**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 June 30, 2007**




**Commission
      File Number 000-51123**




**ROYAL
      FINANCIAL, INC.**


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




**Delaware**
              (State
                or other jurisdiction of incorporation or organization)
            **20-1636029**
              (IRS
                Employer Identification No.)





**9226
      S. Commercial Avenue**


**Chicago,
      Illinois 60617**


(Address
      of principal executive offices)




**(773) 768-4800**


(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:


**Common
      Stock, $0.01 Par Value**




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.  Yesý   No
 ̈




Check
      if
      there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-B is contained herein, 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
      $7,936,576.




As
      of
      September 27, 2007, the aggregate market value of the voting common equity
      held by non-affiliates of the registrant was approximately $33,680,046 (based
      on
      the last sale price of the common stock on the OTC Bulletin Board of $14.25
      per
      share).




The
      number of shares of Common Stock of the registrant outstanding as of September
      27, 2007 was 2,575,502.




Documents
      Incorporated by Reference:  Portions of the registrant’s
      definitive proxy statement for its 2007 Annual Meeting of Stockholders to be
      filed with the Securities and Exchange Commission pursuant to SEC Regulation
      14A
      are incorporated by reference into Part III, Items 9-12 and Item
      14.




Transitional
      Small Business Disclosure Format (check one):  Yes  ̈   Noý







*Table
            of Contents*





**ROYAL
      FINANCIAL, INC.**




**Form
      10-KSB for Fiscal Year Ended**




**June 30,
      2007**




**TABLE
      OF CONTENTS**




**Page**




PART
                I
            
            1Item
                1.
            Description
                of Business
            1Item
                2.
            Description
                of Property
            22Item
                3.
            Legal
                Proceedings
            22Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            22PART II
            
            23Item
                5.
            Market
                for Common Equity, Related Stockholder Matters and Issuer Purchases
                of
                Equity Securities
            23Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            24Item
                7.
            Financial
                Statements
            36Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            36Item
                8A.
            Controls
                and Procedures
            36Item
                8B.
            Other
                Information
            36PART III
            
            36Item
                9.
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            36Item
                10.
            Executive
                Compensation
            37Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            37Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            37Item
                13.
            Exhibits
            37Item
                14.
            Principal
                Accountant Fees and Services
            38Index
                to Financial
                Statements
            F-1Signatures
            S-1Exhibit Index
            1








*Table
            of Contents*





**PART
      I**




ITEM
      1. DESCRIPTION OF
      BUSINESS





**General**




Royal
      Financial, Inc. (the “Company”) was incorporated under the laws of Delaware on
      September 15, 2004 for the purpose of serving as the holding company of
      Royal Savings Bank (the “Bank”) as part of the Bank’s conversion from a mutual
      to stock form of organization, which was completed on January 20,
      2005.  The Bank was founded in 1887 as Royal Savings and Loan
      Association, and is a community and customer-oriented stock savings bank
      organized under the laws of the State of Illinois.  The Bank is
      engaged in the business of retail banking, with operations conducted through
      its
      main office located in Chicago, Illinois and four branch offices located in
      Chicago, Frankfort and Lansing, Illinois and Schererville, Indiana.




The
      Bank’s business has historically consisted of attracting deposits from the
      general public and using those funds to originate one- to four-family
      residential loans, consumer loans and other loans.  Starting in 2003
      with the addition of new management with commercial banking experience, the
      Bank
      began to offer commercial loan products, such as commercial real estate loans,
      multi-family real estate loans, and to a lesser extent, commercial loans and
      other services, in an effort to transition the Bank into a more diversified
      financial institution from a traditional savings bank.




**Recent
        Developments**
  As
        previously reported, on June 18, 2007, the Company’s Chief Executive Officer and
        President, Donald A. Moll, was suspended from acting in his capacity as CEO
        and
        President of the Company and the Bank, during the pendency of an internal
        investigation being conducted by the Audit Committee of the Board. The
        investigation was based on information provided to the Audit Committee by
        certain members of the Company’s senior management regarding alleged
        irregularities with respect to the Company’s internal controls and alleged
        misconduct by Mr. Moll.
  Under
        the
        direction of the Audit Committee of the Board of Directors, the Company
        conducted an investigation of the allegations, which included engaging a
        team of
        outside specialists and advisers to assist in the investigation. The report
        of
        the investigation does not implicate Mr. Moll in fraudulent activities relating
        to the specific allegations of alleged irregularities with respect to the
        Company’s internal controls and Bank policies.  However, the
        investigation has uncovered evidence of irregularities in connection with
        the
        Company’s stock conversion and initial public offering in 2005, including the
        alleged unauthorized receipt by certain investors of shares of stock in the
        offering. The Company continues to work with special counsel and federal
        and
        state regulators in this regard, and cannot currently predict when this aspect
        of the investigation will conclude.
  On
        September 26, 2007, Mr. Moll agreed to resign from all positions he currently
        holds with the Company and each of its subsidiaries, including as a director
        of
        the Company and the Bank, as part of a Separation Agreement and Release (the
        “Agreement”) with the Company and the Bank. Pursuant to the terms of the
        Agreement and applicable law, Mr. Moll has seven days from the date of the
        Agreement to revoke his acceptance of the Agreement. The Agreement provides
        for
        the payment to Mr. Moll of $48,077 to settle all of the Company’s remaining
        obligations under his employment agreement.  Mr. Moll has also agreed
        to forfeit all unvested options and shares of restricted stock previously
        awarded to him under the Company’s equity compensation plans.  A copy of
        the Agreement is filed as an exhibit to this report.  Upon the effective
        date of Mr. Moll’s resignation, Mr. Leonard Szwajkowski, currently Senior Vice
        President, Interim Chief Executive Officer and Chief Financial Officer of
        the
        Company, will become Chief Executive Officer and President of the Company
        and
        the Bank.
  Due
        to
        the expenses incurred in connection with the investigation, which consist
        primarily of professional fees and expenses, the Company expects its
        non-interest expense to be negatively impacted by approximately $325,000
        in the
        first quarter of fiscal 2008. The Company does not believe that the
        investigation or the findings thereof will otherwise have a material effect
        on
        the Company’s financial condition or results of operations.


**Business
      Strategy**




The
      Company’s business strategy is to operate as a well-capitalized and profitable
      community savings bank dedicated to providing quality customer
      service.  As mentioned above, historically the Bank’s business
      strategy had been to emphasize one- to four-family residential mortgage lending,
      and it continues to focus on this type of lending.  In 2003, we
      broadened the range of our products and services by expanding our loan portfolio
      to include commercial real estate lending, multi-family real estate lending,
      and
      to a lesser extent commercial lending. We intend over time to continue to
      introduce additional products and services that we believe will benefit our
      customers as well as increase our net income.




Highlights
      of our business strategy are as follows:




·
            **Remaining
                a Community-Oriented Institution.**  We were established
                in Chicago, Illinois in 1887 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 we
                are dedicated to providing quality personal service to our
                customers.




·
            **Diversification
                of Loan Portfolio.**  Beginning in 2003, we began to
                shift our efforts to diversify our loan portfolio to loans other
                than one-
                to four-family residential loans and began to make (or purchase
                participations in) commercial real estate loans, multi-family loans
                and
                commercial loans.  At June 30, 2007, our $83.5 million
                loan portfolio consisted primarily of $36.8 million of one- to
                four-family residential loans, $32.9 million of commercial real
                estate loans, $9.2 million of commercial loans and $4.8 million of
                multi-family loans.




·
            **Offering
                New Commercial Products and Services.**  We continue to
                develop new products for our customers, such as internet banking
                and
                business checking accounts.  We expect
                that






*Table
          of Contents*




these
                    new products will increase our deposit base and our fee
                    income.  Since 2003, we have experienced significant growth in
                    commercial real estate and commercial lending, and continue to
                    emphasize a
                    shift from a predominately one- to four-family residential mortgage
                    loan
                    portfolio to a predominately commercial real estate loan portfolio
                    through
                    our loan officer call program and by developing new and further
                    strengthening existing relationships.  The loan officer call
                    program identifies certain individuals and companies as potential
                    customers and assigns them to loan officers of the Bank, who
                    contact the
                    potential customer regarding loan opportunities.  Such officers
                    are also responsible for monitoring any relationship once they
                    become a
                    customer on an ongoing basis.


·
            **Increased
                Lending Capacity.**  The additional capital raised in our
                initial public offering in 2005 increased our lending capacity and
                has
                enabled us to originate more loans and loans with larger
                balances.  This permits us to serve borrowers with larger
                lending needs and to originate larger loans than we have in the
                past.




·
            **Maintaining
                High Levels of Earning Assets.**  Our average earning
                assets were approximately 87.50% of average assets at June 30,
                2007.




·
            **Growth
                in Hispanic Market.**  We intend to continue to solidify
                our niche as one of the last community banks in the neighborhoods
                we
                serve.  Special business development efforts continue to be
                concentrated in heavily populated Hispanic communities that surround
                certain branch locations, including, but not limited to, southeast
                Chicago
                communities such as South Chicago and the East Side, and in strategic
                south suburban and northwest Indiana neighborhoods.  Our primary
                objective is to concentrate efforts in attracting commercial and
                commercial real estate loans from underserved small
                businesses.  The Bank became an approved lender with the Small
                Business Administration, and may become an approved lender with other
                government and municipality insured lending programs in the future,
                as a
                means of mitigating certain inherent risks associated with lending
                to
                these underserved small businesses.  Additionally, we continue
                to capitalize on retail banking opportunities with a strong emphasis
                on
                mortgage lending.




**Market
      Area and Competition**




The
      Bank
      is a community-oriented savings bank.  The Bank’s primary deposit
      gathering efforts and lending activities are concentrated primarily in the
      communities surrounding its offices, which include southeastern Cook County,
      Illinois, Will County, Illinois, and Northwest Indiana.




The
      Bank’s market area is both an urban and suburban area with the manufacturing
      industry as the major industrial group, followed by the services sector, and
      then the wholesale/retail sector.  The Bank’s Chicago offices are
      located in diverse communities, which have a high percentage of customers of
      various ethnic backgrounds, particularly Hispanic.  Management of the
      Bank believes that its urban communities are stable, residential neighborhoods
      of predominantly one-to-four-family residences and low to middle income
      families.  The Bank’s Lansing and Frankfort offices are located in
      south suburban Chicago, which consists predominantly of middle income
      families.  The Schererville office, located in a suburban area of
      northwest Indiana, also consists primarily of middle to upper-middle income
      families.




The
      Bank
      faces significant competition in its market areas, both in attracting deposits
      and in making loans.  Its most direct competition for deposits has
      come historically from commercial banks, credit unions and other savings
      institutions located in its primary market area, including many large financial
      institutions which have greater financial and marketing resources available
      to
      them.  In addition, the Bank faces significant competition for
      investors’ funds from short-term money market securities,






2
 *Table
          of Contents*




mutual
      funds and other corporate and government securities.  The Bank does
      not rely upon any individual group or entity for a material portion of its
      deposits.  The ability of the Bank to attract and retain deposits
      depends on its ability to generally provide a rate of return, liquidity and
      risk
      comparable to that offered by competing investment opportunities.




Competition
      for loans comes principally from financial institutions and mortgage companies
      in our primary market area.  The Bank competes for loan originations
      primarily through the interest rates and loan fees it charges, and the
      efficiency and quality of services it provides borrowers.  Factors
      that affect competition include general and local economic conditions, current
      interest rate levels and volatility in the mortgage
      markets.  Competition has increased as a result of the continuing
      reduction of restrictions on the interstate operations of financial institutions
      and the slowing of refinancing activity.




**Lending
      Activities**




*General*.  At
      June 30, 2007, our net loan portfolio totaled $83.5 million,
      representing approximately 63.0% of total assets at that
      date.  Historically, one of the principal lending activities of the
      Bank was the origination of one- to four-family residential
      loans.  Since 2003, the Bank has begun to diversify its loan portfolio
      to include commercial real estate and commercial lending.  Our overall
      lending philosophy is to:




·
            originate
                commercial real estate loans in our market
                area,




·
            originate
                one- to four-family residential
                loans,




·
            to
                a lesser extent, originate multi-family and nonresidential mortgage
                loans,
                commercial loans, construction loans and consumer loans in our market
                area.




At
      June 30, 2007, one- to four-family residential loans amounted to
      $36.8 million, or 43.7% of the total loan portfolio.  At
      June 30, 2007, commercial real estate loans and multi-family loans amounted
      to $32.9 million and $4.8 million, or 39.1% and 5.7% of the total loan
      portfolio, respectively.  At June 30, 2007, commercial loans
      amounted to $9.2 million, or 11.0% of the total loan portfolio, before net
      items.




The
      types
      of loans that the Bank may originate or purchase are subject to federal and
      state laws and regulations.  Interest rates charged on loans are
      affected principally by the demand for such loans and the supply of money
      available for lending purposes and the rates offered by the Bank’s
      competitors.  These factors are, in turn, affected by general and
      economic conditions, the monetary policy of the federal government, including
      the Board of Governors of the Federal Reserve System, or the Federal Reserve
      Board, legislative and tax policies and governmental budgetary
      matters.  A savings institution generally may not make loans to any
      one borrower in an amount that exceeds 25% of its unimpaired capital and
      surplus.  At June 30, 2007, the Bank’s regulatory limit on loans
      to one borrower was $6.0 million and its five largest loans or groups of loans
      to one borrower, including related entities, aggregated $5.5 million, $3.1
      million, $2.9 million, $2.2 million and $2.2 million.  Each of
      the Bank’s five largest loans or groups of loans was performing in accordance
      with its terms at June 30, 2007.






3
 *Table
          of Contents*




*Loan
      Portfolio Composition*.  The following table sets forth the
      composition of the loan portfolio by type of loan at the dates
      indicated.




