEM
                      8B.**
                    **OTHER
                      INFORMATION**
 None.
   **PART III**
 **ITEM
                          9.**
                      **DIRECTORS, EXECUTIVE
                        OFFICERS,
                        PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(**a)
                        OF THE EXCHANGE
                        ACT****
 **Shared
        Management Structure**
  Initially,
        the directors of Mutual Bancorp will be the same persons who currently are
        the
        directors of the Bank and Mutual MHC. In addition, each executive officer
        of the
        Bank will be an executive officer of Mutual Bancorp. Although there are no
        present plans to do so, both Mutual Bancorp and the Bank may choose to appoint
        additional or different persons as directors and executive officers in the
        future. We expect that Mutual MHC, Mutual Bancorp and the Bank will continue
        to
        have common executive officers until there is a business reason to establish
        separate management structures. Presently, directors receive fees for their
        services from the Bank and Mutual MHC. After the offering, directors will
        receive fees from the Bank, Mutual Bancorp and Mutual MHC.
  **Directors
        of Mutual Federal Bancorp, Inc.**
  Initially,
        the board of directors of Mutual Bancorp will consist of six members. Directors
        will serve three-year staggered terms so that approximately one-third of
        the
        directors are elected at each annual meeting of stockholders. The class of
        directors whose term of office will expire at the first annual meeting of
        stockholders following completion of the offering are directors Julie H.
        Oksas and Stephanie Simonaitis. The class of directors whose term will expire
        at
        the second annual meeting of stockholders following completion of the offering
        are directors Stanley Balzekas III and Robert P. Kazan. The class of
        directors whose term of office will expire at the third annual meeting of
        stockholders following the completion of the offering are directors
        Stephen M. Oksas and Leonard F. Kosacz. Because we expect our stock to
        be traded on the OTC Bulletin Board, we will not be subject to the specific
        corporate governance standards of the Nasdaq Stock Market relating to board
        independence, although we expect that each of our directors except
        Stephen M. Oksas and Julie H. Oksas will be “independent” as defined
        under those rules.
  **Executive
        Officers of Mutual Federal Bancorp, Inc.**
  The
        following individuals will be our executive officers and will hold the offices
        set forth below opposite their names.
  **Name**
              **Age(1)**
              **Position**Stephen M.
                  Oksas
              48
              Chairman,
                  President and Chief Executive OfficerJohn L.
                  Garlanger
              59
              Executive
                  Vice President, Chief Financial Officer and TreasurerJulie H.
                  Oksas
              43
              Executive
                  Vice President and Secretary
 ____________
 (1)
              As
                  of December 31, 2005.
  Executive
        officers of Mutual Bancorp will be elected annually and will hold office
        until
        their respective successors are elected or until death, resignation, retirement
        or removal by the board of directors.
  39
 *Table
            of Contents*
  **Directors
        of the Bank and Mutual MHC**
  ***Board
        Composition*** .
        The
        Bank and Mutual MHC each have six directors. Currently, directors of the
        Bank
        are elected annually by Mutual MHC as its sole stockholder. Following the
        offering, the directors of the Bank will be elected by Mutual Bancorp as
        its
        sole stockholder.
  The
        following table includes the directors’ names, their ages as of
        December 31, 2005, the calendar years when they began serving as directors
        and the years their current terms as directors will expire:
  **Directors(1)**
              
              **Age**
              
              **Position
                  with Bank and Mutual MHC**
              
              **Director
                  Since**
              
              **Term
                  Expires**Leonard F.
                  Kosacz
              
              
              81
              
              
              Director
              
              
              1991
              
              
              2006Stephen M.
                  Oksas
              
              
              48
              
              
              Chairman,
                  President
                and
                  CEO
              
              
              1997
              
              
              2006Julie H.
                  Oksas
              
              
              43
              
              
              Director
                  and Secretary; Executive Vice President (Mutual MHC only)
              
              
              2002
              
              
              2007Stephanie
                  Simonaitis
              
              
              93
              
              
              Director
              
              
              1969
              
              
              2007Stanley
                  Balzekas III
              
              
              50
              
              
              Director
              
              
              1999
              
              
              2008Robert P.
                  Kazan
              
              
              58
              
              
              Director
              
              
              1996
              
              
              2008
 ____________
 (1)
              The
                  address for each director is 2212 W. Cermak Road, Chicago, IL
                  60608.
  ***Background
        of Our Directors and Executive Officers***
  The
        business experience for the past five years of each of our directors and
        executive officers is set forth below.
  *Stephen
        M. Oksas* .
        Mr. Oksas has served as a director of the Bank since January 1997 and
        was appointed President of the Bank in March 1998 and Chairman in
        March 2000. In addition, he has served as President and Chief Executive
        Officer of Mutual MHC since November 2001. Prior to joining the bank, he
        was a senior examiner with the Federal Reserve Bank of Chicago and held various
        positions in finance and credit administration with First Interstate Bancorp
        and
        its subsidiary First Interstate Bank of California. He currently is a director
        of the Illinois League of Financial Institutions. Mr. Oksas is the spouse
        of Julie H. Oksas.
  *Stephanie
        Simonaitis* .
        Ms. Simonaitis is currently retired. Previously, she was employed by the
        Bank for 69 years, including several years as a consultant following her
        retirement in 1996. Ms. Simonaitis acted as Secretary/Treasurer of the Bank
        and managed its daily operations.
  *Leonard
        F. Kosacz* .
        Mr. Kosacz, currently retired, was with Metropolitan Bank in Chicago from
        1949 to 1989, most recently as Senior Vice President. During his 40 years
        with
        Metropolitan Bank, his responsibilities included commercial lending, operations
        and marketing.
  *Robert
        P. Kazan, M.D.* Dr.
        Kazan is a neurosurgeon and has served as the president of West Suburban
        Neurosurgical Associates, P.C., in Hinsdale, Illinois since 2000. He is the
        nephew of Stephanie Simonaitis.
  *Stanley
        Balzekas III.* Mr. Balzekas, an attorney, has been the general manager of Balzekas Motor
        Sales, Inc. in Chicago, Illinois for over 20 years. He is actively involved
        in the Chicago Lithuanian
  40
 *Table
            of Contents*
  community,
        including serving as a director of the Balzekas Museum of Lithuanian Culture
        and
        the Lithuanian Chamber of Commerce.
  *Julie
        H. Oksas.* Ms. Oksas was appointed Executive Vice President of Mutual MHC in
        March 2005 and has served as director of the Bank and Mutual MHC since
        January 2002. Prior to joining the Bank, Ms. Oksas served as Vice
        President at Bank of America in its commercial real estate lending and loan
        workout departments. Since 2002, she has been an Illinois-licensed insurance
        salesperson.
  *John
        L. Garlanger.* Mr. Garlanger, a certified public accountant, has served as Executive Vice
        President, Chief Financial Officer and Treasurer of Mutual MHC and the Bank
        since May 2005. Mr. Garlanger served as a securities and financial