**June 30,****2007**
            
            
            **2006**
            
            
            **2005****Amount**
            
            
            **Percentage**
            
            
            **Amount**
            
            
            **Percentage**
            
            
            **Amount**
            
            
            **Percentage**(Dollars
                in thousands)Real
                estate loans:One-
                to four-family loans
            
            $
            36,757
            
            
            
            43.67
            %
            
            $
            31,646
            
            
            
            40.73
            %
            
            $
            21,913
            
            
            
            41.65
            %Commercial
                real estate loans
            
            
            32,880
            
            
            
            39.06
            
            
            
            30,025
            
            
            
            38.65
            
            
            
            24,372
            
            
            
            46.33Multi-family
                loans
            
            
            4,768
            
            
            
            5.67
            
            
            
            5,287
            
            
            
            6.81
            
            
            
            778
            
            
            
            1.48Total
                real estate loans
            
            
            74,405
            
            
            
            88.40
            
            
            
            66,958
            
            
            
            86.19
            
            
            
            47,063
            
            
            
            89.46Commercial
                loans
            
            
            9,237
            
            
            
            10.97
            
            
            
            10,174
            
            
            
            13.10
            
            
            
            5,267
            
            
            
            10.01Consumer
                loans:Home
                Equity loans
            
            
            343
            
            
            
            0.41
            
            
            
            363
            
            
            
            0.47
            
            
            
            117
            
            
            
            0.22Share
                loans
            
            
            187
            
            
            
            0.22
            
            
            
            192
            
            
            
            0.24
            
            
            
            164
            
            
            
            0.31Total
                consumer loans
            
            
            530
            
            
            
            0.63
            
            
            
            555
            
            
            
            0.71
            
            
            
            281
            
            
            
            0.53Total
                Loans
            
            $
            84,172
            
            
            
            100.00
            %
            
            $
            77,687
            
            
            
            100.00
            %
            
            $
            52,611
            
            
            
            100.00
            %Less:Deferred
                loan fees and costs, net
            
            
            6
            
            
            
            
            
            
            
            (39
            )
            
            
            
            
            
            
            (1
            )Allowance
                for loan losses
            
            
            667
            
            
            
            
            
            
            
            400
            
            
            
            
            
            
            
            286Loans
                receivable, net
            
            $
            83,499
            
            
            
            
            
            
            $
            77,326
            
            
            
            
            
            
            $
            52,326





*Origination
      of Loans*.  The Company’s lending activities are subject to the
      written underwriting standards and loan origination procedures established
      by
      the Board of Directors and management.  Loan originations are obtained
      through a variety of sources, including referrals from real estate brokers,
      builders, existing customers and loan officers of the Bank.  Written
      loan applications are taken by loan officers.  The loan officers also
      supervise the procurement of credit reports, appraisals and other documentation
      involved with originating a loan.  Property valuations are performed
      by independent outside appraisers approved by the Board of Directors of the
      Bank.




Under
      the
      Bank’s real estate lending policy, a title opinion or a title insurance policy
      must be obtained for each real estate loan.  The Bank also requires
      fire and extended coverage casualty insurance in order to protect the properties
      securing its real estate loans.  Borrowers must also obtain flood
      insurance policies when the property is in a flood hazard area as designated
      by
      the Department of Housing and Urban Development.  The Bank frequently
      requires borrowers to advance funds to an escrow account for the payment of
      real
      estate taxes or hazard insurance premiums.  The Bank’s 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.  The Bank’s loan policy authorizes senior vice
      presidents to approve aggregate extensions of credit up to $250,000 and the
      President/Chief Executive Officer to approve aggregate extensions of credit
      up
      to $500,000.  The Loan Committee is authorized to approve aggregate
      extensions of credit up to $1 million.  Any aggregate extension
      of credit over $1 million requires approval of the entire Board of
      Directors.




*Maturity
      of Loan Portfolio*.  The following table presents certain
      information at June 30, 2007 regarding the dollar amount of loans maturing
      in the portfolio based on their contractual terms to maturity or scheduled
      amortization, but does not include potential prepayments.  Scheduled
      contractual maturities of loans do not necessarily reflect the actual expected
      term of the loan portfolio.  The average life of mortgage loans is
      substantially less than their average contractual terms because of
      prepayments.  The average life of mortgage loans tends to increase
      when current mortgage loan rates are higher than rates on existing mortgage
      loans and, conversely, decrease when rates on current mortgage loans are lower
      than existing mortgage loan rates (due to prepayments as a result of the
      refinancing of adjustable-rate and






4
 *Table
          of Contents*




fixed-rate
      loans at lower rates).  Loan balances do not include undisbursed loan
      proceeds, net deferred loan origination costs or the allowance for loan
      losses.




**At
                  June 30, 2007****One-
                  to Four-Family**
            
            
            **Commercial
                  Real Estate**
            
            
            **Multi-family**
            
            
            **Commercial**
            
            
            **Consumer**
            
            
            **Total
                  Loans**(In
                thousands)**Amounts
                Due In:**One
                year or less
            
            $
            3,297
            
            
            $
            2,955
            
            
            $
            1,377
            
            
            $
            4,885
            
            
            $
            28
            
            
            $
            12,542More
                than one year to five years
            
            
            12,713
            
            
            
            26,073
            
            
            
            2,083
            
            
            
            4,024
            
            
            
            195
            
            
            
            45,088More
                than five years
            
            
            20,747
            
            
            
            3,852
            
            
            
            1,308
            
            
            
            328
            
            
            
            307
            
            
            
            26,542Total
                amount due
            
            $
            36,757
            
            
            $
            32,880
            
            
            $
            4,768
            
            
            $
            9,237
            
            
            $
            530
            
            
            $
            84,172





The
      following table sets forth the dollar amount of all loans, before net items,
      due
      after June 30, 2008 that have fixed interest rates or that have floating or
      adjustable interest rates.




**Fixed-Rates**
            
            
            **Floating
                  or Adjustable-Rates**
            
            
            **Total**(In
                thousands)Real
                estate loans:One-
                to four-family loans
            
            $
            31,651
            
            
            $
            1,809
            
            
            $
            33,460Commercial
                real estate loans
            
            
            27,828
            
            
            
            2,097
            
            
            
            29,925Multi-family
                loans
            
            
            3,391
            
            
            
            —
            
            
            
            3,391Commercial
                loans
            
            
            4,099
            
            
            
            253
            
            
            
            4,352Consumer
                loans:Home
                Equity loans
            
            
            343
            
            
            
            —
            
            
            
            343Share
                loans
            
            
            —
            
            
            
            159
            
            
            
            159Total
                loans
            
            $
            67,312
            
            
            $
            4,318
            
            
            $
            71,630





*One-
      to Four-Family Residential Real Estate Loans*.  One of the Bank’s
      primary lending activities is the origination of loans secured by one- to
      four-family residences.  At June 30, 2007, $36.8 million, or
      43.7%, of the total loan portfolio, before net items, consisted of one- to
      four-family residential loans.




The
      loan-to-value ratio, maturity and other provisions of the loans made by the
      Bank
      generally have reflected the policy of making less than the maximum loan
      permissible under applicable regulations, in accordance with sound lending
      practices, market conditions and underwriting standards established by the
      Bank.  The Bank’s present lending policies on one- to four-family
      residential mortgage loans generally limit the maximum loan-to-value ratio
      to
      80% of the lesser of the appraised value or purchase price of the
      property.  If the Bank originates a residential mortgage loan with a
      loan-to-value in excess of 80%, the Bank typically requires the borrower to
      obtain private mortgage insurance.  Residential mortgage loans are
      amortized on a monthly basis with principal and interest due each
      month.  The loans generally include “due-on-sale”
clauses.




The
      Bank
      offers residential mortgage loans with either fixed rates of interest or
      interest rates which adjust periodically during the term of the
      loan.  Fixed rate loans generally have maturities ranging from 10 to
      30 years and are fully amortizing with monthly loan payments sufficient to
      repay
      the total amount of the loan with interest by the end of the loan
      term.  The Bank’s fixed rate loans generally are originated under
      terms, conditions and documentation that permit them to be sold to U.S.
      Government-sponsored agencies, such as the Federal Home Loan Mortgage
      Corporation, and other investors that purchase mortgages in the secondary
      market.  At June 30, 2007, $32.9 million, or 84.9%, of the
      Bank’s one- to four-family residential mortgage loans were fixed rate
      loans.






5
 *Table
          of Contents*




Occasionally,
      the Bank sells a portion of the newly originated one- to four-family residential
      loans to third-party private investors, consistent with our interest rate risk
      policy.  All loans are sold servicing released.  The Bank
      collects origination fees in connection with these sales.




The
      following table shows total loans originated, sold, purchased and repaid during
      the periods indicated.




**Year
                  Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**(In
                thousands)**Loan
                Originations:**Real
                estate loans:One-
                to four-family loans
            
            $
            12,696
            
            
            $
            11,079
            
            
            $
            5,912Commercial
                real estate loans
            
            
            14,538
            
            
            
            10,485
            
            
            
            15,739Multi-family
                loans
            
            
            1,571
            
            
            
            953
            
            
            
            —Commercial
                loans
            
            
            13,320
            
            
            
            2,211
            
            
            
            5,842Consumer
                loans:Home
                Equity loans
            
            
            89
            
            
            
            286
            
            
            
            —Share
                loans
            
            
            119
            
            
            
            32
            
            
            
            71Total
                Loan Originations
            
            
            42,333
            
            
            
            25,046
            
            
            
            27,564**Participations
                Purchased**(1)
            
            
            1,847
            
            
            
            18,915
            
            
            
            6,384**Sales
                and Loan Principal Reductions:**Loans
                sold(2)
            
            
            —
            
            
            
            —
            
            
            
            (2,166
            )Loan
                principal reductions
            
            
            (37,718
            )
            
            
            (18,885
            )
            
            
            (14,099
            )Total
                loans sold and principal reductions
            
            $
            (37,718
            )
            
            $
            (18,885
            )
            
            $
            (16,265
            )Increase
                (decrease) due to other items, net(3)
            
            
            (289
            )
            
            
            (76
            )
            
            
            (55
            )Net
                increase (decrease) in loan portfolio
            
            $
            6,173
            
            
            $
            25,000
            
            
            $
            17,628


_____________


(1)
            Participations
                purchased consist of commercial real estate
                loans.


(2)
            Loans
                sold consist of one- to four-family real estate
                loans.


(3)
            Other
                items consist of loans in process, deferred fees, unearned interest
                and
                allowance for loan losses.  Although federal laws and
                regulations permit savings institutions to originate and purchase
                loans
                secured by real estate located throughout the United States, the
                Bank
                concentrates its lending activity to its primary market areas in
                Cook
                County, Illinois and Northwest Indiana.  The Bank may invest up
                to 15% of its total assets in secured and unsecured loans for commercial,
                corporate, business or agricultural
                purposes.




The
      Bank
      offers, but historically has not originated, adjustable-rate one- to four-family
      residential mortgage loans due to lack of demand.




At
      June 30, 2007, home equity loans amounted to $343,000, or 0.4% of the total
      loan portfolio.  These loans are secured by the underlying equity in
      the borrower’s residence.  As a result, the Bank generally requires
      loan-to-value ratios of 90% or less after taking into consideration the first
      mortgage loan held by the Bank.  If the Bank does not own or service
      the first mortgage, it will limit the total loan-to-value ratio to
      80%.  These loans typically have 10-year terms and may have either
      floating rates of interest tied to the Bank’s internal prime rate or fixed rates
      of interest.




*Multi-Family
      Residential Loans*.  The Bank also offers multi-family (over four
      units) residential loans.  The multi-family residential mortgage loans
      are underwritten on substantially the same basis as its commercial real estate
      loans, with loan-to-value ratios of up to 80%.  At June 30, 2007,
      the Bank had $4.8 million in multi-family residential mortgage loans which
      amounted to 5.7% of the total portfolio.




*Commercial
      Real Estate Loans*.  The Bank’s commercial real estate loan
      portfolio primarily consists of loans secured by office buildings, warehouses,
      production facilities, retail stores and restaurants generally located within
      the Chicago MSA and Northwest Indiana.  In addition, the Bank has
      purchased participation interests in commercial real estate loans from various
      financial institutions in the






6
 *Table
          of Contents*




Midwest
      and Florida.  Some of the collateral securing such loans is outside
      the Chicago MSA, but is still in the Midwest.  Commercial real estate
      loans amounted to $32.9 million or 39.1% of the total loan portfolio at
      June 30, 2007.  Participation interest in commercial real estate
      loans purchased amounted to $7.1 million, or 21.7% of the commercial real estate
      portfolio at June 30, 2007.  Before purchasing such loans, the
      Bank utilizes the same underwriting standards and criteria as it would if it
      originated the loans.




Commercial
      real estate loans typically have a loan-to-value ratio of 80% or less and
      generally have shorter maturities than one- to four-family residential mortgage
      loans.  The maximum term of the commercial real estate loans is from 5
      to 25 years based on up to a 25-year amortization schedule.  Most have
      fixed rates, but some have floating rates tied to the Bank’s internal prime
      rate.  Otherwise, the commercial real estate loans have terms that are
      substantially similar to its one- to four-family residential mortgage
      loans.




Commercial
      real estate lending is generally considered to involve a higher degree of risk
      than one- to four-family residential lending.  Such lending typically
      involves large loan balances concentrated in a single borrower or groups of
      related borrowers for rental or business properties.  In addition, the
      payment experience on loans secured by income-producing properties is typically
      dependent on the success of the operation of the related project and thus is
      typically affected by adverse conditions in the real estate market and in the
      economy.  The Bank generally attempts to mitigate the risks associated
      with its commercial real estate lending by, among other things, lending
      primarily in its market area and using lower loan-to-value ratios in the
      underwriting process.




*Commercial
      Loans*.  At June 30, 2007, commercial loans amounted to
      $9.2 million, or 11.0% of the loan portfolio.  Commercial loans
      generally have a term of up to five years and may have either floating rates
      tied to the Bank’s internal prime rate or fixed rates of
      interest.  Commercial loans are made to small to medium-size
      businesses within the Bank’s market area.  A substantial portion of
      the Bank’s small business loans are secured by real estate, equipment and other
      corporate assets.  The Bank also generally obtains personal guarantees
      from the principals of the borrower with respect to all commercial
      loans.  In addition, the Bank may extend loans for commercial business
      purposes, which are secured by a mortgage on the proprietor’s home or the
      business property.  Commercial loans generally are deemed to involve a
      greater degree of risk than one- to four-family residential mortgage
      loans.




*Consumer
      Loans*.  The Bank originates consumer loans in order to provide a
      full range of financial services to its customers and because such loans
      generally have shorter terms and higher interest rates than residential mortgage
      loans.  At June 30, 2007, $530,000, or 0.6% of the total loan
      portfolio, consisted of consumer loans.  The consumer loans offered
      include home equity loans and loans secured by deposit accounts in the Bank,
      which are sometimes referred to as share loans.  Loans secured by
      deposit accounts in the Bank amounted to $187,000, or 0.2% of the total loan
      portfolio at June 30, 2007.  Such deposit account loans are
      originated for up to 90% of the account balance, with a hold placed on the
      account restricting the withdrawal of the account balance.  The
      interest rate on the loan is equal to the interest rate paid on the account
      plus
      2%.  These loans mature on or before the maturity date of the
      underlying savings account and have five year maximum terms.




*Loan
      Origination and Other Fees*.  In addition to interest earned on
      loans, the Bank receives loan origination fees or “points” for originating loans
      in most cases.  Loan points are a percentage of the principal amount
      of the mortgage loan and are charged to the borrower in connection with the
      origination of the loan.




*Asset
      Quality General*.  The Bank mails delinquency notices to borrowers
      when a borrower fails to make a required payment within 15 days of the date
      due.  Additional notices are sent out when a loan becomes 30 days or
      60 days past due.  If a loan becomes 90 days past due, the Bank mails
      a notice






7
 *Table
          of Contents*




indicating
      that the Bank will refer it to an attorney within 30 days to commence
      foreclosure.  In most cases, deficiencies are cured
      promptly.  While the Bank generally prefers to work with borrowers to
      resolve such problems, the Bank will institute foreclosure or other collection
      proceedings when necessary to minimize any potential loss.




Loans
      are
      placed on non-accrual status when management believes the probability of
      collection of interest is insufficient to warrant further
      accrual.  When a loan is placed on non-accrual status, previously
      accrued but unpaid interest is deducted from interest income.  As a
      matter of policy, the Bank generally discontinues the accrual of interest income
      when the loan becomes 90 days past due as to principal or interest.




Real
      estate and other assets acquired by the Company as a result of foreclosure
      or by
      deed-in-lieu of foreclosure are classified as real estate owned until
      sold.  The Company did not have any real estate owned at June 30,
      2007.




*Delinquent
      Loans*.  At June 30, 2007 there were ten loans totaling
      $2,354,000 which were 30 days or more past due.




*Nonperforming
      Assets*.  The following table presents information with respect to
      the nonperforming assets at the dates indicated.




**At
                    June 30,****2007**
              
              
              **2006**
              
              
              **2005**(Dollars
                  in thousands)**Nonaccruing
                  Loans:**Real
                  estate loans:One-
                  to four-family loans
              
              $
              —
              
              
              $
              —
              
              
              $
              —Commercial
                  real estate loans
              
              
              —
              
              
              
              —
              
              
              
              —Multi-family
                  loans
              
              
              —
              
              
              
              —
              
              
              
              —Commercial
                  loans
              
              
              —
              
              
              
              —
              
              
              
              —Consumer
                  loans:Home
                  Equity loans
              
              
              —
              
              
              
              —
              
              
              
              —Share
                  loans
              
              
              —
              
              
              
              —
              
              
              
              —Total
                  nonaccruing loans
              
              
              —
              
              
              
              —
              
              
              
              —Impaired
                  loans
              
              
              709
              
              
              
              —
              
              
              
              —Real
                  estate owned(1)
              
              
              —
              
              
              
              —
              
              
              
              —Total
                  nonperforming assets(2)
              
              
              709
              
              
              
              —
              
              
              
              —Troubled
                  debt restructurings
              
              
              —
              
              
              
              —
              
              
              
              —Troubled
                  debt restructurings and total nonperforming assets
              
              $
              709
              
              
              $
              —
              
              
              $
              —Loans
                  past due over 90 days still on accrual
              
              $
              226
              
              
              $
              —
              
              
              $
              —Total
                  nonperforming loans and troubled debt restructurings as a percentage
                  of
                  total loans
              
              
              0.85
              %
              
              
              0.00
              %
              
              
              0.00
              %Total
                  nonperforming assets and troubled debt restructurings as a percentage
                  of
                  total assets
              
              
              0.53
              %
              
              
              0.00
              %
              
              
              0.00
              %




_____________


(1)
            Real
                estate owned typically includes other repossessed assets and the
                balances
                are shown net of related loss
                allowances.


(2)
            Nonperforming
                assets consist of nonperforming loans, impaired loans, other repossessed
                assets and real estate owned.




As
      there
      were no non-accrual loans for the years ended June 30, 2007, 2006 and 2005,
      respectively, there was no effect on interest income.




*Classified
      Assets*.  Federal regulations and the Illinois Savings Bank Act
      require that each insured savings institution classify its assets on a regular
      basis.  In addition, in connection with examinations of






8
 *Table
          of Contents*




insured
      institutions, federal examiners have authority to identify problem assets and,
      if appropriate, classify them.  There are three classifications for
      problem assets:  “substandard,” “doubtful” and
“loss.”  Substandard assets have one or more defined weaknesses and
      are characterized by the distinct possibility that the insured institution
      will
      sustain some loss if the deficiencies are not corrected.  Doubtful
      assets have the weaknesses of substandard assets with the additional
      characteristic that the weaknesses make collection or liquidation in full on
      the
      basis of currently existing facts, conditions and values questionable, and
      there
      is a higher possibility of loss.  An asset classified loss is
      considered uncollectible and of such little value that continuance as an asset
      of the institution is not warranted.  Another category designated
“special mention” also must be established and maintained for assets that do not
      currently expose an insured institution to a sufficient degree of risk to
      warrant classification as substandard, doubtful or loss.  Assets
      classified as substandard or doubtful require the institution to establish
      general allowances for loan losses.  If all or a portion of an asset
      is classified loss, the insured institution must either establish specific
      allowances for loan losses in the amount of 100% of the portion of the asset
      classified loss, or charge-off such amount.  General loss allowances
      established to cover inherent losses related to assets classified substandard
      or
      doubtful may be included in determining an institution’s regulatory capital,
      while specific valuation allowances for loan losses do not qualify as regulatory
      capital.  Federal examiners may disagree with an insured institution’s
      classifications and amounts reserved.




There
      were two loans totaling  $709,000 which were considered impaired at
      June 30, 2007. A specific reserve of $120,000 was assigned to one of the
      loans, which has a balance of $242,000.  No reserve was required for
      the other loan.




*Allowance
      for Loan Losses*.  At June 30, 2007, the allowance for loan
      losses was $667,000, or 0.80% of the total loan portfolio.  The loan
      loss allowance is maintained by management at a level considered adequate to
      cover probable incurred losses inherent in the existing portfolio based on
      prior
      loan loss experience, known and probable risks in the portfolio, adverse
      situations that may affect the borrower’s ability to repay, the estimated value
      of any underlying collateral, general economic conditions, and other factors
      and
      estimates that are subject to change over time.




The
      Bank
      relies, among other things, on its experienced senior management in determining
      the appropriate allowance for loan losses on the commercial and commercial
      real
      estate loan portfolio, as the Bank does not have a seasoned portfolio of
      commercial and commercial real estate loans.  Management reviews the
      composition of the commercial and commercial real estate loan portfolio on
      a
      quarterly basis.  This includes reviewing delinquency trends, impaired
      loans, loan to value ratios and types of collateral.  Management then
      compares this ratio to peer group data and the FDIC state profile for Illinois
      banks as a means of additional analysis.  Based on these factors, we
      determined that the allocation of the allowance for loan losses for these types
      of loans was appropriate at June 30, 2007.




While
      management believes that it determines the amount of the allowance based on
      the
      best information available at the time, the allowance will need to be adjusted
      as circumstances change and assumptions are updated.  Future
      adjustments to the allowance could significantly affect net income.






9
 *Table
          of Contents*




The
      following table sets forth information concerning the allocation of the
      allowance for loan losses by loan category at the dates indicated.




**At
                  June 30,****2007**
            
            
            **2006**
            
            
            **2005****Amount**
            
            
            **Percent
                  of Loans in Each Category to Total Loans**
            
            
            **Amount**
            
            
            **Percent
                  of Loans in Each Category to Total Loans**
            
            
            **Amount**
            
            
            **Percent
                  of Loans in Each Category to Total Loans**(Dollars
                in thousands)Real
                estate loans:One-
                to four-family loans
            
            $
            33
            
            
            
            43.67
            %
            
            $
            46
            
            
            
            40.73
            %
            
            $
            42
            
            
            
            41.65
            %Commercial
                real estate loans
            
            
            407
            
            
            
            39.06
            
            
            
            257
            
            
            
            38.65
            
            
            
            146
            
            
            
            46.33Multi-family
                loans
            
            
            24
            
            
            
            5.67
            
            
            
            12
            
            
            
            6.81
            
            
            
            3
            
            
            
            1.48Commercial
                loans
            
            
            203
            
            
            
            10.97
            
            
            
            84
            
            
            
            13.10
            
            
            
            95
            
            
            
            10.01Consumer
                loans:Home
                equity loans
            
            
            —
            
            
            
            0.41
            
            
            
            1
            
            
            
            0.47
            
            
            
            —
            
            
            
            0.22Share
                loans
            
            
            —
            
            
            
            0.22
            
            
            
            —
            
            
            
            0.24
            
            
            
            —
            
            
            
            0.31Total
            
            $
            667
            
            
            
            100.00
            %
            
            $
            400
            
            
            
            100.00
            %
            
            $
            286
            
            
            
            100.00
            %





The
      following table sets forth an analysis of the Bank’s allowance for loan losses
      during the periods indicated.




**Year
                  Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**(Dollars
                in thousands)Balance
                at beginning of period
            
            $
            400
            
            
            $
            286
            
            
            $
            236Charge-offs
            
            
            —
            
            
            
            (13
            )
            
            
            —Provision
                for loan losses
            
            
            267
            
            
            
            127
            
            
            
            50Balance
                at end of period
            
            $
            667
            
            
            $
            400
            
            
            $
            286Allowance
                for loan losses as a percent of total loans outstanding
            
            
            0.80
            %
            
            
            0.52
            %
            
            
            0.54
            %Allowance
                for loan losses as a percent of total nonperforming loans
            
            
            0.94
            %
            
            
            n/a
            
            
            
            n/aRatio
                of net charge-offs to average loans outstanding
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %





**Investment
      Securities**




The
      Bank
      has authority to invest in various types of securities, including
      mortgage-backed securities, United States Treasury obligations, securities
      of
      various federal agencies, government sponsored entities, and of state and
      municipal governments, certificates of deposit at federally-insured banks and
      savings institutions, certain bankers’ acceptances and federal
      funds.  Any material deviations from the investment strategy requires
      approval by the Investment Committee.  At June 30, 2007, the
      Company did not hold any investment with an aggregate book value in excess
      of
      10% of stockholders’ equity.




The
      following table sets forth information relating to the amortized cost and fair
      value of the securities portfolio, all of which are classified as
      available-for-sale.






10
  *Table
          of Contents*


**At
                  June 30,****2007**
            
            
            **2006**
            
            
            **2005****Amortized
                  Cost**
            
            
            **Fair
                  Value**
            
            
            **Amortized
                  Cost**
            
            
            **Fair
                  Value**
            
            
            **Amortized
                  Cost**
            
            
            **Fair
                  Value**(In
                thousands)U.S.
                Government sponsored entities
            
            $
            7,000
            
            
            $
            6,922
            
            
            $
            11,996
            
            
            $
            11,717
            
            
            $
            16,311
            
            
            $
            16,185Mortgage-backed
            
            
            932
            
            
            
            907
            
            
            
            1,148
            
            
            
            1,101
            
            
            
            2,011
            
            
            
            2,038Collateralized
                mortgage obligations
            
            
            7,445
            
            
            
            7,330
            
            
            
            8,470
            
            
            
            8,245
            
            
            
            14,591
            
            
            
            14,523Corporate
                debt
            
            
            436
            
            
            
            436
            
            
            
            500
            
            
            
            455
            
            
            
            500
            
            
            
            496Total
            
            $
            15,813
            
            
            $
            15,595
            
            
            $
            22,114
            
            
            $
            21,518
            
            
            $
            33,413
            
            
            $
            33,242





The
      following table sets forth the amount of securities which mature during each
      of
      the periods indicated and the weighted average yields for each range of
      maturities at June 30, 2007.  The amounts reflect fair value of
      the securities at June 30, 2007.




**Contractually
                    Maturing****Under
                    1 Year**
              
              
              **Weighted
                    Average Yield**
              
              
              **1-5
                    Years**
              
              
              **Weighted
                    Average Yield**
              
              
              **6-10
                    Years**
              
              
              **Weighted
                    Average Yield**
              
              
              **Over
                    10 Years**
              
              
              **Weighted
                    Average Yield**
              
              
              **Total**(Dollars
                  in thousands)U.S.
                  Government
                sponsored
                entities(1)
              
              $
              1,986
              
              
              
              3.69
              %
              
              $
              4,936
              
              
              
              4.10
              %
              
              $
              —
              
              
              
              —
              %
              
              $
              —
              
              
              
              —
              %
              
              $
              6,922Mortgage-backed
              
              
              —
              
              
              
              —
              
              
              
              210
              
              
              
              5.02
              
              
              
              577
              
              
              
              5.46
              
              
              
              120
              
              
              
              6.58
              
              
              
              907Collateralized
                mortgage
                obligations
              
              
              —
              
              
              
              —
              
              
              
              45
              
              
              
              6.14
              
              
              
              4,865
              
              
              
              4.83
              
              
              
              2,420
              
              
              
              4.43
              
              
              
              7,330Corporate
                  debt
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              436
              
              
              
              5.34
              
              
              
              —
              
              
              
              —
              
              
              
              436Total
              
              $
              1,986
              
              
              
              3.69
              %
              
              $
              5,191
              
              
              
              4.15
              %
              
              $
              5,878
              
              
              
              4.93
              %
              
              $
              2,540
              
              
              
              4.53
              %
              
              $
              15,595


_____________


(1)
            The
                weighted average yield reflects a tax-equivalent adjustment based
                on a
                marginal federal corporate tax rate of
                34%.