        reporting consultant to Chesterfield Financial Corp., the holding company
        for
        Chesterfield Federal Savings and Loan based in Chicago, Illinois, from
        December 2001 until the completion of Chesterfield’s acquisition in
        December 2004. From December 1999 until December 2001, he was the
        Chief Financial Officer of Recruiter Toolbox, Inc., an Internet-based
        recruitment advertising agency. From December 1974 until May 1999,
        Mr. Garlanger was with Calumet Federal Savings and Loan Association of
        Chicago and its publicly traded holding company, Calumet Bancorp, Inc., most
        recently as Senior Vice President and Chief Financial Officer.
  **Meetings
        of the Board of Directors and Committees**
  The
        Board
        of Directors of Mutual Bancorp intends to meet on a monthly basis and may
        hold
        additional special meetings as needed. The boards of directors of Mutual
        MHC and
        the Bank meet on a monthly basis and from time to time hold additional special
        meetings. During the year ended December 31, 2005, each board of directors
        of the Bank and Mutual MHC held 12 regular and two special meetings. No director
        attended fewer than 75% of such meetings.
  **Committees
        of the Bank and Mutual MHC**
  Each
        board of directors of the Bank and Mutual MHC has a standing audit committee,
        which in each case is comprised of Mr. Balzekas, Dr. Kazan and
        Ms. Simonaitis. The audit committees are responsible for developing and
        monitoring internal audit and compliance programs and also receive and review
        all reports, findings and other information presented to them by management
        and
        the independent public accountants regarding financial reporting policies
        and
        practices. The Bank’s and Mutual MHC’s audit committees each met once during
        2005.
  The
        Bank’s board of directors also has a CRA committee, a loan committee, a
        compensation committee and a human resources committee. The CRA committee,
        which
        consists of Dr. Kazan, Mr. Kosacz and Ms. Oksas, provides
        oversight to our compliance staff in adhering with the rules and regulations
        of
        the Community Reinvestment Act. The loan committee, which is comprised of
        Messrs. Balzekas, Kosacz and Oksas, and Ms. Simonaitis, oversees the
        lending function at the Bank, which includes, among other things, approving
        loans in accordance with bank policies and periodically reviewing the adequacy
        of our allowance for loan losses. **** The
        compensation committee is comprised of Mr. Balzekas, Dr. Kazan and
        Mr. Kosacz and is responsible for reviewing and establishing salaries and
        benefits for our officers and employees on an annual basis. The human resources
        committee, which consists of Mr. Balzekas, Mr. Kosacz and
        Ms. Simonaitis, monitors employee/employer relations.
  Mutual
        MHC’s board of directors also has a proxy committee currently comprised of
        Mr. Kosacz, Mr. Oksas and Ms. Simonaitis, which casts its votes
        as directed by the board in favor of the nominees selected by the members’
nominating committee. Mutual MHC’s board also has a strategic planning
        committee, consisting of Mr. Balzekas, Dr. Kazan and Mr. and
        Ms. Oksas.
  41
 *Table
            of Contents*
  **Committees
        of Mutual Federal Bancorp, Inc.**
  In
        connection with Mutual Bancorp’s formation, an audit committee, a compensation
        committee, a nominating committee and a strategic planning committee will
        be
        established as follows:
  The
        audit
        committee will be responsible for supervising Mutual Bancorp’s accounting,
        financial reporting and financial control processes. Generally, the audit
        committee will review the quality and integrity of our financial information
        and
        reporting functions, the adequacy and effectiveness of our system of internal
        accounting and financial controls, and the independent audit process, and
        will
        annually review the qualifications and approve the engagement of the independent
        public accountants. We intend that each member of the audit committee will
        be
        deemed “independent” as defined under the rules of the Securities and Exchange
        Commission, or SEC, within one year after the date the offering commences.
        At
        this time, we do not expect that any member of the audit committee will be
        an
“audit committee financial expert” as defined by SEC regulations. However, we
        expect that the financial knowledge and experience of the audit committee
        members, including each member’s ability to read and understand fundamental
        financial statements for a community-based financial institution, will be
        cumulatively sufficient to discharge adequately the audit committee’s
        responsibilities.
  The
        compensation committee will be responsible for reviewing the performance
        of the
        CEO, reviewing and recommending the compensation of our executive officers,
        including the CEO, evaluating and recommending additional employee benefits
        plans and compensation programs, including stock option grants, restricted
        share
        awards and annual bonuses, reviewing and recommending director compensation,
        advising the CEO on miscellaneous compensation issues, and advising management
        regarding management succession planning issues. The compensation committee
        will
        also advise and assist management in formulating policies regarding
        compensation.
  The
        nominating committee will be responsible for recommending to the board of
        directors nominees for election as directors by stockholders at each annual
        meeting, and developing and evaluating the effectiveness of policies and
        practices relating to corporate governance.
  Each
        of
        the committees listed above will operate under a written charter, which will
        govern its composition, responsibilities and operations.
  **Code
        of Ethics**
  We
        have
        adopted a Code of Ethics as required by the rules of the SEC. The Code of
        Ethics
        applies to all of our directors, officers, including our Chief Executive
        Officer
        and Chief Financial Officer, and employees. The Code of Ethics is posted
        and
        available on our website at www.mutualfederalbank.com .
  **Section 16(a)
        Beneficial Ownership Reporting Compliance**
  During
        the most recent fiscal year or prior fiscal years, there were no directors
        or
        officers of Mutual Bancorp subject to Section 16 of the Exchange Act as no
        shares of common stock of Mutual Bancorp were registered under the Exchange
        Act
        and no shares were issued and outstanding.
  **ITEM
                        10.**
                      **EXECUTIVE
                          COMPENSATION**
 **Director
        Compensation**
  ***Director
        Fees*** .
        Mutual
        Bancorp will pay a monthly retainer of $300 to each director and $200 to
        each
        non-employee director for each committee meeting attended. Currently, the
        Bank
        pays each director
  42
 *Table
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  a
        monthly
        retainer fee of $750 and each non-employee director $250 for each committee
        meeting attended. The Bank paid fees totaling $58,000 for the year ended
        December 31, 2005. Effective January 1, 2006, the Bank will pay each
        director a monthly retainer of $800. All outside directors will continue
        to
        receive $250 per committee meeting attended, except that members of the audit
        committee will receive $350 per meeting.
  Currently,
        Mutual MHC pays each director a monthly retainer of $300, and $200 to each
        non-employee director for each committee meeting attended. After January 1,
        2006, directors will not receive a separate fee from Mutual MHC in the event
        of
        a joint committee meeting of the Bank and MHC. Mutual MHC paid fees totaling
        $24,600 to its directors during 2005 for board and committee
        attendance.
  After
        the
        offering, directors will not receive a separate fee in the event of a joint
        committee meeting of the Bank and Mutual Bancorp.
  **Executive
        Officer Compensation**
  ***Summary
        Compensation Table*** .
        The
        following table sets forth certain information as to the total remuneration
        paid
        by the Bank to our Chief Executive Officer for the years ended December 31,
        2004 and 2005. No other executive officer received salary and bonus in excess
        of
        $100,000 for 2004 or 2005.
  **Annual
                  Compensation(1)****Name
                  and Principal Position**
              