Mortgage-backed
      securities represent a participation interest in a pool of one- to four-family
      or multi-family mortgages.  The mortgage originators use
      intermediaries (generally U.S. Government agencies and government-sponsored
      enterprises) to pool and repackage the participation interests in the form
      of
      securities, with investors receiving the principal and interest payments on
      the
      mortgages.  Such U.S. Government agencies and government-sponsored
      enterprises guarantee the payment of principal and interest to
      investors.




Mortgage-backed
      securities are typically issued with stated principal amounts, and the
      securities are backed by pools of mortgages that have loans with interest rates
      that are within a range and have varying maturities.  The underlying
      pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment
      risk, is passed on to the certificate holder.  The life of a
      mortgage-backed pass-through security approximates the life of the underlying
      mortgages.




The
      mortgage-backed securities consist of Government National Mortgage Association
      securities, Federal Home Loan Mortgage Corporation securities and Federal
      National Mortgage Association securities.  The Government National
      Mortgage Association is a government agency within the Department of Housing
      and
      Urban Development that is intended to help finance government-assisted housing
      programs.  Government National Mortgage Association securities are
      backed by loans insured by the Federal Housing Administration, or guaranteed
      by
      the Veterans Administration, and the timely payment of principal and interest
      on
      Government National Mortgage Association securities is guaranteed by the
      Government National Mortgage Association and backed by the full faith and credit
      of the U.S. Government.  The Federal Home Loan Mortgage Corporation is
      a corporation chartered by the U.S. Government that issues participation
      certificates backed principally by conventional mortgage loans.  The
      Federal Home Loan Mortgage Corporation guarantees the timely payment of interest
      and the ultimate return of principal on participation
      certificates.  The Federal National Mortgage Association is a
      corporation chartered by the U.S. Congress with a mandate to establish a
      secondary market for mortgage






11
 *Table
          of Contents*




loans.  The
      Federal National Mortgage Association guarantees the timely payment of principal
      and interest on Federal National Mortgage Association
      securities.  Federal Home Loan Mortgage Corporation and Federal
      National Mortgage Association securities are not backed by the full faith and
      credit of the United States, but because the Federal Home Loan Mortgage
      Corporation and the Federal National Mortgage Association are U.S.
      Government-sponsored enterprises, these securities are considered to be among
      the highest quality investments with minimal credit risks.




Mortgage-backed
      securities generally yield less than the loans underlying those securities
      because of their payment guarantees or credit enhancements that offer nominal
      credit risk.  In addition, mortgage-backed securities are more liquid
      than individual mortgage loans and may be used to collateralize borrowings
      or
      other obligations of the Bank.




The
      corporate bond held in the Bank’s securities portfolio is a floating-rate note
      with a rate of 4.66% at June 30, 2007, is AA-rated by Standard and Poor’s, and
      matures on April 1, 2016.  The Company evaluated the security and
      determined the decline in fair value is other than temporary, as it is below
      market by 13%, has been below market for over two years, and the Company does
      not intend to hold the security until it recovers.  As a result, a
      $64,075 impairment charge was recorded in the fourth quarter of the fiscal
      year
      ending June 30, 2007.




**Sources
      of Funds**




*General*.  Deposits
      are the primary source of funding for lending and other investment
      purposes.  In addition to deposits, principal and interest payments on
      loans and mortgage-backed securities are a source of funds.  Loan
      repayments are a relatively stable source of funds, while deposit inflows and
      outflows are significantly influenced by general interest rates and money market
      conditions.  Borrowings may also be used on a short-term basis to
      compensate for reductions in the availability of funds from other sources and
      on
      a longer-term basis for general business purposes.




*Deposits*.  Deposits
      are attracted by the Bank principally from within its primary market
      area.  Deposit account terms vary, with the principal differences
      being the minimum balance required, the time periods the funds must remain
      on
      deposit and the interest rate.




The
      Bank
      obtains deposits primarily from residents of Illinois and northwest
      Indiana.  The Bank has not solicited deposits from outside Illinois or
      paid fees to brokers to solicit funds for deposit.




Interest
      rates paid, maturity terms, service fees and withdrawal penalties are
      established on a periodic basis.  Management determines the rates and
      terms based on rates paid by competitors, the need for funds or liquidity,
      growth goals and federal and state regulations.  The Bank attempts to
      control the flow of deposits by pricing its accounts to remain generally
      competitive with other financial institutions in its market area.






12
 *Table
          of Contents*




The
      following table shows the distribution of and certain other information relating
      to the Bank’s deposits by type as of the dates indicated.




**At
                      June 30,****2007**
                
                
                **2006**
                
                
                **2005****Amount**
                
                
                **Percent
                      of Deposits**
                
                
                **Amount**
                
                
                **Percent
                      of Deposits**
                
                
                **Amount**
                
                
                **Percent
                      of Deposits**(Dollars
                    in thousands)Transaction
                    accounts:Demand
                    depositsInterest
                    bearing
                
                
                $
                9,641
                
                
                
                9.77
                %
                
                $
                9,496
                
                
                
                12.04
                %
                
                $
                10,386
                
                
                
                13.30
                %Non-interest
                    bearing
                
                
                
                6,569
                
                
                
                6.66
                
                
                
                6,337
                
                
                
                8.03
                
                
                
                4,599
                
                
                
                5.89Savings
                    deposits
                
                
                
                27,618
                
                
                
                27.99
                
                
                
                30,237
                
                
                
                38.32
                
                
                
                31,915
                
                
                
                40.86Total
                    transaction accounts
                
                
                
                43,828
                
                
                
                44.42
                
                
                
                46,070
                
                
                
                58.39
                
                
                
                46,900
                
                
                
                60.05Certificate
                    accounts:1.00%–1.99
                %
                
                
                5
                
                
                
                —
                
                
                
                1,317
                
                
                
                1.67
                
                
                
                8,794
                
                
                
                11.262.00%–2.99
                %
                
                
                2,699
                
                
                
                2.74
                
                
                
                8,551
                
                
                
                10.84
                
                
                
                16,278
                
                
                
                20.843.00%–3.99
                %
                
                
                7,174
                
                
                
                7.27
                
                
                
                13,264
                
                
                
                16.81
                
                
                
                5,009
                
                
                
                6.414.00%–4.99
                %
                
                
                18,033
                
                
                
                18.27
                
                
                
                9,310
                
                
                
                11.80
                
                
                
                1,126
                
                
                
                1.445.00%–5.99
                %
                
                
                26,937
                
                
                
                27.30
                
                
                
                386
                
                
                
                0.49
                
                
                
                —
                
                
                
                —Total
                  certificate
                  accounts
                
                
                
                54,848
                
                
                
                55.58
                
                
                
                32,828
                
                
                
                41.61
                
                
                
                31,207
                
                
                
                39.95Total
                    deposits
                
                
                $
                98,676
                
                
                
                100.00
                %
                
                $
                78,898
                
                
                
                100.00
                %
                
                $
                78,107
                
                
                
                100.00
                %


The
      following
      table sets forth the savings activities of the Bank during the periods
      indicated.




**Year
                  Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**(In
                thousands)Total
                deposits at beginning of period
            
            $
            78,898
            
            
            $
            78,107
            
            
            $
            77,522Net
                deposits (withdrawals)
            
            
            16,956
            
            
            
            (561
            )
            
            
            (612
            )Interest
                credited
            
            
            2,822
            
            
            
            1,352
            
            
            
            1,197Total
                deposits at end of period
            
            $
            98,676
            
            
            $
            78,898
            
            
            $
            78,107





The
      following table shows the interest rate and maturity information for the Bank’s
      certificates of deposit at June 30, 2007.




**Maturity
                  Date****Interest
                  Rate**
            
            
            **One
                  Year or Less**
            
            
            **1-2
                  Years**
            
            
            **2-3
                  Years**
            
            
            **Over
                  3 Years**
            
            
            **Total**(In
                thousands)1.00%-1.99
            %
            
            $
            5
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            52.00%-2.99
            %
            
            
            2,699
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,6993.00%-3.99
            %
            
            
            6,962
            
            
            
            212
            
            
            
            —
            
            
            
            —
            
            
            
            7,1744.00%-4.99
            %
            
            
            14,178
            
            
            
            1,852
            
            
            
            886
            
            
            
            1,117
            
            
            
            18,0335.00%-5.99
            %
            
            
            26,456
            
            
            
            —
            
            
            
            —
            
            
            
            481
            
            
            
            26,937Total
            
            
            $
            50,300
            
            
            $
            2,064
            
            
            $
            886
            
            
            $
            1,598
            
            
            $
            54,848





As
      of
      June 30, 2007, the aggregate amount of outstanding time certificates of
      deposit at the Bank in amounts greater than or equal to $100,000, was
      approximately $17.8 million.  The following table presents the
      maturity of these time certificates of deposit at such dates.






13
 *Table
          of Contents*


**June 30,
                  2007**(In
                thousands)3
                months or
                less
            
            $
            10,925Over
                3 months through 6 months
            
            
            3,733Over
                6 months through 12 months
            
            
            2,591Over
                12
                months
            
            
            552$
            17,801





*Borrowings*.  The
      Bank may obtain advances from the Federal Home Loan Bank of Chicago upon the
      security of the common stock it owns in that bank and certain of its residential
      mortgage loans and mortgage-backed and other investment securities, provided
      certain standards related to creditworthiness have been met.  These
      advances are made under several credit programs, each of which has its own
      interest rate and range of maturities.  Federal Home Loan Bank
      advances are generally available to meet seasonal and other withdrawals of
      deposit accounts and to permit increased lending.




The
      following table shows certain information regarding the short-term borrowings
      of
      the Bank at or for the dates indicated:




**At
                  or for the Year Ended**
                **June 30,****2007**
            
            
            **2006**
            
            
            **2005**(Dollars
                in thousands)Federal
                Home Loan Bank open line of credit:Average
                balance outstanding
            
            $
            —
            
            
            $
            —
            
            
            $
            1,145Maximum
                amount outstanding at any month-end during the period
            
            
            —
            
            
            
            —
            
            
            
            2,000Balance
                outstanding at end of period
            
            
            —
            
            
            
            —
            
            
            
            —Average
                interest rate during the period
            
            N/A
            
            
            N/A
            
            
            
            4.89
            %Weighted
                average interest rate at end of period
            
            N/A
            
            
            N/A
            
            
            
            —





At
      June 30, 2007 and 2006, the Bank had no outstanding advances from the
      Federal Home Loan Bank.




**Subsidiaries**




The
      Company’s only subsidiary is Royal Savings Bank.  The Bank does not
      currently have any subsidiaries.




**Total
      Employees**




The
      Bank
      had 47 equivalent full-time employees at June 30, 2007.  None of
      these employees are represented by a collective bargaining agreement, and the
      Bank believes that it enjoys good relations with its personnel.






14
 *Table
              of Contents*


**SUPERVISION
      AND REGULATION**




The
      following is a summary of material provisions of the statutes and regulations
      applicable to the Bank and the Company.  These summaries are not
      intended to be a complete explanation of such statutes and regulations and
      their
      effect on us and are qualified in their entirety by reference to the actual
      statutes and regulations.  Also, these statutes and regulations are
      likely to change in the future, and we cannot predict what effect these changes,
      if made, will have on our operations.  Finally, please remember that
      the supervision, regulation and examination of banks and bank holding companies
      by bank regulatory agencies are intended primarily for the protection of
      depositors rather than stockholders of banks and bank holding
      companies.




**Bank
      Holding Company Regulation**




*General*.  Royal
      Financial is a bank holding company within the meaning of the Bank Holding
      Company Act of 1956, as amended, or the BHC Act.  A bank holding
      company registered in accordance with the BHC Act is regulated by and subject
      to
      the supervision of the Federal Reserve Board and is required to file with the
      Federal Reserve Board periodic reports and such other information as may be
      required.  The Federal Reserve Board has the authority to conduct
      examinations of bank holding companies as well.  The Federal Reserve
      Board has the authority to issue orders to bank holding companies to cease
      and
      desist from unsound banking practices and violations of conditions imposed
      by,
      or violations of agreements with, the Federal Reserve Board.




Because
      the Bank is chartered under Illinois law, the Company is also subject, as a
      savings bank holding company, to examination and regulation by the Illinois
      Department of Financial and Professional Regulation, or IDFPR, under the
      Illinois Savings Bank Act.




*The
      BHC Act* - *Acquisitions and Permissible Activities*.  The
      BHC Act requires the prior approval of the Federal Reserve Board for a bank
      holding company to:




·
            engage
                in certain nonbanking activities;




·
            acquire
                direct or indirect ownership or control of more than 5% of any class
                of
                the voting shares of any bank, bank holding company or savings
                association;




·
            increase
                any such nonmajority ownership or control of any bank, bank holding
                company or savings association; or




·
            merge
                or consolidate with any bank holding
                company.




Federal
      law generally authorizes bank holding companies to acquire banks located in
      any
      state, subject to certain state-imposed age and deposit concentration limits,
      and also generally authorizes interstate bank holding company and bank mergers
      and, to a lesser extent, interstate branching.




A
      bank
      holding company may only engage in and own shares of companies engaged in
      certain nonbanking activities the Federal Reserve Board has determined to be
      so
      closely related to banking or managing or controlling banks as to be a proper
      incidental business.  A bank holding company that elects to become a
      financial holding company may engage in a broader range of activities than
      is
      permissible for a traditional bank holding company.  In order to
      qualify for this election, all of the depository institution subsidiaries of
      the
      bank holding company must be well capitalized and well managed, as defined
      under
      Federal Reserve Board regulations, and all such subsidiaries must have achieved
      a rating of “satisfactory” or better with respect to meeting community credit
      needs.  At this time, the Company has not elected to become a
      financial holding company and has no immediate plans to do so.






15
 *Table
          of Contents*




*Interstate
      Banking and Branching Legislation*.  Under the Riegle-Neal
      Interstate Banking and Branching Efficiency Act of 1994, or Interstate Banking
      Act, bank holding companies are allowed to acquire banks across state lines
      subject to various requirements of the Federal Reserve Board.  In
      addition, under the Interstate Banking Act, banks are permitted, under some
      circumstances, to merge with one another across state lines and, as a result,
      create a main bank with branches in separate states.  After
      establishing branches in a state through an interstate merger transaction,
      a
      bank may establish and acquire additional branches at any location in the state
      where any bank involved in the interstate merger could have established or
      acquired branches under applicable federal and state law.




*Capital
      Requirements*.  The Federal Reserve Board has adopted requirements
      for assessing the capital adequacy of bank holding companies.  Bank
      holding companies with consolidated assets of more than $500 million are
      required to comply with the Federal Reserve Board’s capital guidelines on
      risk-based capital.  Bank holding companies that are below this
      threshold and otherwise qualify as “small bank holding companies” under
      applicable regulations need not comply with the Federal Reserve Board’s
      risk-based capital guidelines on a consolidated basis.  Because the
      Company qualifies as a small bank holding company it is not required to comply
      with the Federal Reserve Board’s risk-based capital
      requirements.  Instead, the Company must comply with the Federal
      Reserve Board’s Small Bank Holding Company Policy Statement (“Policy
      Statement”), which requires the Company to maintain a certain debt to equity
      ratio.  Insured depository subsidiaries of the Company are also
      expected to be well capitalized.




*Ownership
      Limitations*.  The Change in Bank Control Act prohibits a person
      or group of persons from acquiring “control” of a depository institution or a
      bank holding company unless the appropriate federal banking agency has been
      given prior notice and public notice has been provided.  “Control” is
      generally defined under this act as ownership of 25% or more of any class of
      voting stock.  In addition, the acquisition of 10% or more of a class
      of voting stock of a depository institution or a bank holding company by a
      person may require the prior regulatory approval of the Federal Reserve
      Board.  Furthermore, any company, as that term is broadly defined in
      the BHC Act, would be required to obtain the approval of the Federal Reserve
      Board before acquiring 25% (5% in the case of an acquirer that is a bank holding
      company) or more of any class of voting securities of a depository institution
      or a bank holding company, or such lesser percentage as the Federal Reserve
      Board deems to constitute a “controlling influence.”




In
      addition, under the Savings Bank Act, any person who acquires more than 10%
      of
      the Company’s stock may be required to obtain the prior approval of the
      IDFPR.




*Bank
      Holding Company Dividends*.  Bank holding companies operating
      under the Federal Reserve Board’s Small Bank Holding Company Policy Statement
      may not pay dividends unless (i) the bank holding company’s debt to equity
      ratio is at or below 1.0:1, (ii) the dividends are reasonable in amount,
      (iii) the dividends do not adversely affect the ability of the bank holding
      company to service its debt in an orderly manner, (iv) the dividends do not
      adversely affect the ability of the holding company’s subsidiary banks to be
      well capitalized, (v) the bank holding company is considered to be “well
      managed” by the Federal Reserve Board, and (vi) during a specified time
      period, there have been no supervisory actions taken or pending against the
      bank
      holding company or any subsidiary bank.




*Bank
      Holding Company Support of Subsidiary Banks*.  Under Federal
      Reserve Board policy, a bank holding company is expected to act as a source
      of
      financial and managerial strength to each of its subsidiary banks and to commit
      resources to their support.  This support may be required at times
      when the bank holding company may not have the resources to provide
      it.  Similarly, under the cross-guarantee provisions of the Federal
      Deposit Insurance Act, or FDIA, the FDIC can hold any FDIC-insured depository
      institution liable for any loss suffered or anticipated by the FDIC in
      connection with:






16
 *Table
          of Contents*




·
            the
                “default” of a commonly controlled FDIC-insured depository institution;
                or




·
            any
                assistance provided by the FDIC to a commonly controlled FDIC–insured
                deposited institution “in danger of
                default.”




*The
      Sarbanes-Oxley Act*.  The Sarbanes-Oxley Act of 2002, or
      Sarbanes-Oxley, implements a broad range of corporate governance and accounting
      measures for public companies (including publicly held bank holding companies
      such as the Company) designed to promote honesty and transparency in corporate
      America.  Sarbanes-Oxley’s principal provisions provide for and
      include, among other things:  (i) the creation of an independent
      accounting oversight board; (ii) auditor independence provisions that
      restrict non-audit services that accountants may provide to their audit clients;
      (iii) additional corporate governance and responsibility measures,
      including the requirement that the chief executive officer and chief financial
      officer of a public company certify financial statements; (iv) the
      forfeiture of bonuses or other incentive-based compensation and profits from
      the
      sale of an issuer’s securities by directors and senior officers in the
      twelve-month period following initial publication of any financial statements
      that later require restatement; (v) an increase in the oversight of, and
      enhancement of certain requirements relating to, audit committees of public
      companies and how they interact with the company’s independent auditors;
      (vi) requirements that audit committee members must be independent and are
      barred from accepting consulting, advisory or other compensatory fees from
      the
      issuer; (vii) requirements that companies disclose whether at least one
      member of the audit committee is a “financial expert” (as such term is defined
      by the SEC); (viii) expanded disclosure requirements for corporate
      insiders, including accelerated reporting of stock transactions by insiders
      and
      a prohibition on insider trading during pension blackout periods; (ix) a
      prohibition on personal loans to directors and officers, except certain loans
      made by insured financial institutions on nonpreferential terms and in
      compliance with other bank regulatory requirements; (x) disclosure of a
      code of ethics and filing a Form 8-K for a change or waiver of such code; and
      (xi) a range of enhanced penalties for fraud and other
      violations.




**Bank
      Regulation**




*General*.  The
      Bank is an Illinois-chartered savings bank.  Its operations are
      subject to federal and state laws applicable to commercial banks and to
      extensive regulation, supervision and examination by the IDFPR, as well as
      by
      the FDIC, as its primary federal regulator and insurer of
      deposits.  The  Bank is a member of the Federal Home Loan
      Bank of Chicago, or FHLB.  The Federal Deposit Insurance Act, or FDIA,
      requires prior FDIC approval for any merger or consolidation by or with another
      depository institution, as well as for the establishment or relocation of any
      bank or branch office.  The FDIA also gives the FDIC the power to
      issue cease-and-desist orders.  A cease-and-desist order could either
      prohibit a bank from engaging in certain unsafe and unsound bank activities
      or
      could require a bank to take certain affirmative action.  The FDIC
      also supervises compliance with the federal laws and regulations that, in
      addition to several other mandates, place restrictions on loans by FDIC-insured
      banks to an executive officer, director or principal stockholder of the bank,
      the bank holding company which owns the bank, and any subsidiary of such bank
      holding company.  The FDIC also examines the Bank for its compliance
      with statutes that restrict and, in some cases, prohibit certain transactions
      between a bank and its affiliates.




In
      addition, the Bank is subject to restrictions with respect to:




·
            the
                nature and amount of securities in which it may
                invest;




·
            the
                amount of investment in the bank’s premises;
                and




·
            the
                manner in and extent to which it may borrow
                money.






17
 *Table
          of Contents*




Furthermore,
      all banks are affected by the credit policies of the Federal Reserve Board,
      which regulate the national supply of bank credit.  Such regulation
      influences overall growth of bank loans, investments, and deposits and may
      also
      affect interest rates charged on loans and paid on deposits.  The
      Federal Reserve Board’s monetary policies have had a significant effect on the
      operating results of commercial banks in the past, and we expect this influence
      to continue in the future.




*Capital
      Requirements*.  Under the Illinois Savings Bank Act and the
      implementing regulations of the IDFPR, an Illinois savings bank must maintain
      a
      minimum capital at a level not less than that required to maintain insurance
      of
      deposits by the FDIC.  The IDFPR has the authority to require an
      Illinois savings bank to maintain a higher level of capital if deemed necessary
      based on the savings bank’s financial condition, history, management or earnings
      prospects.




Bank
      regulatory agencies have adopted risk-based capital guidelines applicable to
      financial institutions.  These guidelines establish required levels of
      capital that are monitored by certain ratios.  Capital is divided into
      two components:  Tier 1 capital, which includes common stock,
      non-withdrawable accounts and pledged deposits meeting certain criteria,
      additional paid-in capital, retained earnings and certain types of perpetual
      preferred stock, less certain items including, certain intangible assets,
      serving rights and certain credit-enhancing interest-only strips; and
      Tier 2 capital, which includes, among other things, perpetual preferred
      stock, subordinated debt, limited amounts of unrealized gains on marketable
      equity securities, and the allowance for loan losses.  These
      components of capital are compared to both total assets as reported on the
      balance sheet and assets that have been adjusted to compensate for associated
      risk to the organization.




Under
      the
      FDIC’s capital requirements for insured banks, a bank is considered well
      capitalized for regulatory purposes if it has a total risk-based capital of
      10%
      or greater; has Tier 1 risk-based capital of 6% or greater; has a leverage
      ratio of 5% or greater; and is not subject to any written agreement, order,
      capital directive or prompt corrective action directive.




*Lending
      Restriction*.  The Bank is prohibited by the Illinois Savings Bank
      Act from making secured or unsecured loans for business, commercial or
      agricultural purposes representing, in the aggregate, an amount in excess of
      15%
      of its total assets, unless the IDFPR authorizes a higher percentage limit
      for
      those loans upon the request of an institution.




The
      Bank
      is also subject to a loans-to-one-borrower limitation.  Under the
      Illinois Savings Bank Act, the total loans and extensions of credit by the
      Bank
      to any one person outstanding at one time must not exceed the greater of 25%
      of
      the Bank’s total capital plus general loan loss reserves, or
      $500,000.  In addition, the Bank may make loans in an amount equal to
      an additional 10% of the Bank’s capital plus general loan loss reserves if
      secured by readily marketable collateral.




*Transactions
      with Affiliates*.  The Bank is subject to laws and regulations
      restricting or limiting transactions between a bank and an affiliated company,
      including a parent bank holding company.  Specifically, the Bank is
      subject to certain restrictions on loans to affiliated companies, on investments
      in the stock or securities of affiliated companies, on the taking of such stock
      or securities as collateral for loans to any borrower, and on the issuance
      of a
      guarantee or letter of credit on their behalf.  Among other things,
      these restrictions limit the amount of such transactions, require collateral
      in
      prescribed amounts for extensions of credit, prohibit the purchase of low
      quality assets and require that the terms of such transactions be substantially
      equivalent to terms of similar transactions with
      nonaffiliates.  Generally, the Bank is limited in its extensions of
      credit to any affiliate to 10% of its capital and in its extensions of credit
      to
      all affiliates to 20% of its capital.






18
 *Table
          of Contents*




*Dividends*.  Under
      the Illinois Savings Bank Act, the Bank may declare dividends only when its
      total capital is greater than that required by the Illinois Savings Bank
      Act.  In general, dividends may be paid by the Bank out of its net
      profits.  The written approval of the IDFPR must be obtained, however,
      before a savings bank may declare dividends in excess of its net profits in
      any
      year.  Finally, the Bank will be unable to pay dividends in an amount
      which would reduce its capital below the greater of (i) the amount required
      by FDIC capital regulations or otherwise specified by the FDIC, (ii) the
      amount required by the IDFPR or (iii) the amount required for the
      liquidation account established by the Bank in connection with the Bank’s
      conversion to stock form.  The IDFPR and the FDIC also have the
      authority to prohibit the payment of any dividends by the Bank if the IDFPR
      or
      the FDIC determines that the distribution would constitute an unsafe or unsound
      practice.




*Federal
      Reserve Board*.  The Bank is subject to Federal Reserve Board
      regulations requiring depository institutions to maintain non-interest-earning
      reserves against their transaction accounts (primarily NOW and regular checking
      accounts).  The Federal Reserve Board regulations generally require 3%
      reserves on the first $45.8 million of transaction accounts plus 10% on the
      remainder.  The first $8.5 million of otherwise reservable balances
      (subject to adjustments by the Federal Reserve Board) are exempted from the
      reserve requirements.  The Bank is in compliance with this
      requirement.




*Federal
      Home Loan Bank System*.  The Bank is a member of the
      FHLB.  Each FHLB is funded primarily from proceeds derived from the
      sale of consolidated obligations of the Federal Home Loan Bank
      System.  Each FHLB makes loans to members (i.e., advances) in
      accordance with policies and procedures established by the Board of Directors
      of
      the Federal Home Loan Bank.




As
      a
      member, the Bank is required to purchase and maintain stock in the FHLB in
      an
      amount equal to at least 1% of its aggregate unpaid residential mortgage loans
      or similar obligations at the beginning of each year.  At
      June 30, 2007, the Bank had $341,000 in FHLB stock, which was in compliance
      with this requirement.  At June 30, 2007, the Bank had no FHLB
      advances outstanding.




*Illinois
      Banking System*.  The IDFPR and the FDIC have extensive
      enforcement authority over Illinois-chartered savings banks, such as the
      Bank.  This enforcement authority includes, among other things, the
      ability to issue cease-and-desist or removal orders, to assess civil money
      penalties and to initiate injunctive actions.  In general, these
      enforcement actions may be initiated for violations of laws and regulations
      and
      unsafe and unsound practices.  The IDFPR has established a schedule
      for the assessment of “supervisory fees” upon all Illinois savings banks to fund
      the operation of the IDFPR.  These supervisory fees are computed on
      the basis of each savings bank’s total assets (including consolidated
      subsidiaries) and are payable at the end of each calendar quarter.  A
      schedule of fees has also been established for certain filings made by Illinois
      savings banks with the IDFPR.  The IDFPR also assesses fees for
      examinations conducted by the IDFPR’s staff, based upon the number of hours
      spent by the staff performing the examination.