              **Year**
              
              **Salary
                  ($)**
              
              **Bonus
                  ($)**
              
              **Other
                  Annual Compensation ($)**
              
              **All
                  Other Compensation (2)**Stephen
                  M. Oksas, President and Chief Executive Officer
              
              
              2005
              
              $
              122,536
              
              $
              13,000
              
              $
              —
              
              $
              22,6002004
              
              $
              117,823
              
              $
              11,000
              
              $
              —
              
              $
              21,178
 ____________
 (1)
              Summary
                  compensation information is excluded for the fiscal year ended
                  December 31, 2003, as neither the Bank nor Mutual MHC was a public
                  company during 2003.
 (2)
              Consists
                  of $9,000 in director’s fees and a profit sharing plan contribution of
                  $13,600 in 2005. Consists of $8,250 in director’s fees, of which $7,650
                  were deferred, and a profit sharing plan contribution of $12,928
                  in
                  2004.
  ***Employment
        Agreements*** .
        In
        connection with the offering, the Bank and Mutual Bancorp plan to enter into
        employment agreements with Mr. Oksas, Mr. Garlanger and
        Ms. Oksas.
  *Stephen M.
        Oksas* .
        We will
        enter into an employment agreement with Stephen M. Oksas, President and
        Chief Executive Officer, to be effective as of the closing of the offering.
        The
        term of the agreement will be three years and, subject to Board approval,
        will
        be renewed for successive one-year terms, unless either party gives 90 days’
advance notice of an intention to terminate the agreement. The agreement
        will
        provide for an annual base salary of $127,438, subject to review from time
        to
        time, and may be increased when and to the extent the board of directors,
        in its
        discretion, determines. Mr. Oksas may receive a discretionary bonus to the
        extent determined by the board of directors and will be entitled to participate
        in benefit plans and other fringe benefits available to our executive
        officers.
  Under
        the
        agreement, Mr. Oksas’ employment may be terminated by us at any time for
“cause,” as defined in the agreement. If he resigns without “good reason,” the
        agreement will immediately terminate, and he would be entitled only to unpaid
        benefits accrued during the term of his employment. If Mr. Oksas chooses to
        resign with good reason, or we choose to terminate his employment without
        cause,
        he also will be entitled to receive severance in the amount equal to 200%
        of his
        then-current base annual salary, plus the average of the sum of the bonuses
        he
        earned during the previous three years, in addition to a pro rata bonus for
        the
        year of termination based on the prior year’s bonus amount, if any. The
        agreement also will provide for death benefits equal to six months of his
        then-current annual base salary.
  43
 *Table
            of Contents*
  In
        the
        event that Mr. Oksas is terminated after a change in control (as will be
        defined in the agreement) of Mutual Bancorp and the Bank, he will be entitled
        to
        a lump sum payment equal to three times the sum of (1) his annual base
        salary; (2) the greater of (a) his bonus amount, if any, for the prior
        year or (b) his average bonus, if any, for the three preceding years; and
        (3) the sum of the contributions that we would have made to him during the
        year under benefit plans and the annual value of any other executive
        perquisites. The agreement also will entitle Mr. Oksas to receive gross-up
        payments to cover any federal excise taxes payable by him in the event the
        change in control benefits are deemed to constitute “excess parachute payments”
under section 280G of the Code. If such a payment was triggered as of
        December 31, 2005, Mr. Oksas would be entitled to a payment of
        $699,000, including tax gross-up payments.
  The
        agreement will contain certain nonsolicitation provisions that prohibit
        Mr. Oksas from soliciting, either for his own account or for the benefit of
        any entity located within a 40 mile radius of any of our locations or any
        of our
        subsidiaries’ locations, any of our clients or employees. These nonsolicitation
        provisions will remain in effect for a period of one year after the termination
        of his employment.
  *Other
        Executives* .
        We also
        plan to enter into employment agreements with John L. Garlanger, Executive
        Vice President and Chief Financial Officer, and Julie H. Oksas, Executive
        Vice President and Secretary (collectively referred to in this section as
        the
“executives”), which will become effective as of the closing of the offering.
        The term of the agreements with each executive will be two years and, subject
        to
        Board approval, will automatically renew for an additional year, unless either
        party gives 90 days’ advance notice of an intention to terminate the
        agreement.
  Mr. Garlanger’s
        initial base salary is expected to be his current salary of $92,000 and
        Ms. Oksas’ initial base salary is expected to be her current salary of
        $39,312, which reflects Ms. Oksas’ part-time schedule. We and
        Ms. Oksas will periodically review her part-time status and she may switch
        to a full-time position with a commensurate full-time salary at an undetermined
        time in the future. Each executive’s base salary will be subject to periodic
        review from time to time, and may be increased when and to the extent the
        board
        of directors, in its discretion, determines.
  If
        the
        executive chooses to resign with good reason, or we choose to terminate his/her
        employment without cause, he/she will be entitled to receive severance in
        the
        amount equal to 100% of his/her then-current annual base salary, plus the
        average of the sum of any bonuses he/she earned during the previous three
        years,
        in addition to a pro rata bonus for the year of termination based on the
        prior
        year’s bonus amount, if any.
  In
        the
        event the executive is terminated after a change of control (as defined in
        the
        agreement) of Mutual Bancorp and the Bank, he/she will be entitled to unpaid
        benefits accrued during the term of his/her employment, a pro rata bonus
        for the
        year of termination based on the prior year’s bonus amount, if any, and a
        lump-sum payment equal to the sum of: (a) two times annual base salary;
        plus (b) the greater of his/her bonus amount, if any, for the prior year or
        his/her average bonus, if any, for the three preceding years; and (c) the
        sum of contributions that we would have made to him/her during the year under
        benefit plans and the annual value of any other executive perquisites. The
        executive also will be entitled to outplacement counseling services for a
        reasonable period of time following termination.
  Each
        agreement also will contain certain nonsolicitation provisions that prohibit
        the
        executive from soliciting, either for his/her own account or for the benefit
        of
        any entity located within a 40 mile radius of any of our locations or any
        of our
        subsidiaries’ locations, any of our clients or employees. These nonsolicitation
        provisions remain in effect for a period of one year after the termination
        of
        his/her employment.
  44
 *Table
            of Contents*
  **ITEM
                          11.**
                        **SECURITY
                            OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                            AND RELATED
                            STOCKHOLDER MATTERS**
 There
        currently are no equity securities of Mutual Bancorp outstanding and, at
        December 31, 2005, no securities were authorized for issuance under any
        equity compensation plans.
  **ITEM
                            12.**
                          **CERTAIN
                              RELATIONSHIPS AND RELATED
                              TRANSACTIONS**
 In
        the
        ordinary course of business, the Bank makes loans available to its directors,
        officers and employees. These loans are made in the ordinary course of business
        on substantially the same terms (including interest rate), including collateral,
        as comparable loans to other borrowers. Management believes that these loans
        neither involve more than the normal risk of collectibility nor present other
        unfavorable features. Federal regulations permit executive officers and
        directors to participate in loan programs that are available to other employees,
        as long as the director or executive officer is not given preferential treatment
        compared to other participating employees. Loans made to directors or executive
        officers, including any modification of such loans, must be approved by a
        majority of disinterested members of the board of directors. The interest
        rate
        on loans to directors and officers is the same as that offered to other
        employees.
 **ITEM
                              13.**
                            **EXHIBITS**
 The
        exhibits filed as a part of this Form 10-KSB are listed in the
        Exhibit Index, which is incorporated herein by reference.
 **ITEM
                                14.**
                              **PRINCIPAL
                                    ACCOUNTANT FEES AND
                                    SERVICES**
 **Audit
        Fees**
  The
        aggregate amount of the fees billed or to be billed by Crowe Chizek and Company
        LLC, our independent accountants, for professional services rendered for
        the
        audit of our annual financial statements for the fiscal year ended
        December 31, 2005, including its reviews of Form 10-KSB to be filed
        with the Securities and Exchange Commission for 2005, was $57,000.
  **Audit-Related
        Fees**
  Audit-related
        fees include fees for assurance and related services that are reasonably
        related
        to the performance of the audit or review of our financial statements and
        are
        not reported above. Aggregate fees for audit-related services, which primarily
        consisted of services provided in conjunction with Mutual Bancorp’s stock
        offering, were $210,000 in fiscal 2005.
  **Tax
        Fees**
  Tax
        fees
        include fees for tax compliance services, including preparation of the fiscal
        2005 tax return, and amended state returns for 2002, 2003 and 2004. Aggregate
        fees for tax services were $12,000 in fiscal 2005.
  **All
        Other Fees**
  There
        were no other services provided to us by Crowe Chizek during fiscal
        2005.
  45
 *Table
            of
            Contents*
  **MUTUAL
        FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO**
 **CHICAGO,
        ILLINOIS**
  **Consolidated
        Financial Statements**
 **December 31,
        2005 and 2004**
 **Page**Report
                    of Independent Registered Public Accounting Firm
                F-2Financial
                    StatementsConsolidated
                    Statements of Financial Condition
                F-3Consolidated
                    Statements of Income
                F-4Consolidated
                    Statements of Stockholder’s Equity
                F-5Consolidated
                    Statements of Cash Flows
                F-6Notes
                    to Consolidated Financial Statements
                F-7
  F-1
  
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  Board
        of
        Directors
 Mutual
        Federal Savings and Loan
 Association
        of Chicago
 Chicago,
        Illinois
  We
        have
        audited the accompanying consolidated statements of financial condition of
        the
        Mutual Federal Savings and Loan Association of Chicago (a wholly owned
        subsidiary of Mutual Federal Bancorp, MHC) as of December 31, 2005 and
        2004, and the related statements of income, stockholder’s equity, and cash flows
        for the years then ended. These financial statements are the responsibility
        of
        the Association’s management. Our responsibility is to express an opinion on
        these financial statements based on our audits.
  We
        conducted our audits 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 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 the Association as of
        December 31, 2005 and 2004, and the results of its operations and its cash
        flows for the years then ended, in conformity with U.S. generally accepted
        accounting principles.
   Crowe Chizek Signature
  Oak
        Brook, Illinois
 February 22,
        2006
  F-2
 MUTUAL
              FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 CONSOLIDATED
              STATEMENTS OF FINANCIAL CONDITION
 (Dollar
              amounts in thousands except share data)




**2005**
                
                
                **2004****ASSETS**Cash
                    and cash equivalents
                
                $
                1,250
                
                $
                3,684Securities
                    available-for-sale
                
                
                24,028
                
                
                31,596Loans,
                    net of allowance for loan losses of $170 at
                  December 31,
                    2005; $150 at December 31, 2004
                
                
                38,030
                
                
                28,326Federal
                    Home Loan Bank stock, at cost
                
                
                500
                
                
                477Premises
                    and equipment, net
                
                
                305
                
                
                357Accrued
                    interest receivable
                
                
                236
                
                
                255Other
                    assets
                
                
                140
                
                
                50Total
                    assets
                
                $
                64,489
                
                $
                64,745**LIABILITIES
                    AND STOCKHOLDER’S EQUITY**Liabilities:Non-interest-bearing
                    deposits
                
                $
                350
                
                $
                83Interest-bearing
                    deposits
                
                
                43,175
                
                
                44,488Total
                    deposits
                
                
                43,525
                
                
                44,571Advance
                    payments by borrowers for taxes and insurance
                
                
                361
                
                
                258Accrued
                    interest payable and other liabilities
                
                
                2,267
                
                
                1,376Total
                    liabilities
                
                
                46,153
                
                
                46,205Commitments
                    and contingenciesStockholder’s
                    equity:Preferred
                    stock, no par value, 1,000,000 shares authorized
                
                
                —
                
                
                —Common
                    stock, $0.10 par value, 5,000,000 shares authorized, 10,000 shares
                    issued
                    and outstanding
                
                
                1
                
                
                1Retained
                    earnings
                
                
                18,252
                
                
                17,809Accumulated
                    other comprehensive income
                
                
                83
                
                
                730Total
                  stockholder’s equity
                
                
                18,336
                
                
                18,540Total liabilities and stockholder’s equity
                
                $
                64,489
                
                $
                64,745
 
 
 
 See
          accompanying notes to consolidated financial statements.
  F-3
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 CONSOLIDATED
                STATEMENTS OF FINANCIAL INCOME
 (Dollar
                amounts in thousands except share data)
  
 **2005**
                
                
                **2004**Interest
                    and dividend income:Loans,
                    including fees
                
                $
                2,099
                
                $
                1,963Securities
                
                
                1,031
                
                
                1,136Interest
                    earning deposits
                
                
                82
                
                
                66Federal
                    Home Loan Bank stock dividends
                
                
                23
                
                
                28Total
                    interest and dividend income
                
                
                3,235
                
                
                3,193Interest
                    expense:Deposits
                
                
                788
                
                
                728Net
                    interest income
                
                
                2,447
                
                
                2,465Provision
                  for loan losses
                
                
                20
                
                
                —Net
                    interest income after provision for loan losses
                
                
                2,427
                
                
                2,465Non-interest
                    income:Insurance
                    commissions and fees
                
                
                4
                
                
                4Gain
                    on sale of securities
                
                
                483
                
                
                1,577Other
                    income
                
                
                33
                
                
                28Total
                    non-interest income
                
                
                520
                
                
                1,609Non-interest
                    expense:Compensation
                    and benefits
                