*Standards
      for Safety and Soundness*.  The FDIA, as amended by the Federal
      Deposit Insurance Corporation Improvements Act of 1991, or the FDICIA, and
      the
      Riegle Community Development and Regulatory Improvement Act of 1994, requires
      the FDIC, together with the other federal bank regulatory agencies, to prescribe
      standards of safety and soundness, by regulations or guidelines, relating
      generally to operations and management, asset growth, asset quality, earnings,
      stock valuation, and compensation.  The FDIC and the other federal
      bank regulatory agencies have adopted a set of guidelines prescribing safety
      and
      soundness standards under FDICIA.  The guidelines establish general
      standards relating to internal controls and information systems, internal audit
      systems, loan documentation, credit underwriting, interest rate exposure, asset
      growth, and compensation, fees and benefits.  In general, the
      guidelines require appropriate systems and practices to identify and manage
      the
      risks and exposures specified in the guidelines.  The guidelines
      prohibit excessive compensation as an unsafe and unsound








19
 *Table
          of Contents*




practice
      and describe compensation as excessive when the amounts paid are unreasonable
      or
      disproportionate to the services performed by an executive officer, employee,
      director or principal stockholder.  In addition, the FDIC adopted
      regulations that authorize, but do not require, the FDIC to order an institution
      that has been given notice by the FDIC that it is not satisfying the safety
      and
      soundness guidelines to submit a compliance plan.  If, after being so
      notified, an institution fails to submit an acceptable compliance plan or fails
      in any material respect to implement an accepted compliance plan, the FDIC
      must
      issue an order directing action to correct the deficiency and may issue an
      order
      directing other actions of the types to which an undercapitalized institution
      is
      subject under the “prompt corrective action” provisions of FDICIA discussed
      below.  If an institution fails to comply with such an order, the FDIC
      may seek to enforce its order in judicial proceedings and to impose civil money
      penalties.  The FDIC and the other federal bank regulatory agencies
      have also proposed guidelines for asset quality and earning
      standards.




*Prompt
      Corrective Action*.  FDICIA requires the federal banking
      regulators, including the Federal Reserve Board and the FDIC, to take prompt
      corrective action with respect to depository institutions that fall below
      minimum capital standards and prohibits any depository institution from making
      any capital distribution that would cause it to be
      undercapitalized.  Institutions that are not adequately capitalized
      may be subject to a variety of supervisory actions, including restrictions
      on
      growth, investment activities, capital distributions and affiliate transactions,
      and will be required to submit a capital restoration plan that, to be accepted
      by the regulators, must be guaranteed in part by any company having control
      of
      the institution (for example, the company or a stockholder controlling the
      company).  In other respects, FDICIA provides for enhanced supervisory
      authority, including greater authority for the appointment of a conservator
      or
      receiver for critically under-capitalized institutions.  The
      capital-based prompt corrective action provisions of FDICIA and its implementing
      regulations apply to FDIC-insured depository institutions.  However,
      federal banking agencies have indicated that, in regulating bank holding
      companies, the agencies may take appropriate action at the holding company
      level
      based on their assessment of the effectiveness of supervisory actions imposed
      upon subsidiary insured depository institutions under the prompt corrective
      action provisions of FDICIA.




As
      of
      June 30, 2007, the Company and the Bank had capital in excess of the
      requirements for a “well-capitalized” institution under the prompt corrective
      action provisions of FDICIA.




*FDIC
      Deposit Insurance*.  As an FDIC-insured institution, the Bank is
      required to pay deposit insurance premiums based on the risk it poses to the
      Deposit Insurance Fund.  The FDIC has authority to raise or lower
      assessment rates on insured deposits in order to achieve required revenue ratios
      in the insurance fund and to impose special additional
      assessments.  To determine an institution’s assessment rate, each
      insured bank is placed in one of four risk categories using a two-step process
      based on capital and supervisory information.  First, each insured
      bank is assigned to one of the following three capital groups:  “well
      capitalized,” “adequately capitalized,” or “undercapitalized.”  Each
      institution is then assigned one of three supervisory ratings:  “A”
(institutions with minor weaknesses), “B” (institutions that demonstrate
      weaknesses which, if not corrected, could result in significant deterioration
      of
      the institution) and “C” (institutions that pose a substantial probability of
      loss to the Deposit Insurance Fund unless effective corrective action is
      taken).  Banks classified as strongest by the FDIC are subject to the
      lowest insurance assessment rate; banks classified as weakest by the FDIC are
      subject to the highest insurance assessment rate.  Deposit insurance
      may be terminated by the FDIC upon a finding that an institution has engaged
      in
      an unsafe or unsound practice, 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.  The management of the Company does not
      know of any practice, condition or violation that might lead to termination
      of
      the deposit insurance of the Bank.






20
 *Table
          of Contents*




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




·
            lending,
                to evaluate the institution’s record of making loans in its assessment
                areas;




·
            investment,
                to evaluate the institution’s record of investing in community development
                projects, affordable housing, and programs benefiting low- or
                moderate-income individuals and business;
                and




·
            service,
                to evaluate the institution’s delivery of services through its branches,
                ATMs and other offices.




The
      CRA
      requires each federal banking agency, in connection with its examination of
      a
      financial institution, to assess and assign one of four ratings to the
      institution’s record of meeting the credit needs of its community and to take
      such record into account in its evaluation of certain applications by the
      institution, including applications for charters, branches and other deposit
      facilities, relocations, mergers, consolidations, acquisitions of assets or
      assumptions of liabilities, and savings and loan holding company
      acquisitions.  The CRA also requires that all institutions make public
      disclosure of their CRA ratings.




The
      Bank
      was assigned a “satisfactory” rating in July 2003 as a result of its last
      CRA examination.




*Bank
      Secrecy Act and PATRIOT Act*.  Under the Bank Secrecy Act, a
      financial institution is required to have systems in place to detect certain
      transactions, based on the size and nature of the
      transaction.  Financial institutions are generally required to report
      cash transactions involving more than $10,000 to the United States
      Treasury.  In addition, financial institutions are required to file
      suspicious activity reports for transactions that involve more than $5,000
      and
      that the financial institution knows, suspects or has reason to suspect involves
      illegal funds, is designed to evade the requirements of the Bank Secrecy Act
      or
      has no lawful purpose.




The
      Uniting and Strengthening America by Providing Appropriate Tools Required to
      Intercept and Obstruct Terrorism Act of 2001, or the PATRIOT Act, contains
      anti-money laundering and financial transparency laws, as well as enhanced
      information collection tools and enforcement mechanisms for the U.S.
      government.  PATRIOT Act provisions include the
      following:  standards for verifying customer identification when
      opening accounts; rules to promote cooperation among financial institutions,
      regulators, and law enforcement; and due diligence requirements for financial
      institutions that administer, maintain, or manage certain bank
      accounts.




The
      Bank
      is subject to Bank Secrecy Act and PATRIOT Act requirements.  Bank
      regulators carefully review an institution’s compliance with these requirements
      when examining an institution and consider the institution’s compliance when
      evaluating an application submitted by an institution.  Bank
      regulators may require an institution to take various actions to ensure that
      it
      is meeting the requirements of these acts.




*Compliance
      with Consumer Protection Laws*.  The Bank is subject to many
      federal consumer protection statutes and regulations including the CRA, the
      Truth in Lending Act, the Truth in Savings






21
 *Table
          of Contents*




Act,
      the
      Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement
      Procedures Act and the Home Mortgage Disclosure Act.  Among other
      things, these acts:




·
            require
                banks to meet the credit needs of their
                communities;




·
            require
                banks to disclose credit terms in meaningful and consistent
                ways;




·
            prohibit
                discrimination against an applicant in any consumer or business credit
                transaction;




·
            prohibit
                discrimination in housing-related lending
                activities;




·
            require
                banks to collect and report applicant and borrower data regarding
                loans
                for home purchases or improvement
                projects;




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




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




·
            prescribe
                possible penalties for violations of the requirements of consumer
                protection statutes and
                regulations.




*Enforcement
      Actions*.  Federal and state statutes and regulations provide
      financial institution regulatory agencies with great flexibility to undertake
      an
      enforcement action against an institution that fails to comply with regulatory
      requirements, particularly capital requirements.  Possible enforcement
      actions range from the imposition of a capital plan and capital directive to
      civil money penalties, cease-and-desist orders, receivership, conservatorship
      or
      the termination of deposit insurance.




ITEM
      2. DESCRIPTION OFPROPERTY




The
      Company is located and conducts its business at the Bank’s main office at 9226
      Commercial Avenue, Chicago, Illinois 60617. In addition to the main office,
      the
      Bank has branch locations at 10555 South Ewing Avenue, Chicago, Illinois 60617;
      17130 S. Torrence Avenue, Lansing, Illinois 60438; 19802 S. Harlem Avenue,
      Frankfort, Illinois 60423; and 713 US Highway 41, Schererville, Indiana 46375.
      The Company owns the office buildings for the main office and Ewing Avenue
      locations. The Company leases the branch facilities in Lansing, Frankfort,
      and
      Schererville. 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 during the fourth quarter
      of
      the year ended June 30, 2007.







22
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            of Contents*





**PART II**




ITEM
      5.MARKET FOR
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES


OF
      EQUITY SECURITIES




The
      Company’s common stock is traded on the Over-the-Counter Bulletin Board under
      the symbol “RYFL”.  At June 30, 2007, the Company had 157 record
      holders of its common stock.  The table below shows the reported high
      and low bid price of the common stock, as reported on the OTC Bulletin Board
      and
      dividends declared during the periods indicated in fiscal 2007.




**2007****High**
            
            
            **Low**
            
            **Dividends
                  Declared**First
                quarter
            
            
            15.20
            
            
            
            14.50
            
            N/ASecond
                quarter
            
            
            16.50
            
            
            
            15.00
            
            N/AThird
                quarter
            
            
            17.75
            
            
            
            16.00
            
            N/AFourth
                quarter
            
            
            16.35
            
            
            
            15.25
            
            N/A





**2006****High**
            
            
            **Low**
            
            **Dividends
                  Declared**First
                quarter
            
            
            14.00
            
            
            
            12.80
            
            N/ASecond
                quarter
            
            
            14.50
            
            
            
            13.60
            
            N/AThird
                quarter
            
            
            14.85
            
            
            
            14.15
            
            N/AFourth
                quarter
            
            
            14.85
            
            
            
            14.55
            
            N/A





**Dividend
      Policy**




The
      Company does not currently pay cash dividends on its common stock.  In
      the event that the Board of Directors does decide to declare a dividend, such
      payment will depend upon a number of factors, including capital requirements,
      the Company’s and the Bank’s financial condition and results of operations, tax
      considerations, statutory and regulatory limitations and general economic
      conditions.  No assurances can be given that any dividends will be
      paid or that, if paid, will not be reduced or eliminated in future
      periods.  Special cash dividends, stock dividends or returns of
      capital may, to the extent permitted by regulations, be paid in addition to,
      or
      in lieu of, regular cash dividends.  The Company files consolidated
      tax returns with the Bank.  Accordingly, it is anticipated that any
      cash distributions made by the Company to its stockholders would be treated
      as
      cash dividends and not as a nontaxable return of capital for federal and state
      tax purposes.




Dividends
      from the Company will depend, in large part, upon receipt of dividends from
      the
      Bank.  Federal and state law imposes certain limitations on dividends
      by savings banks.  See “Supervision and Regulation.”






23
 *Table
          of Contents*





**Small
      Business Issuer Purchases of Equity Securities**




The
      following table provides information about purchases by the Company during
      the
      quarter ended June 30, 2007 of equity securities that are registered by the
      Company under Section 12 of the Securities Exchange Act of 1934.




**Period**
            
            **(a)**
                **Total
                  Number of Shares Purchased**
            
            
            **(b)**
                **Average
                  Price Paid per Share**
            
            
            **(c)**
                **Total
                  Number of Shares Purchased as Part of Publicly Announced Plans
                  or
                  Programs**
            
            
            **(d)**
                **Maximum
                  Number of Shares That May Yet be Purchased Under the Plans/Program(1)**04/01/07-04/30/07
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            
            103,39505/01/07-05/31/07
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —06/01/07-06/30/07
            
            
            2,000
            
            
            
            15.25
            
            
            
            2,000
            
            
            
            101,395Total
            
            
            2,000
            
            
            $
            15.25
            
            
            
            2,000
            
            
            
            101,395


_____________


(1)
            On
                September 20, 2006, the Company received regulatory approval to repurchase
                up to 5% of its outstanding shares of common stock, or 125,638 shares
                (the
                “Program”).  As of June 30, 2007, 24,243 shares of the common
                stock approved for repurchase under the Program had been
                purchased.




ITEM
      6. MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




**General**




This
      discussion and analysis reflects the financial statements of the Company and
      other relevant statistical data, and is intended to enhance your understanding
      of the financial condition and results of operations of the
      Company.  The information in this section has been derived from the
      Company’s audited consolidated financial statements, which appear beginning on
      page F-1.




**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, Federal Home Loan Bank stock
      and other interest-earning assets (primarily cash and cash equivalents and
      bank
      owned life insurance), and the interest we pay on our interest-bearing
      liabilities, consisting of savings accounts, time deposits, money market deposit
      accounts and Federal Home Loan Bank borrowings.  Our results of
      operations also are affected by our provision for loan losses, noninterest
      income and noninterest expense.  Noninterest income currently consists
      primarily of service charges on deposit accounts, increases in the cash
      surrender value of bank owned life insurance, gains and losses on the sale
      of
      securities and loans and miscellaneous other income, including income on rental
      properties.  Noninterest expense currently consists primarily of
      salaries and employee benefits, occupancy, data processing, professional
      services, directors’ fees, charitable contributions, an impairment charge on a
      security available for sale, and other operating expenses.  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.