                
                1,053
                
                
                940Occupancy
                    and equipment
                
                
                193
                
                
                209Data
                    processing
                
                
                103
                
                
                97Professional
                    fees
                
                
                138
                
                
                125Other
                    expense
                
                
                275
                
                
                256Total non-interest expense
                
                
                1,762
                
                
                1,627Income
                    before income taxes
                
                
                1,185
                
                
                2,447Income
                  tax expense
                
                
                442
                
                
                921Net
                  income
                
                $
                743
                
                $
                1,526Earnings
                    per share (basic and diluted)
                
                $
                74.30
                
                $
                152.60
 
 
 
 See
          accompanying notes to consolidated financial statements.
  F-4
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 CONSOLIDATED
                STATEMENTS OF STOCKHOLDER'S EQUITY
 (Dollar
                amounts in thousands)
  
 **Common**
                  **Stock**
                
                
                **Retained**
                  **Earnings**
                
                
                **Accumulated**
                  **Other**
                  **Comprehensive**
                  **Income**
                
                
                **Total**Balance
                    at December 31, 2003
                
                $
                1
                
                $
                17,283
                
                $
                1,552
                
                $
                18,836**Comprehensive
                    income:**Net
                    income
                
                
                —
                
                
                1,526
                
                
                —
                
                
                1,526Change
                    in net unrealized gain (loss) on securities
                  available-for-sale,
                    net of taxes and reclassification
                  adjustments
                
                
                —
                
                
                —
                
                
                (822
                )
                
                (822
                )Total
                    comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                704Cash
                    dividends
                
                
                —
                
                
                (1,000
                )
                
                —
                
                
                (1,000
                )Balance
                    at December 31, 2004
                
                
                1
                
                
                17,809
                
                
                730
                
                
                18,540**Comprehensive
                    income:**Net
                    income
                
                
                —
                
                
                743
                
                
                —
                
                
                743Change
                    in net unrealized gain (loss) on securities available-for-sale,
                    net of
                    taxes and reclassification adjustments
                
                
                —
                
                
                —
                
                
                (647
                )
                
                (647
                )Total
                    comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                96Cash
                    dividends
                
                
                —
                
                
                (300
                )
                
                —
                
                
                (300
                )Balance
                    at December 31, 2005
                
                $
                1
                
                $
                18,252
                
                $
                83
                
                $
                18,336
 
 
 
 See
          accompanying notes to consolidated financial statements.
  F-5
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 CONSOLIDATED
                STATEMENTS OF CASH FLOWS
 (Dollar
                amounts in thousands)
  
 **2005**
                
                **2004****Cash
                    flows from operating activities**Net
                    income
                
                $
                743
                
                $
                1,526Adjustments
                    to reconcile net income to net cash
                  from
                    operating activities:Provision
                    for loan losses
                
                
                20
                
                
                —Depreciation
                
                
                87
                
                
                101Gain
                    on sale of securities
                
                
                (483
                )
                
                (1,577
                )Net
                    amortization of securities
                
                
                82
                
                
                91Federal
                    Home Loan Bank stock dividends
                
                
                (23
                )
                
                (28
                )Dividends
                    reinvested on securities
                
                
                (85
                )
                
                (67
                )Provision
                    for deferred income taxes
                
                
                (5
                )
                
                14Increase
                    in accrued interest receivable and other assets
                
                
                (71
                )
                
                (20
                )Increase
                    in accrued interest payable and other liabilities
                
                
                1,305
                
                
                503Net
                    cash provided by operating activities
                
                
                1,570
                
                
                543**Cash
                    flows from investing activities**Activity
                    in securities available-for-sale:Proceeds
                    from maturities, calls, and principal repayments
                
                
                8,401
                
                
                11,837Proceeds
                    from sales
                
                
                484
                
                
                1,601Purchases
                
                
                (1,887
                )
                
                (13,115
                )Loan
                    originations and payments, net
                
                
                (9,724
                )
                
                2,070Additions
                    to premises and equipment
                
                
                (35
                )
                
                (37
                )Net
                    cash provided by (used in) investing activities
                
                
                (2,761
                )
                
                2,356**Cash
                    flows from financing activities**Net
                    decrease in deposits
                
                
                (1,046
                )
                
                (2,455
                )Net
                    increase (decrease) in advance payments by
                  borrowers for taxes and insurance
                
                
                103
                
                
                (3
                )Cash
                    dividends paid
                
                
                (300
                )
                
                (1,000
                )Net
                    cash used in financing activities
                
                
                (1,243
                )
                
                (3,458
                )Net
                    increase (decrease) in cash and cash equivalents
                
                
                (2,434
                )
                
                (559
                )Cash
                    and cash equivalents at beginning of period
                
                
                3,684
                
                
                4,243**Cash
                    and cash equivalents at end of period**
                
                $
                1,250
                
                $
                3,684Supplemental
                    disclosure of cash flow informationCash
                    paid during the year for:Interest
                
                $
                779
                
                $
                731Income
                    taxes
                
                
                831
                
                
                472
 
 
 
 See
          accompanying notes to consolidated financial statements.
  F-6
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                amounts in thousands except per share data)
  
 **NOTE
          1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
  Nature
          of Operations and Principles of Consolidation :
          The
          consolidated financial statements include Mutual Federal Savings and Loan
          Association of Chicago and its wholly owned subsidiary, EMEFES Service
          Corporation, together referred to as “the Association.” Intercompany
          transactions and balances are eliminated in consolidation. The Association
          is a
          wholly owned subsidiary of Mutual Federal Bancorp, MHC (“the MHC”). The MHC is
          owned by the depositors of the Association. These financial statements
          do not
          include the transactions and balances of the MHC. EMEFES Service Corporation
          is
          an insurance agency that sells insurance products to the Association’s
          customers. The insurance products are underwritten and provided by a third
          party.
  The
          Association provides financial services through its office in Chicago.
          Its
          primary deposit products are checking, savings, and term certificate accounts,
          and its primary lending products are residential mortgage loans and loans
          on
          deposit accounts. Substantially all loans are secured by specific items
          of
          collateral, including one- to four-family and multifamily residential real
          estate, and deposit accounts. There are no significant concentrations of
          loans
          to any one customer. However, the customers’ ability to repay their loans is
          dependent on the real estate and general economic conditions in the Chicagoland
          area.
  Use
          of
          Estimates :
          To
          prepare financial statements in conformity with U.S. generally accepted
          accounting principles, management makes estimates and assumptions based
          on
          available information. These estimates and assumptions affect the amounts
          reported in the financial statements and the disclosures provided, and
          actual
          results could differ. The allowance for loan loss is particularly subject
          to
          change.
  Cash
          Flows :
          Cash
          and cash equivalents include cash and deposits with other financial institutions
          available in less than 90 days. Net cash flows are reported for customer
          loan
          and deposit transactions.
  Securities :
          Debt
          securities are classified as available-for-sale when they might be sold
          before
          maturity. Equity securities with readily determinable fair values are classified
          as available-for-sale. Securities available-for-sale are carried at fair
          value,
          with unrealized holding gains and losses reported in other comprehensive
          income,
          net of tax. Other securities such as Federal Home Loan Bank stock are carried
          at
          cost.
  Interest
          income includes amortization of purchase premium or discount. Gains and
          losses
          on sales are recorded on the trade date and determined using the specific
          identification method.
  Management
          evaluates securities for other-than-temporary impairment at least on a
          quarterly
          basis and more frequently when economic or market concerns warrant such
          evaluation. Consideration is given to (1) the length of time and the extent
          to which the fair value has been less than cost, (2) the financial
          condition and near-term prospects of the issuer, and (3) the intent
          and ability of the Association to retain its investment in the issuer for
          a
          period of time sufficient to allow for any anticipated recovery in fair
          value.
  Loans :
          Loans
          that management has the intent and ability to hold until maturity or payoff
          are
          reported at the principal balance outstanding, net of undisbursed loan
          proceeds,
          deferred loan fees and costs, and an allowance for loan losses. Interest
          income
          is accrued on the unpaid principal balance. Loan origination fees, net
          of
          certain direct origination costs, are deferred and recognized in interest
          income
          using the level-yield method.
  F-7
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                amounts in thousands except per share data)
  