Fiscal
        year 2007 was a year of growth and expansion for the Company. The year witnessed
        the expansion of the Bank into Will County, Illinois and Lake County, Indiana,
        with the opening of two new full-service branches.  As a result of
        these expansion efforts, deposits increased $19.8 million, or 25%, to $98.7
        million from June 30, 2006, and loans grew by $6.2 million, or 8%, to $83.5
        million at fiscal year end.  Interest income increased by $1.5
        million, or 26%, due to an increase in the average yield on interest earning
        assets and an increase in total interest earning assets, including an increase
        in Federal funds sold.
   
  However,
        due to the interest rate environment for much of fiscal 2007 as well as our
        focus on generating additional deposits at our new branch locations by paying
        above-market rates of interest, interest expense on deposits increased by
        109%,
        and our net interest margin decreased from 4.51% at fiscal year end 2006
        to
        4.05% at the end of 2007.  Additionally, our efficiency ratio
        decreased from 96% at June 30, 2006 to 127.5% at June 30,
        2007.
  Non-interest
        expense also increased approximately 28% as a result of the expansion, including
        an increase in salary and employee benefit expense, branch start up costs
        and
        increased occupancy and marketing expenses. Also, as a result of the Company’s
        adoption of SFAS 123R as of July 1, 2006, salaries and compensation benefit
        expense was impacted by $155,000 in fiscal 2007.  As a result, the
        Company incurred a net loss of $1.2 million, or $0.51 per diluted share,
        for
        fiscal 2007.
  As
        a
        result of the expenses incurred in connection with the investigation undertaken
        by the Company’s Audit Committee discussed above in “Description of Business —
Recent Developments,” the Company anticipates that its non-interest expense will
        be negatively impacted by approximately $325,000 in the first quarter of
        fiscal
        2008.




24
 *Table
          of Contents*




**Forward-Looking
      Statements**




This
      report includes forward-looking statements, including statements regarding
      our
      strategy, effectiveness of investment programs, evaluations of future interest
      rate trends and liquidity, expectations as to growth in assets, deposits and
      results of operations, future operations, market position, financial position,
      and prospects, plans and objectives of management.  These
      forward-looking statements, which are based on certain assumptions and describe
      our future plans, strategies and expectations, can generally be identified
      by
      use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,”
“project,” or similar expressions.  Our ability to predict results or
      the actual effect of future plans or strategies is inherently uncertain and
      actual results may differ materially from those predicted in such
      forward-looking statements.  Factors that could have a material
      adverse effect on the operations and future prospects of the Company and the
      Bank include, but are not limited to, fluctuations
      in market rates of interest and loan and deposit pricing in the Company’s market
      areas, deterioration in asset quality due to an economic downturn in the greater
      Chicago metropolitan area, legislative or regulatory changes, changes in
      monetary and fiscal policies of the U.S. Government, including policies of
      the
      U.S. Treasury and the Federal Reserve Board, adverse developments in the
      Company’s loan or investment portfolios, slower than anticipated growth of the
      Company’s business or unanticipated business declines, the Company’s ability to
      implement its growth strategy, higher than expected operational costs including
      professional fees and expenses incurred in connection with the Audit Committee’s
      investigation, the effect of the investigation or the costs incurred in
      connection therewith on the Company’s financial condition or results of
      operations, demand for loan products; deposit flows; competition and changes
      in
      accounting principles, policies, and guidelines.These risks and
      uncertainties should be considered in evaluating forward-looking statements,
      and
      undue reliance should not be placed on such statements.




**Critical
      Accounting Policies and Estimates**




The
      accounting and reporting policies of the Company are in accordance with U.S.
      generally accepted accounting principles and conform to general practices within
      the banking industry.  Accounting and reporting policies for the
      allowance for loan losses and income tax are deemed critical because they
      involve the use of estimates and require significant management
      judgments.




*Allowance
      for Loan Losses*.  The allowance for loan losses is an amount that
      management believes will be adequate to absorb probable incurred losses in
      existing loans, taking into consideration such factors as past loss experience,
      changes in the nature and volume of the portfolio, overall portfolio quality,
      loan concentrations, specific problem loans, and current economic conditions
      that affect the borrower’s ability to pay.  Determination of the
      allowance is inherently subjective due to the above mentioned
      reasons.  Loan losses are charged off against the allowance when
      management believes that the full collectability of the loan is
      unlikely.  Recoveries of amounts previously charged-off are credited
      to the allowance.  Allowances established to provide for losses under
      commitments to extend credit, or recourse provisions under loan sales agreements
      or servicing agreements are classified with other liabilities.






25
 *Table
          of Contents*




A
        loan is
        considered impaired when it is probable that not all principal and interest
        amounts will be collected according to the loan contract.  Residential
        mortgage, installment and other consumer loans are collectively evaluated
        for
        impairment.  Individual commercial loans are evaluated for
        impairment.  Impaired loans are recorded at the loan’s fair value by
        the establishment of a specific allowance where necessary.  The fair
        value of collateral-dependent loans is determined by the fair value of the
        underlying collateral.  The fair value of noncollateral-dependent
        loans is determined by discounting expected future interest and principal
        payments at the loan’s effective interest rate.
  The
        Company maintains the allowance for loan losses at a level adequate to absorb
        management’s estimate of probable losses inherent in the loan
        portfolio.  Management believes that it uses the best information
        available to determine the adequacy of the allowance for loan
        losses.  However, future adjustments to the allowance may be necessary
        and the results of operations could be significantly and adversely affected
        if
        circumstances differ substantially from the assumptions used in making the
        determinations.




*Income
      Taxes*.  Accounting for income taxes is a critical accounting
      policy due to the subjective nature of certain estimates that are involved
      in
      the calculation.  The Company uses an asset/liability method of
      accounting for income taxes in which deferred tax assets and liabilities are
      established for temporary differences between the financial reporting basis
      and
      the tax basis of the Company’s assets and liabilities.  The Company
      must assess the realization of the deferred tax asset quarterly, and to the
      extent that management believes that recovery is not likely, a valuation
      allowance is established.  This assessment is impacted by various
      factors, including taxable income and the composition of the investment
      securities portfolio.  Material changes to these items can cause an
      adjustment to the valuation allowance.  An adjustment to increase or
      decrease the valuation allowance is charged or credited, respectively, to income
      tax expense.







26
 *Table
            of Contents*





**Selected
      Financial Data**




The
      following tables set forth selected historical financial and other data of
      the
      Company for the periods and at the dates indicated.  The information
      should be read in conjunction with the Consolidated Financial Statements and
      Notes thereto of the Company contained elsewhere herein.




**At
                  June 30,****2007**
            
            
            **2006**
            
            
            **2005**(In
                thousands, except per share data)**Selected
                Financial Condition Data:**Total
                assets
            
            $
            132,632
            
            
            $
            114,279
            
            
            $
            113,221Cash
                and cash equivalents
            
            
            21,396
            
            
            
            4,348
            
            
            
            17,022Securities
                available for sale
            
            
            15,595
            
            
            
            21,518
            
            
            
            33,242Loans
                receivable, net
            
            
            83,499
            
            
            
            77,326
            
            
            
            52,326Deposits
            
            
            98,676
            
            
            
            78,898
            
            
            
            78,107Total
                equity
            
            
            31,662
            
            
            
            32,755
            
            
            
            34,266Book
                value per common share
            
            $
            12.38
            
            
            $
            13.95
            
            
            $
            12.96





**Year
                  Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**(In
                thousands, except per share data)**Selected
                Operating Data:**Total
                interest income
            
            $
            7,377
            
            
            $
            5,834
            
            
            $
            4,291Total
                interest expense
            
            
            2,824
            
            
            
            1,354
            
            
            
            1,253Net
                interest income
            
            
            4,553
            
            
            
            4,480
            
            
            
            3,038Provision
                for loan losses
            
            
            267
            
            
            
            127
            
            
            
            50Net
                interest income after provision for loan losses
            
            
            4,286
            
            
            
            4,353
            
            
            
            2,988Total
                noninterest income
            
            
            560
            
            
            
            1,130
            
            
            
            525Total
                noninterest expense
            
            
            6,268
            
            
            
            4,885
            
            
            
            4,569Income  (loss)
                before provision for income taxes
            
            
            (1,422
            )
            
            
            598
            
            
            
            (1,056
            )Provision
                (benefit) for income taxes
            
            
            (213
            )
            
            
            44
            
            
            
            (412
            )Net
                income (loss)
            
            
            (1,209
            )
            
            
            554
            
            
            
            (644
            )Basic
                and diluted earnings per share
            
            
            (0.51
            )
            
            
            0.23
            
            
            
            (0.22
            )(4)





**Year
                  Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005****Key
                Financial Ratios:*****Performance
                Ratios:***Return
                on average assets
            
            
            (0.94
            )%
            
            
            0.49
            %
            
            
            (0.58
            )%Return
                on average equity
            
            
            (3.70
            )
            
            
            1.67
            
            
            
            (2.90
            )Interest
                rate spread(1)
            
            
            3.57
            
            
            
            4.16
            
            
            
            2.71Net
                interest margin(2)
            
            
            4.05
            
            
            
            4.51
            
            
            
            2.93Total
                noninterest expenses to average total assets
            
            
            4.88
            
            
            
            4.35
            
            
            
            4.13Efficiency
                ratio(3)
            
            
            127.52
            
            
            
            96.01
            
            
            
            117.15***Asset
                Quality Ratios:***Nonperforming
                loans to total loans at end of period
            
            
            0.85
            %
            
            
            0.00
            %
            
            
            0.00
            %Nonperforming
                assets to total assets at end of period
            
            
            0.53
            
            
            
            0.00
            
            
            
            0.00Allowance
                for loan losses to total loans at end of period
            
            
            0.80
            
            
            
            0.52
            
            
            
            0.54Allowance
                for loan losses to total nonperforming loans at end of
                period
            
            
            0.94
            
            
            
            0.00
            
            
            
            0.00***Capital
                Ratios:***Total
                capital (to risk-weighted assets)
            
            
            26.88
            %
            
            
            30.04
            %
            
            
            35.79
            %Tier
                1 capital (to risk-weighted assets)
            
            
            26.26
            
            
            
            29.54
            
            
            
            35.34Tier 1
                capital (to average assets)
            
            
            17.81
            
            
            
            21.22
            
            
            
            19.54Equity
                to assets at end of period
            
            
            23.87
            
            
            
            28.66
            
            
            
            30.26


_____________


(1)
            Yield
                on average interest-earning assets less rate on average interest-bearing
                liabilities.


(2)
            Net
                interest income, on a tax-equivalent basis, divided by average
                interest-earning assets.


(3)
            Noninterest
                expense, excluding the expenses related to the formation of the Royal
                Charitable Foundation and impairment charges, divided by the sum
                of net
                interest income, plus noninterest income, excluding net gain on sales
                of
                securities.


(4)
            Earnings
                per share is calculated based on the period of time from the date
                of the
                initial public offering, January 20, 2005, through the period ended
                June 30, 2005.






27
 *Table
            of Contents*





**Average
      Balances, Net Interest Income and Yields Earned and Rates
      Paid**




The
      following table presents for the periods indicated the total dollar amount
      of
      interest income from average interest-earning assets and the resultant yields,
      as well as the total dollar amount of interest expense on average
      interest-bearing liabilities and the resultant rates, and the net interest
      margin.  The table reflects an adjustment to interest income for
      nontaxable securities to be included on a fully tax adjusted
      basis.  All average balances are based on average monthly balances
      during the periods.  The Company does not believe that the monthly
      averages differ significantly from what the daily averages would
      be.




**Year
                  Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005****Average
                  Balance**
            
            
            **Interest**
            
            
            **Average
                  Yield/**
                **Rate(1)**
            
            
            **Average
                  Balance**
            
            
            **Interest**
            
            
            **Average
                  Yield/**
                **Rate(1)**
            
            
            **Average
                  Balance**
            
            
            **Interest**
            
            
            **Average
                  Yield/ Rate(1)**(Dollars
                in thousands)**Interest-Earning
                Assets:**Loans
                receivable,
              net(2)
            
            $
            77,233
            
            
            $
            5,625
            
            
            
            7.28
            %
            
            $
            74,791
            
            
            $
            4,610
            
            
            
            6.16
            %
            
            $
            42,080
            
            
            $
            2,646
            
            
            
            6.29
            %Securities
                available
              for sale(3)
            
            
            17,868
            
            
            
            718
            
            
            
            4.02
            
            
            
            21,794
            
            
            
            1,009
            
            
            
            4.63
            
            
            
            36,686
            
            
            
            1,175
            
            
            
            3.20Deposits
                with
              financial
              institutions(4)
            
            
            17,052
            
            
            
            1,024
            
            
            
            6.01
            
            
            
            2,353
            
            
            
            207
            
            
            
            8.80
            
            
            
            24,686
            
            
            
            454
            
            
            
            1.84Federal
                Home Loan
              Bank stock
            
            
            337
            
            
            
            10
            
            
            
            3.11
            
            
            
            365
            
            
            
            8
            
            
            
            2.19
            
            
            
            359
            
            
            
            20
            
            
            
            5.57Total interest-
              earning assets
            
            
            112,490
            
            
            
            7,377
            
            
            
            6.56
            
            
            
            99,303
            
            
            
            5,834
            
            
            
            5.88
            
            
            
            103,811
            
            
            
            4,295
            
            
            
            4.14**Noninterest-**
              **earning assets:**
            
            
            16,077
            
            
            
            
            
            
            
            
            
            
            
            13,094
            
            
            
            
            
            
            
            
            
            
            
            6,715Total assets
            
            $
            128,567
            
            
            
            
            
            
            
            
            
            
            $
            112,397
            
            
            
            
            
            
            
            
            
            
            $
            110,526**Interest-Bearing
                Liabilities:**Deposits:Demand
            
            $
            14,828
            
            
            $
            133
            
            
            
            0.89
            %
            
            $
            15,765
            
            
            
            109
            
            
            
            0.69
            
            
            $
            21,245
            
            
            
            130
            
            
            
            0.61Savings
            
            
            28,363
            
            
            
            280
            
            
            
            0.99
            
            
            
            30,156
            
            
            
            306
            
            
            
            1.02
            
            
            
            40,756
            
            
            
            589
            
            
            
            1.45Certificates
              of
                Deposit
            
            
            51,211
            
            
            