 Interest
          income on mortgage loans is discontinued at the time the loan becomes 90
          days
          delinquent. Past-due status is based on the contractual terms of the loan.
          In
          all cases, loans are placed on nonaccrual or charged-off at an earlier
          date if
          collection of principal or interest is considered doubtful.
  All
          interest accrued but not received for loans placed on nonaccrual is reversed
          against interest income. Interest received on such loans is accounted for
          on the
          cash-basis or cost-recovery method, until qualifying for return to accrual.
          Loans are returned to accrual status when all the principal and interest
          amounts
          contractually due are brought current and future payments are reasonably
          assured.
  Allowance
          for Loan Losses :
          The
          allowance for loan losses is a valuation allowance for probable incurred
          credit
          losses. Loan losses are charged against the allowance when management believes
          that the uncollectibility of a loan balance is confirmed. Subsequent recoveries,
          if any, are credited to the allowance. Management estimates the allowance
          balance required using past loan loss experience, the nature and volume
          of the
          portfolio, information about specific borrower situations and estimated
          collateral values, economic conditions, and other factors. Allocations
          of the
          allowance may be made for specific loans, but the entire allowance is available
          for any loan that, in management’s judgment, should be charged off.
  The
          allowance consists of specific and general components. The specific component
          relates to loans that are individually classified as impaired or loans
          otherwise
          classified as substandard or doubtful. The general component covers
          non-classified loans and is based on historical loss experience adjusted
          for
          current factors.
  A
          loan is
          impaired when full payment under the loan terms is not expected. Large
          multifamily residential real estate loans are individually evaluated for
          impairment. If a loan is impaired, a portion of the allowance is allocated
          so
          that the loan is reported, net, at the present value of estimated future
          cash
          flows using the loan’s existing rate or at the fair value of collateral if
          repayment is expected solely from the collateral. Large groups of smaller
          balance homogeneous loans, such as one- to four-family and small multifamily
          residential real estate loans, are collectively evaluated for impairment,
          and
          accordingly, they are not separately identified for impairment
          disclosures.
  Premises
          and Equipment :
          Land is
          carried at cost. Premises and equipment are stated at cost less accumulated
          depreciation. Buildings and related components are depreciated using the
          straight-line method, with useful lives ranging from 5 to 33 years. Furniture,
          fixtures, and equipment are depreciated using the straight-line method
          with
          useful lives ranging from 3 to 7 years.
  Foreclosed
          Assets :
          Assets
          acquired through or instead of loan foreclosures are initially recorded
          at fair
          value when acquired, establishing a new cost basis. If fair value declines
          subsequent to foreclosure, a valuation allowance is recorded through expense.
          Costs after acquisition are expensed. There were no foreclosed assets at
          December 31, 2005 and 2004.
  Long-Term
          Assets : **** Premises
          and equipment and other long-term assets are reviewed for impairment when
          events
          indicate that their carrying amount may not be recoverable from future
          undiscounted cash flows. If impaired, the assets are recorded at fair
          value.
  Loan
          Commitments and Related Financial Instruments :
          Financial instruments include off-balance-sheet credit instruments, such
          as
          commitments to make loans issued to meet customer financing needs. The
          face
          amount for these items represents the exposure to loss, before considering
          customer collateral or ability to repay. Such financial instruments are
          recorded
          when they are funded.
  F-8
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 Advertising
          Expense :
          The
          Association expenses all advertising costs as they are incurred. Total
          advertising costs for the years ended December 31, 2005 and 2004 were $27
          and $23, respectively.
  Income
          Taxes :
          Income
          tax expense is the total of the current-year income tax due or refundable
          and
          the change in deferred tax assets and liabilities. Deferred tax assets
          and
          liabilities are the expected future tax amounts for the temporary differences
          between carrying amounts and tax bases of assets and liabilities, computed
          using
          enacted tax rates. A valuation allowance, if needed, reduces deferred tax
          assets
          to the amount expected to be realized.
  Comprehensive
          Income :
          Comprehensive income consists of net income and other comprehensive income.
          Other comprehensive income includes unrealized gains and losses on securities
          available-for-sale that are also recognized as separate components of
          equity.
  Loss
          Contingencies :
          Loss
          contingencies, including claims and legal actions arising in the ordinary
          course
          of business, are recorded as liabilities when the likelihood of loss is
          probable
          and an amount or range of loss can be reasonably estimated. Management
          does not
          believe that there now are such matters that will have a material effect
          on the
          consolidated financial statements.
  Earnings
          Per Common Share :
          Basic
          and diluted earnings per common share is net income divided by the weighted
          average number of common shares outstanding during the period. There are
          no
          instruments issued that would cause the dilution to the weighted average
          number
          of shares.
  Fair
          Value of Financial Instruments :
          Fair
          values of financial instruments are estimated using relevant market information
          and other assumptions, as more fully disclosed in a separate note. Fair
          value
          estimates involve uncertainties and matters of significant judgment regarding
          interest rates, credit risk, prepayments, and other factors, especially
          in the
          absence of broad markets for particular items. Changes in assumptions or
          in
          market conditions could significantly affect the estimates.
  Effect
          of Newly Issued But Not Yet Effective Accounting Standards :
          FAS
          123, Revised, requires companies to record compensation cost for stock
          options
          provided to employees in return for employment service. The cost is measured
          at
          the fair value of the options when granted, and this cost is expensed over
          the
          employment service period, which is normally the vesting period of the
          options.
          This will apply to awards granted or modified in fiscal years beginning
          on or
          after June 15, 2005. The effect on results of operations will depend on the
          level of future option grants and the calculation of the fair value of
          the
          options granted at such future date, as well as the vesting periods provided,
          and so cannot currently be predicted. Any income tax benefit for the exercise
          of
          stock options in excess of income tax expense for financial reporting purposes
          will be classified as a cash inflow for financing activities and a cash
          outflow
          for operating activities in the statement of cash flows.
  Operating
          Segments :
          Internal financial information is primarily reported and aggregated in
          one line
          of business, banking. While the chief decision-makers monitor the revenue
          streams of the various products and services, the identifiable segments
          are not
          material and operations are managed and financial performance is evaluated
          on a
          company-wide basis. Accordingly, all of the financial service operations
          are
          considered by management to be aggregated in one reportable operating
          segment.
  **NOTE
          2 - CASH AND CASH EQUIVALENTS**
  At
          December 31, 2005 and 2004, the Association had approximately $0 and
          $2,554, respectively, in an interest-bearing deposit account at the Federal
          Home
          Loan Bank of Chicago.
  F-9
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 **NOTE
          3 - SECURITIES**
  The
          amortized cost and fair value of securities available-for-sale and the
          related
          gross unrealized gains and losses recognized in accumulated other comprehensive
          income (loss) were as follows:
  **Amortized**
                  **Cost**
                
                **Gross**
                  **Unrealized**
                  **Gains**
                
                **Gross**
                  **Unrealized**
                  **Losses**
                
                **Fair**
                  **Value**December 31,
                    2005U.S.
                    agency and government-
                  sponsored entity bonds
                
                $
                8,694
                
                $
                2
                
                $
                (112
                )
                $
                8,584GNMA
                    certificates
                
                
                2,162
                
                
                11
                
                
                (38
                )
                
                2,135FNMA
                    certificates
                
                
                5,757
                
                
                19
                
                
                (122
                )
                
                5,654FHLMC
                    certificates
                
                
                3,798
                
                
                17
                
                
                (94
                )
                
                3,721Collateralized
                    mortgage obligations
                
                
                722
                
                
                —
                
                
                (11
                )
                
                711FHLMC
                    common stock
                
                
                8
                
                
                515
                
                
                —
                
                
                523FHLMC
                    preferred stock
                
                
                500
                
                
                5
                
                
                —
                
                
                505Mutual
                    funds
                
                
                2,250
                
                
                —
                
                
                (55
                )
                
                2,195Total
                    available-for-sale
                
                $
                23,891
                
                $
                569
                
                $
                (432
                )
                $
                24,028December 31,
                    2004U.S.
                    agency and government-sponsored entity bonds
                
                $
                13,186
                
                $
                49
                
                $
                (83
                )
                $
                13,152GNMA
                    certificates
                
                
                2,931
                
                
                23
                
                
                (15
                )
                
                2,939FNMA
                    certificates
                
                
                6,388
                
                
                81
                
                
                (42
                )
                
                6,427FHLMC
                    certificates
                
                
                4,222
                
                
                38
                
                
                (52
                )
                
                4,208Collateralized
                    mortgage obligations
                
                
                996
                
                
                37
                
                
                —
                
                
                1,033FHLMC
                    common stock
                
                
                15
                
                
                1,125
                
                
                —
                
                
                1,140FHLMC
                    preferred stock
                
                
                500
                
                
                46
                
                
                —
                
                
                546Mutual
                    funds
                
                
                2,165
                
                
                —
                
                
                (14
                )
                
                2,151Total
                    available-for-sale
                
                $
                30,403
                
                $
                1,399
                
                $
                (206
                )
                $
                31,596
 
 At
          December 31, 2005 and 2004, there were no holdings of securities of any one
          issuer, other than U.S. agency and U.S. government-sponsored entities,
          in an
          amount greater than 10% of equity, except for mutual fund securities. Mutual
          fund securities at December 31, 2005 and 2004 include $2,195 and $2,151 in
          mutual funds managed by a single issuer and invested primarily in short-term
          government obligations and pools of adjustable rate mortgage loans.
  There
          were no securities pledged at December 31, 2005 and 2004.
  During
          the years ended December 31, 2005 and 2004, the Association sold shares of
          FHLMC common stock. A summary of those transactions is as follows:
  **2005**
                
                **2004**Proceeds
                
                $
                484
                
                $
                1,601Gross
                    gains
                
                
                483
                
                
                1,577Gross
                    losses
                
                
                —
                
                
                —
  F-10
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 The
          amortized cost and fair values of debt securities available-for-sale at
          December 31, 2005 by contractual maturity were as follows.
  **Amortized**
                  **Cost**
                
                **Fair**
                  **Value**Due
                    in one year or less
                
                $
                1,000
                
                $
                994Due
                    from one to five years
                
                
                5,694
                
                
                5,627Due
                    from five to ten years
                
                
                2,000
                
                
                1,963CMO’s
                    and mortgage backed securities
                
                
                12,439
                
                
                12,221Total
                
                $
                21,133
                
                $
                20,805
 
 Securities
          with unrealized losses aggregated by investment category and length of
          time that
          individual securities have been in a continuous unrealized loss position
          are as
          follows:
  **December 31,
                    2005****Less
                    Than 12 Months**
                
                **12
                    Months or More**
                
                **Total****Description
                    of Securities**
                
                **Fair**
                  **Value**
                
                **Unrealized**
                  **Loss**
                
                **Fair**
                  **Value**
                
                **Unrealized**
                  **Loss**
                
                **Fair**
                  **Value**
                
                **Unrealized**
                  **Loss**U.S.
                    agency obligations
                
                $
                498
                
                $
                (2
                )
                $
                7,090
                
                $
                (110
                )
                $
                7,588
                
                $
                (112
                )GNMA
                    certificates
                
                
                327
                
                
                (1
                )
                
                1,384
                
                
                (37
                )
                
                1,711
                
                
                (38
                )FNMA
                    certificates
                
                
                2,349
                
                
                (42
                )
                
                2,314
                
                
                (80
                )
                
                4,663
                
                
                (122
                )FHLMC
                    certificates
                
                
                851
                
                
                (16
                )
                
                2,413
                
                
                (78
                )
                
                3,264
                
                
                (94
                )Collateralized
                    mortgage obligations
                
                
                705
                
                
                (11
                )
                
                —
                
                
                —
                
                
                705
                
                
                (11
                )Mutual
                    funds
                
                
                743
                
                
                (10
                )
                
                1,452
                
                
                (45
                )
                
                2,195
                
                
                (55
                )Total
                    temporarily impaired
                
                $
                5,473
                
                $
                (82
                )
                $
                14,653
                
                $
                (350
                )
                $
                20,126
                
                $
                (432
                )
 
 **December 31,
                    2004****Less
                    Than 12 Months**
                
                **12
                    Months or More**
                
                **Total****Description
                    of Securities**
                
                **Fair**
                  **Value**
                
                **Unrealized**
                  **Loss**
                
                **Fair**
                  **Value**
                
                **Unrealized**
                  **Loss**
                
                **Fair**
                  **Value**
                
                **Unrealized**
                  **Loss**U.S.
                    agency obligations
                
                $
                5,657
                
                $
                (43
                )
                $
                2,961
                
                $
                (40
                )
                $
                8,618
                
                $
                (83
                )GNMA
                    certificates
                
                
                1,772
                
                
                (15
                )
                
                25
                
                
                —
                
                
                1,797
                
                
                (15
                )FNMA
                    certificates
                
                
                498
                
                
                (3
                )
                
                2,629
                
                
                (39
                )
                
                3,127
                
                
                (42
                )FHLMC
                    certificates
                
                
                1,378
                
                
                (14
                )
                
                1,859
                
                
                (38
                )
                
                3,237
                
                
                (52
                )Mutual
                    funds
                
                
                —
                
                
                —
                
                
                1,425
                
                
                (14
                )
                
                1,425
                
                
                (14
                )Total
                    temporarily impaired
                
                $
                9,305
                
                $
                (75
                )
                $
                8,899
                
                $
                (131
                )
                $
                18,204
                
                $
                (206
                )
 
 At
          December 31, 2005, the 52 debt securities with unrealized losses have
          depreciated 2.2% from the Association’s amortized cost basis. At
          December 31, 2004, there were 42 debt securities with unrealized losses
          that have depreciated 1.1% from the Association’s amortized cost basis. These
          unrealized losses related principally to current interest rates for similar
          types of securities. In analyzing an issuer’s financial condition, management
          considers whether the securities are issued by the federal government or
          its
          agencies, whether downgrades by bond rating agencies have occurred, and
          what the
          results are of reviews of the issuer’s financial condition. The fair value is
          expected to recover as securities approach their maturity date. As management
          has the ability to hold debt securities until maturity or for the foreseeable
          future, no declines are deemed to be other than temporary.
  F-11
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 The
          Association has investments in various mutual funds including an adjustable
          rate
          mortgage fund, a U.S. government mortgage fund, and a short-term government
          fund. The Net Asset Value (“NAV”) of the adjustable rate and U.S. government
          mortgage funds have declined in the current interest rate environment.
          The funds
          are historically stable or, as rates decline, the funds recover their value
          (that is, the degree of impairment reverses) through increases in their
          market
          net asset value. Management expects the funds to recover once rates stabilize
          and/or the underlying adjustable rate mortgages re-price to market. The
          Association has the ability and intent to hold the investments for a sufficient
          period of time for any anticipated recovery in fair value.
  **NOTE
          4 - LOANS**
  Loans
          are
          as follows:
  **2005**
                
                **2004**First
                    mortgage loansPrincipal
                    balancesSecured
                    by one- to four-family residences
                
                $
                24,424
                
                $
                19,772Secured
                    by multi-family properties
                
                
                13,839
                
                
                8,77238,263
                
                
                28,544Less:Loans
                    in process
                
                
                51
                
                
                3Net
                    deferred loan origination fees
                
                
                89
                
                
                89Total
                    first mortgage loans
                
                
                38,123
                
                
                28,452Loans
                    on savings accounts
                
                
                77
                
                
                2438,200
                
                
                28,476Less
                    allowance for loan losses
                
                
                170
                
                
                150$
                38,030
                
                $
                28,326
 
 Activity
          in the allowance for loan losses is summarized as follows:
  **2005**
                
                **2004**Balance
                    at beginning of year
                
                $
                150
                
                $
                150Loans
                    charged off
                
                
                —
                
                
                —Recoveries
                
                
                —
                
                
                —Provision
                    charged to income
                
                
                20
                
                
                —Balance
                    at end of year
                
                $
                170
                
                $
                150
 
 As
          of
          December 31, 2005 and 2004, there were no loans that were individually
          considered as impaired. Nonaccrual loans, which include all loans past
          due 90
          days and over at December 31, 2005 and 2004 were $184 and
          $306.
  Loans
          to
          principal officers, directors, and their affiliates in 2005 were as
          follows.
  F-12
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 Balance
                    at January 1, 2005
                
                $
                268New
                    loans
                
                
                —Repayments
                
                
                (15
                )Balance
                    at December 31, 2005
                
                $
                253
 
 **NOTE
          5 - PREMISES AND EQUIPMENT**
  Year-end
          premises and equipment were as follows.
  **2005**
                
                **2004**Land
                
                $
                97
                
                $
                97Building
                
                
                355
                
                
                355Building
                    improvements
                
                
                144
                
                
                144Parking
                    lot improvements
                
                
                44
                
                
                44Furniture
                    and equipment
                
                
                611
                
                
                576Total
                    cost
                
                
                1,251
                
                
                1,216Accumulated
                    depreciation
                
                
                (946
                )
                
                (859
                )$
                305
                
                $
                357
 
 Depreciation
          expense was $87 and $101 for the years ended December 31, 2005 and
          2004.
  **NOTE
          6** **-
          ACCRUED INTEREST RECEIVABLE**
  Accrued
          interest receivable is summarized as follows:
  **2005**
                
                **2004**Securities
                
                $
                117
                
                $
                180Loans
                
                
                119
                
                
                75$
                236
                
                $
                255
 
 **NOTE
          7 - DEPOSITS**
  Deposits,
          by major category, are as follows:
  **2005**
                
                **2004**Non-interest-bearing
                    checking
                
                $
                350
                
                $
                83Savings
                
                
                21,827
                
                
                22,552Certificates
                    of deposit
                
                
                21,348
                
                
                21,936$
                43,525
                
                $
                44,571
 
 The
          aggregate amount of certificates of deposit with a minimum denomination
          of $100
          was approximately $5,990 and $5,054 at December 31, 2005 and 2004,
          respectively. Deposit balances over $100 are not federally insured.
  F-13
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  Scheduled
            maturities of certificates of deposit for the year ended December 31, 2005
            are as follows:
  2006
                
                $
                18,0922007
                
                
                1,8682008
                
                
                8872009
                
                
                572010
                
                
                444$
                21,348
  Deposits
          of related parties totaled approximately $1,225 and $1,716 at December 31,
          2005 and 2004, respectively.
  Interest
          expense on deposit accounts is summarized as follows:
  **2005**
                
                **2004**Savings
                
                $
                267
                
                $
                265Certificates
                    of deposit
                
                
                521
                
                
                463$
                788
                
                $
                728
 
 **NOTE
          8 - FEDERAL HOME LOAN BANK ADVANCES**
  The
          Association had no outstanding advances from the Federal Home Loan Bank
          at
          December 31, 2005 and 2004. A blanket lien on all one- to four-family first
          mortgages was pledged as collateral in the event that the Association requests
          future advances. The Association’s available credit limit at December 31,
          2005 was $10 million.
  **NOTE
          9 - BENEFIT PLANS**
  The
          amount of the Association’s profit sharing contribution is discretionary and is
          determined annually by the Board of Directors. The Association has a 401(k)
          profit sharing plan covering substantially all employees who have attained
          the
          age of 21 and have completed three months of service. Employee contributions
          are
          matched at 100% up to 3% of compensation and 50% of contributions over
          3%, but
          do not exceed 5% of compensation. The contribution expense was $56 and
          $44 for
          the years ended December 31, 2005 and 2004.
  The
          Association has nonqualified deferred compensation agreements with officers
          and
          directors. Under the terms of these agreements, the officers and directors
          may
          defer compensation and directors’ fees and earn interest on the balance.
          Interest is computed at the Association’s interest rate for one-year
          certificates of deposit. Interest expense for the years ended December 31,
          2005 and 2004 approximated $9 and $8. In addition, for the years ended
          December 31, 2005 and 2004, approximately $24 and $26 was distributed. The
          agreements were amended during 2005 to terminate deferrals after 2004.
          Approximately $8 was deferred during 2004. At December 31, 2005 and 2004,
          $406 and $421 was included in accrued expenses and other liabilities on
          the
          statements of financial condition.
  F-14
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  The
            Association provides supplemental health care benefits to cover the Medicare
            costs for employees who reach the age of 65 and have at least 10 years
            of
            service with the Association. At December 31, 2005 and 2004, a liability of
            $95 and $72 is included in accrued expenses and other liabilities in
            the
            statements of financial condition. The Association recorded expense of
            $39 and
            $1 for the years ended December 31, 2005 and 2004. During 2005, the
            Medicare supplement cost increased to $275. The Association adjusted
            its
            liability to take the increase into account and amended the Plan to cap
            the
            maximum amount of premium that it would reimburse at $275 per qualified
            individual per month and provided that new entrants after June 30, 2006
            would pay the entire premium. The other related disclosures are not considered
            significant to the consolidated financial statements.
  **NOTE
          10 - INCOME TAXES**
  Income
          tax expense was as follows.
  **2005**
                
                **2004**FederalCurrent
                
                $
                397
                
                $
                770Deferred
                
                
                (14
                )
                
                17$
                383
                
                $
                787StateCurrent
                
                
                50
                
                
                137Deferred
                
                
                9
                
                
                (3
                )59
                
                
                134$
                442
                
                $
                921
 
 Effective
          tax rates differ from federal statutory rate of 34% applied to income before
          income taxes due to the following.
  **2005**
                
                **2004**Provision
                    calculated at statutory federal rate
                
                $
                403
                
                $
                832Effect
                    of:State
                    taxes, net of federal benefit
                
                
                33
                
                
                92Other,
                    net
                
                
                6
                
                
                (3
                )Total
                
                $
                442
                
                $
                921Effective
                    tax rate
                
                
                37.3
                %
                
                37.6
                %
 
 Year-end
          deferred tax assets and liabilities were due to the following.
  **2005**
                
                **2004**Deferred
                  tax assets:Allowance
                    for loan losses
                
                $
                64
                
                $
                56Deferred
                    compensation
                
                
                158
                
                
                164Accrued
                    post retirement benefit
                
                
                37
                
                
                28Other
                
                
                3
                
                
                2$
                262
                
                $
                250
  F-15
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  **2005**
                      
                      **2004**Deferred
                          tax liabilities:Federal
                          Home Loan Bank stock dividends
                      
                      $
                      (61
                      )
                      $
                      (51
                      )Depreciation
                      
                      
                      (12
                      )
                      
                      (15
                      )Net
                          unrealized gain on securities available-for-sale
                      
                      
                      (54
                      )
                      
                      (463
                      )(127
                      )
                      
                      (529
                      )Net
                          deferred tax asset (liability)
                      
                      $
                      135
                      
                      $
                      (279
                      )
 Federal
          income tax laws provided additional bad debt deductions through 1987, totaling
          $2,552. Accounting standards do not require a deferred tax liability to
          be
          recorded on this amount, which otherwise would total $991 at year end 2005.
          If
          the Association were liquidated or otherwise ceases to be a bank or if
          tax laws
          were to change, this amount would be expensed. Management has not recorded
          a
          valuation allowance based on taxes paid in prior years.
  **NOTE
          11 - LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES**
  Some
          financial instruments, such as loan commitments, are issued to meet customer
          financing needs. These are agreements to provide credit or to support the
          credit
          of others, as long as conditions established in the contract are met, and
          usually have expiration dates. Commitments may expire without being used.
          Off-balance-sheet risk to credit loss exists up to the face amount of these
          instruments, although material losses are not anticipated. The same credit
          policies are used to make such commitments as are used for loans, including
          obtaining collateral at exercise of the commitment.
  The
          contractual amount of fixed rate loan commitments at December 31, 2005 and
          2004 were $2,046 and $1,073. Commitments to make loans are generally made
          for
          periods of 60 days or less. The fixed-rate loan commitments at December 31,
          2005 have interest rates ranging from 5.50% to 6.50% and maturities ranging
          from
          10 years to 30 years.
  **NOTE
          12 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED
          EARNINGS**
  The
          Association is subject to regulatory capital requirements administered
          by
          federal banking agencies. Capital adequacy guidelines and prompt corrective
          action regulations involve quantitative measures of assets, liabilities,
          and
          certain off-balance-sheet items calculated under regulatory accounting
          practices. Capital amounts and classifications are also subject to qualitative
          judgments by regulators. Failure to meet capital requirements can initiate
          regulatory action.
  Prompt
          corrective action regulations provide five classifications: well capitalized,
          adequately capitalized, undercapitalized, significantly undercapitalized,
          and
          critically undercapitalized, although these terms are not used to represent
          overall financial condition. If adequately capitalized, regulatory approval
          is
          required to accept brokered deposits. If undercapitalized, capital distributions
          are limited, as is asset growth and expansion, and capital restoration
          plans are
          required. At year-end 2005 and 2004, the most recent regulatory notifications
          categorized the Association as well capitalized under the regulatory framework
          for prompt corrective action.
  F-16
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  There
            are
            no conditions or events since that notification that management believes
            have
            changed the institution’s category. Actual and required capital amounts and
            ratios are presented below:
  **Actual**
                
                **For
                    Capital**
                  **Adequacy
                    Purposes**
                
                **To
                    Be Well**
                  **Capitalized
                    Under**
                  **Prompt
                    Corrective**
                  **Action
                    Provisions****Amount**
                
                **Ratio**
                
                **Amount**
                
                **Ratio**
                
                **Amount**
                
                **Ratio**December 31,
                    2005Total
                    capital to risk-
                  weighted
                    assets
                
                $
                18,657
                
                
                73.96
                %
                $
                2,018
                
                
                8.0
                %
                $
                2,523
                
                
                10.0
                %Tier
                    1 (core) capital to risk-weighted assets
                
                
                18,253
                
                
                72.36
                
                
                1,009
                
                
                4.0
                
                
                1,514
                
                
                6.0Tier
                    1 (core) capital to
                  adjusted
                    total assets
                
                
                18,253
                
                
                28.36
                
                
                2,574
                
                
                4.0
                
                
                3,218
                
                
                5.0Tangible
                    capital (to adjusted total assets)
                
                
                18,253
                
                
                28.36
                
                
                965
                
                
                1.5
                
                
                —
                
                
                —December 31,
                    2004Total
                    capital to risk-weighted assets
                
                $
                18,487
                
                
                79.83
                %
                $
                1,853
                
                
                8.0
                %
                $
                2,316
                
                
                10.0
                %Tier
                    1 (core) capital to risk-weighted assets
                
                
                17,810
                
                
                76.91
                
                
                926
                
                
                4.0
                
                
                1,389
                
                
                6.0Tier
                    1 (core) capital to
                  adjusted
                    total assets
                
                
                17,810
                
                
                28.02
                
                
                2,542
                
                
                4.0
                
                
                3,178
                
                
                5.0Tangible
                    capital (to adjusted total assets)
                
                
                17,810
                
                
                28.02
                
                
                953
                
                
                1.5
                
                
                —
                
                
                —
 
  The
          following is a reconciliation of the Association’s equity under accounting
          principles generally accepted in the United States of America (“GAAP”) to
          regulatory capital.
  **2005**
                
                **2004**GAAP
                    equity
                
                $
                18,336
                
                $
                18,540Unrealized
                    gain on securities available-for-sale
                
                
                (83
                )
                
                (730
                )Tier 1
                    capital
                
                
                18,253
                
                
                17,810General
                    allowance for loan losses
                
                
                170
                
                
                150Allowable
                    portion (45%) of unrealized gains on equity securities
                    available-for-sale
                
                
                234
                
                
                527Total
                    regulatory capital
                
                $
                18,657
                
                $
                18,487
 
 Federal
          regulations require the Association to comply with a Qualified Thrift Lender
          (“QTL”) test, which requires that 65% of assets be maintained in housing-related
          finance and other specified assets. If the QTL test is not met, limits
          are
          placed on growth, branching, new investment, FHLB advances, and dividends
          or the
          institution must convert to a commercial bank charter. Management considers
          the
          QTL test to have been met.
  F-17
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 Banking
          regulations limit the amount of dividends that may be paid without prior
          approval of regulatory agencies. Under these regulations, the amount of
          dividends that may be paid in any calendar year is limited to the current
          year’s
          net profits, combined with the retained net profits of the preceding two
          years,
          subject to the capital requirements described above. At January 1, 2006,
          the Association could, without prior approval, declare dividends of
          approximately $969.
  **NOTE
          13 - OTHER COMPREHENSIVE INCOME (LOSS)**
  Other
          comprehensive income (loss) components and related tax effects were as
          follows:
  **2005**
                
                **2004**Unrealized
                    holding gains (losses) on securities available-for-sale
                
                $
                (573
                )
                $
                229Reclassification
                    adjustment for gains realized in income
                
                
                (483
                )
                
                (1,577
                )Net
                    unrealized losses
                
                
                (1,056
                )
                
                (1,348
                )Tax
                    effect
                
                
                409
                
                
                526Other
                    comprehensive loss
                
                $
                (647
                )
                $
                (822
                )
 
 **NOTE
          14 - FAIR VALUES OF FINANCIAL INSTRUMENTS**
  Carrying
          amount and estimated fair values of financial instruments were as
          follows:
  **December 31,
                    2005**
                
                **December 31,
                    2004****Carrying
                    Amount**
                
                **Fair**
                  **Value**
                
                **Carrying**
                  **Amount**
                
                **Fair**
                  **Value**Financial
                    assets:Cash
                    and cash equivalents
                
                $
                1,250
                
                $
                1,250
                
                $
                3,684
                
                $
                3,684Securities
                    available-for-sale
                
                
                24,028
                
                
                24,028
                
                
                31,596
                
                
                31,596Loans,
                    net
                
                
                38,030
                
                
                38,031
                
                
                28,326
                
                
                29,197Federal
                    Home Loan Bank stock
                
                
                500
                
                
                500
                
                
                477
                
                
                477Accrued
                    interest receivable
                
                
                236
                
                
                236
                
                
                255
                
                
                255Financial
                    liabilities:Deposits
                
                
                43,525
                
                
                43,381
                
                
                44,571
                
                
                44,130Accrued
                    interest payable
                
                
                44
                
                
                44
                
                
                35
                
                
                35
 
 The
          methods and assumptions used to estimate fair value are described as
          follows.
  Carrying
          amount is the estimated fair value for cash and cash equivalents, Federal
          Home
          Loan Bank stock, accrued interest receivable and payable, demand deposits,
          and
          variable-rate loans or deposits that reprice frequently and fully. Security
          fair
          values are based on market prices or dealer quotes and, if no such information
          is available, on the rate and term of the security and information about
          the
          issuer. For fixed-rate loans or deposits and for variable-rate loans or
          deposits
          with infrequent repricing or repricing limits, fair value is based on discounted
          cash flows using current market rates applied to the estimated life and
          credit
          risk. The fair value of off-balance-sheet items is not material.
  F-18
 MUTUAL
                FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
 NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
                  amounts in thousands except per share data)
  
 **NOTE
          15 - EARNINGS PER SHARE**
  The
          factors used in the earnings per share computation follow.
  **2005**
                
                **2004**BasicNet
                    income
                
                $
                743
                
                $
                1,526Weighted
                    average common shares
                  outstanding
                
                
                10,000
                
                
                10,000Basic
                    and diluted earnings per
                  common
                    share
                
                $
                74.30
                
                $
                152.60
 
  **NOTE
          16 - ADOPTION OF PLAN OF CONVERSION AND REORGANIZATION**
  The
          Board
          of Directors of MHC, the sole stockholder of the Association, has adopted
          the
          Stock Issuance Plan (“the Plan”) pursuant to which (i) the MHC will establish a
          subsidiary holding company, Mutual Federal Bancorp, Inc., a federal corporation
          (“the Holding Company”), as a direct subsidiary to hold 100% of the stock of the
          Association, and (ii) the Holding Company will offer and sell shares of
          its
          common stock in a public offering representing up to 30% of its shares
          that will
          be outstanding after the offering. The common stock will be offered on
          a
          priority basis to eligible depositors, qualified tax-exempt employee plans,
          other depositors and other voting members of the Association, with any
          remaining
          shares offered to the public in a community offering or a syndicated community
          offering, or a combination thereof. Upon completion of the stock offering,
          the
          MHC will continue to own at least a majority of the common stock.
  The
          Plan
          was approved by the Office of Thrift Supervision, and the Securities and
          Exchange Commission, on February 1, 2006.
  The
          Holding Company plans to offer to the public between 701,250 (minimum)
          and
          948,750 (maximum) shares of common stock at an offering price of $10.00
          per
          share representing a minority ownership of the estimated pro forma market
          value
          of the Association as determined by an independent appraisal. The Association
          may not pay dividends to the Holding Company if the dividends would cause
          the
          Association to fall below the “well capitalized” capital threshold.
  Offering
          costs have been paid and deferred by the MHC and will be deducted from
          the
          proceeds of the shares sold in the offering. If the offering is not completed,
          all costs will be charged to expense by the MHC. At December 31, 2005, $339
          (unaudited) in offering costs had been incurred and deferred by the MHC.
          No
          offering costs had been incurred as of December 31, 2004.
  F-19
 *Table
              of
              Contents*
  **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 on the 30th day of
          March 2006.
  **MUTUAL
                    FEDERAL BANCORP, INC.**By:
                  /s/
                    Stephen M. Oksas
 Stephen M.
                    Oksas
 President and Chief Executive
                      Officer
 KNOW
          ALL
          PERSONS BY THESE PRESENTS, that each person whose signature appears below
          hereby
          constitutes and appoints Stephen M. Oksas, John L. Garlanger and
          Julie H. Oksas, and each of them, the true and lawful attorney-in-fact and
          agents of the undersigned, with full power of substitution and resubstitution,
          for and in the name, place and stead of the undersigned, to sign any and
          all
          amendments to this Annual Report on Form 10-KSB, and to file the same, with
          all exhibits thereto and other documents in connection therewith, with
          the
          Securities and Exchange Commission, and hereby grants to such attorneys-in-fact
          and agents, and each of them, full power and authority to do and perform
          each
          and every act and thing requisite and necessary to be done, as fully as
          to all
          intents and purposes as each of the undersigned might or could do in person,
          hereby ratifying and confirming all that said attorneys-in-fact and agents,
          or
          any of them, or their or his substitutes, 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 Company and in the
          capacities and on the dates indicated.
  **SIGNATURE**
                  **TITLE**
                  **DATE**/s/ Stephen M. Oksas
                    Stephen M.
                      Oksas
                  Chairman,
                      President, Chief Executive Officer and Director
                    (Principal
                      Executive Officer)
                  March 30,
                        2006
 /s/ John L. Garlanger
                          John
                            L. Garlanger
                        Executive
                            Vice President and Chief Financial Officer
                          (Principal
                            Financial and Accounting Officer)
                        March 30,
                            2006
 /s/ Stanley Balzekas III
                        Stanley
                          Balzekas III
                      Director
                      March 30,
                          2006
 /s/
                        Robert P. Kazan
                      Robert P.
                        Kazan
                    Director
                    March 30,
                        2006
 /s/ Leonard F. Kosacz
                          Leonard F.
                            Kosacz
                        Director
                        March 30,
                            2006
 /s/Julie
                                H. Oksas
                              Julie H.
                                Oksas
                            Executive
                                Vice President and Director
                            March 30,
                                2006
 Stephanie
                                      Simonaitis
                                Director
 S-1
 *Table
              of
              Contents*
  **EXHIBIT INDEX**
  **Exhibit No.**
                **Description
                    of Exhibit**2.1
                Amended
                    and Restated Stock Issuance Plan (incorporated by reference to
                    Exhibit 2.1 to Registrant’s Amendment No. 1 to Form SB-2
                    filed with the Commission on February 4, 2006).3.1
                Charter
                    of Mutual Federal Bancorp, Inc. (incorporated by reference to
                    Exhibit 3.1 to Registrant’s Form SB-2 filed with the Commission
                    on November 18, 2005).3.2
                Bylaws
                    of Mutual Federal Bancorp, Inc. (incorporated by reference to
                    Exhibit 3.2 to Registrant’s Form SB-2 filed with the Commission
                    on November 18, 2005).4.1
                Specimen
                    Common Stock Certificate of Mutual Federal Bancorp, Inc. (incorporated
                    by
                    reference to Exhibit 4.1 to Registrant’s Form SB-2 filed with
                    the Commission on November 18, 2005).10.1
                Form
                    of Employee Stock Ownership Plan (incorporated by reference to
                    Exhibit 10.1 to Registrant’s Amendment No. 1 to Form SB-2
                    filed with the Commission on February 4, 2006).10.2
                Form
                    of Employment Agreement to be entered into between the Registrant
                    and
                    Stephen M. Oksas (incorporated by reference to Exhibit 10.2
                    to Registrant’s Amendment No. 1 to Form SB-2 filed with the
                    Commission on February 4, 2006).10.3
                Form
                    of Employment Agreement to be entered into between the Registrant
                    and each
                    of John L. Garlanger and Julie H. Oksas (incorporated by reference to
                    Exhibit 10.3 to Registrant’s Amendment No. 1 to Form SB-2
                    filed with the Commission on February 4, 2006).24.1
                Power
                    of Attorney (set forth on signature page)31.1
                Certification
                    of Chief Executive Officer pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 200231.2
                Certification
                    of Chief Financial Officer pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 200232.1
                Certification
                    of Chief Executive Officer and Chief Financial Officer pursuant
                    to
                    Section 906 of the Sarbanes-Oxley Act of
                    2002