            2,409
            
            
            
            4.70
            
            
            
            32,795
            
            
            
            937
            
            
            
            2.86
            
            
            
            24,772
            
            
            
            478
            
            
            
            1.93Total
                deposits
            
            
            94,402
            
            
            
            2,822
            
            
            
            2.99
            
            
            
            78,716
            
            
            
            1,352
            
            
            
            1.72
            
            
            
            86,773
            
            
            
            1,197
            
            
            
            1.38Borrowings:Federal
                Home
              Loan
                Bank
              advances
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,145
            
            
            
            56
            
            
            
            4.89Federal funds
              purchased
            
            
            36
            
            
            
            2
            
            
            
            6.00
            
            
            
            41
            
            
            
            1
            
            
            
            2.44
            
            
            
            —
            
            
            
            —
            
            
            
            —Total interest-
              bearing
              liabilities
            
            
            94,438
            
            
            
            2,824
            
            
            
            2.99
            
            
            
            78,757
            
            
            
            1,353
            
            
            
            1.72
            
            
            
            87,918
            
            
            
            1,253
            
            
            
            1.43**Noninterest-bearing
                liabilities:**
            
            
            1,443
            
            
            
            
            
            
            
            
            
            
            
            529
            
            
            
            
            
            
            
            
            
            
            
            384Total
                liabilities
            
            
            95,881
            
            
            
            
            
            
            
            
            
            
            
            79,286
            
            
            
            
            
            
            
            
            
            
            
            88,302Total
                equity capital(5)
            
            
            32,686
            
            
            
            
            
            
            
            
            
            
            
            33,111
            
            
            
            
            
            
            
            
            
            
            
            22,224Total
                liabilities and equity capital
            
            $
            128,567
            
            
            
            
            
            
            
            
            
            
            $
            112,397
            
            
            
            
            
            
            
            
            
            
            $
            110,526Net
                average interest-earning assets
            
            $
            18,051
            
            
            
            
            
            
            
            
            
            
            $
            20,546
            
            
            
            
            
            
            
            
            
            
            $
            15,893Net
                interest income; interest rate spread(6)
            
            
            
            
            
            $
            4,553
            
            
            
            3.57
            %
            
            
            
            
            
            $
            4,481
            
            
            
            4.16
            %
            
            
            
            
            
            $
            3,042
            
            
            
            2.71
            %Net
                interest margin(7)
            
            
            
            
            
            
            
            
            
            
            4.05
            %
            
            
            
            
            
            
            
            
            
            
            4.51
            %
            
            
            
            
            
            
            
            
            
            
            2.93
            %Average
                interest-earning assets to average interest-bearing
                liabilities
            
            
            119.11
            %
            
            
            
            
            
            
            
            
            
            
            126.09
            %
            
            
            
            
            
            
            
            
            
            
            118.08
            %


_____________


(1)
            Yields
                and rates have been annualized where
                appropriate.


(2)
            Includes
                nonaccruing loans.


(3)
            Tax
                effective yield, assuming a 34%
                rate.


(4)
            Includes
                interest-bearing demand deposits, repurchase agreements and federal
                funds
                sold.


(5)
            Includes
                retained earnings and accumulated other comprehensive
                income/(loss).


(6)
            Interest
                rate spread represents the difference between the weighted average
                yield
                on interest-earning assets and the weighted average rate on
                interest-bearing liabilities.


(7)
            Net
                interest margin is net interest income divided by average interest-earning
                assets.







28
 *Table
            of Contents*





*Rate/Volume
      Analysis*.  The following table describes the extent to which
      changes in interest rates and changes in volume of interest-related assets
      and
      liabilities have affected the Bank’s interest income and interest expense during
      the periods indicated.  For each category of interest-earning assets
      and interest-bearing liabilities, information is provided on changes
      attributable to (1) changes in volume (change in volume multiplied by prior
      year rate), (2) changes in rate (change in rate multiplied by prior year
      volume), and (3) total change in rate and volume.  The combined
      effect of changes in both rate and volume has been allocated proportionately
      to
      the change due to rate and the change due to volume.






**Year
                    Ended June 30,****2007
                    vs. 2006**
              
              
              **2006
                    vs. 2005****Increase
                    (Decrease)**
                  **Due
                    to**
              
              
              
              
              
              **Increase
                    (Decrease)**
                  **Due
                    to****Yield/Rate**
              
              
              **Volume**
              
              
              **Total**
                  **Increase**
                  **(Decrease)**
              
              
              **Total**
                  **Yield/Rate**
              
              
              **Volume**
              
              
              **Total**
                  **Increase**
                  **(Decrease)**(In
                  thousands)**Interest-Earning
                  Assets:**Loans
                  receivable, net
              
              $
              865
              
              
              $
              150
              
              
              $
              1,015
              
              
              $
              (97
              )
              
              $
              2,061
              
              
              $
              1,964Securities
                  available for sale
              
              
              (109
              )
              
              
              (182
              )
              
              
              (291
              )
              
              
              312
              
              
              
              (478
              )
              
              
              (166
              )Deposits
                  with financial institutions
              
              
              (475
              )
              
              
              1,292
              
              
              
              817
              
              
              
              164
              
              
              
              (411
              )
              
              
              (247
              )Federal
                  Home Loan Bank stock
              
              
              2
              
              
              
              —
              
              
              
              2
              
              
              
              (12
              )
              
              
              —
              
              
              
              (12
              )Total
              
              
              283
              
              
              
              1,260
              
              
              
              1,543
              
              
              
              367
              
              
              
              1,172
              
              
              
              1,539**Interest-Bearing
                  Liabilities:**Deposits:Demand
              
              
              30
              
              
              
              (6
              )
              
              
              24
              
              
              
              13
              
              
              
              (34
              )
              
              
              (21
              )Savings
              
              
              (8
              )
              
              
              (18
              )
              
              
              (26
              )
              
              
              (130
              )
              
              
              (153
              )
              
              
              (283
              )Certificates of deposit
              
              
              944
              
              
              
              528
              
              
              
              1,472
              
              
              
              305
              
              
              
              154
              
              
              
              459Total deposits
              
              
              966
              
              
              
              504
              
              
              
              1,470
              
              
              
              188
              
              
              
              (33
              )
              
              
              155Borrowings:Federal Home Loan Bank advances
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (56
              )
              
              
              (56
              )Federal funds purchased
              
              
              1
              
              
              
              —
              
              
              
              1
              
              
              
              1
              
              
              
              —
              
              
              
              1Total
              
              
              967
              
              
              
              504
              
              
              
              1,471
              
              
              
              189
              
              
              
              (89
              )
              
              
              100Increase
                  (decrease) in net interest income
              
              $
              (684
              )
              
              $
              756
              
              
              $
              72
              
              
              $
              178
              
              
              $
              1,261
              
              
              $
              1,439





**Comparison
      of Financial Condition at June 30, 2007 and June 30,
      2006**




Total
      assets increased $18.4 million, or 16.06%, to $132.6 million at
      June 30, 2007 compared to $114.3 million at June 30, 2006. The
      increase in total assets resulted primarily from increases in cash and cash
      equivalents and loans receivable, partially offset by a decrease in securities
      available for sale. Total deposits increased $19.8 million to $98.7 million,
      or
      25.07%, for the year ended June 30, 2007 compared to $78.9 million for
      the same period in 2006. The increase in cash and cash equivalents of $17.0
      million was due to the Company accumulating liquidity to manage its interest
      rate risk in the current economic environment. The increase in loans receivable
      of $6.2 million, or 7.98%, to $83.5 million at June 30, 2007 compared to
      $77.3 million at June 30, 2006, resulted from an increase in
      one-to-four family loans and commercial real estate loans. The decrease in
      securities available for sale of $5.9 million resulted from paydowns, calls
      and
      maturities. Total stockholders’ equity decreased $1 million, or 3.34%, to
      $31.7 million for the year ended June 30, 2007 compared to
      $32.8 million for 2006.






29
 *Table
          of Contents*




**Comparison
      of Results of Operations for the Years Ended June 30, 2007 and
      June 30, 2006**




*General*.  The
      Company’s net loss amounted to $1.2 million for the year ended June 30,
      2007, compared to net income of $554,000 for the year ended June 30,
      2006.  The decrease in net income reflected decreases in net interest
      income and noninterest income and an increase in the provision for loan
      losses.  Return on average assets was (0.94)% for the year ended June
      30, 2007 as compared to 0.49% for the year ended June 30,
      2006.  Return on average equity was (3.70)% and 1.67% for the years
      ended June 30, 2007 and 2006, respectively. Equity to assets at June 30, 2007
      and 2006 was 23.93% and 28.66%, respectively.




*Interest
      Income*.  Interest income increased by $1.5 million, or 26.44%, to
      $7.4 million for the year ended June 30, 2007 from $5.8 million for the
      same period in 2006.  The increase in interest income resulted
      primarily from an increase in average yield on interest earning assets to 6.56%
      per annum from 5.88% per annum in 2006 and an increase in total interest earning
      assets of $13.2 million, or 13.28% to $112.5 million for the year ended June
      30,
      2007 from $99.3 million for 2006.




Interest
      income on loans increased $1,015,000, or 22.0%, for the year ended June 30,
      2007 compared to 2006.  The increase was due to a $2.4 million, or
      3.27%, increase in the average balance of loans for the year ended June 30,
      2007
      compared to 2006, and a 112 basis point increase in the yield on loans,
      reflecting a change in the mix of loan products during 2007.




Interest
      income on securities available for sale decreased by $291,000, or 28.89%, due
      primarily to a $3.9 million decrease in the average balance of such securities
      for the year ended June 30, 2007 compared to 2006, along with a decrease in
      the yield on such assets to 4.02% per annum in 2007 from 4.63% per annum in
      2006.




Interest
      income on Federal funds sold and dividend and interest income on a deposit
      account at the FHLB increased $820,000, or 380.84%, due to an increase of $14.7
      million in the average balance of these securities for the year ended
      June 30, 2007 compared to 2006.  This increase was offset by a
      decrease in the average yield to 6.01% for the year ended June 30, 2007
      from 8.80% in 2006.




*Interest
      Expense*.  Interest expense on deposits increased $1.5 million, or
      109.0%, to $2.8 million for the year ended June 30, 2007 from $1.4 million
      for the same period in 2006.  The increase was due to a 127 basis
      point increase in the rates paid on such deposits, to 2.99% per annum for the
      year ended June 30, 2007 from 1.72% in 2006, in addition to an increase of
      $15.7
      million, or 19.93%, in the average balance of such deposits for the year ended
      June 30, 2007 from 2006.




*Net
      Interest Income*.  Net interest income is determined by the
      interest rate spread (i.e., the difference between the yields earned on
      interest-earning assets tax affected and the rates paid on interest-bearing
      liabilities) and the relative amounts of interest-earning assets and
      interest-bearing liabilities.  Net interest income increased $72,000
      for the year ended June 30, 2007 compared to the year ended June 30,
      2006.  The increase was primarily due to an increase in volume
      partially offset by a decrease in the net interest rate spread to 3.57% per
      annum in 2007 from 4.16% per annum in 2006.




*Provision
      for Losses on Loans*.  Provision for losses on loans is charged to
      earnings to bring the total allowance for loan losses to a level considered
      adequate by management to cover probable incurred losses based on a methodology
      implemented by the Bank that is designed to assess, among other things, loss
      experience, the volume and type of lending conducted by the Bank, overall
      portfolio mix, the amount of the Bank’s classified assets, the status of past
      due principal and interest payments, loan-to-value ratios of loans in the Bank’s
      loan portfolio, general economic conditions, particularly as they relate to
      the
      Bank’s market area, and other factors related to the collectibility of the
      Bank’s loan portfolio.








30
 *Table
          of Contents*




Management
      assesses the allowance for loan losses on a quarterly basis and makes a
      provision for loan losses as deemed appropriate by management in order to
      maintain the adequacy of the allowance for loan losses.  When the
      collection of a loan becomes doubtful, or otherwise troubled, the Company
      records a loan charge-off equal to the difference between the fair value of
      the
      property securing the loan and the loan’s carrying value.  The
      allowance for loan losses is increased by charges to earnings and decreased
      by
      charge-offs (net of recoveries).




For
      the
      years ended June 30, 2007 and June 30, 2006, the provision for losses
      on loans totaled $267,000 and $127,000, respectively.  The additional
      provision in 2007 was the result of the changing composition of and increase
      in
      the size of the loan portfolio, as well as a specific allocation made as a
      result of a loan identified as impaired subsequent to fiscal 2007 year end
      but
      prior to the filing of this report.  During September 2007, the Bank
      was made aware of a situation related to one of its commercial leases totaling
      $242,000.  During its review of the credit, the Bank determined a
      specific reserve of $120,000 was required due to the uncertainty related to
      the
      expected future cash flows and collateral liquidation values, and an additional
      provision was made and the loan classified as impaired as of June 30,
      2007.  The Bank had only one other impaired loan in the amount of
      $467,000 at June 30, 2007.  No reserve was allocated to this loan
      as the Company expects to collect full principal and interest.  The
      allowance for loan losses was $667,000, or 0.80% of total loans, at
      June 30, 2007, as compared to $400,000, or 0.52% of total loans, at
      June 30, 2006.  While the Bank cannot assure that future
      charge-offs and/or additional provisions will not be necessary, the Bank
      believes that, as of June 30, 2007, its allowance for loan losses was
      adequate to cover probable incurred losses.




*Noninterest
      Income*.  Noninterest income decreased $570,000, or 50.45%, to
      $560,000 for the year ended June 30, 2007 compared to $1.1 million for the
      same period in 2006.  This decrease was primarily due to income
      recognized in 2006 as a result of the receipt of $568,000 in death benefits
      from
      a bank-owned life insurance policy as a result of the untimely and unfortunate
      death of the Company’s former Chief Financial Officer, Neil Brodzinski, in March
      2006.  Noninterest income also reflected increases in service charges
      on deposit accounts of $35,000, offset by a $30,000 decrease in fee income
      from
      mortgage-banking activity.




*Noninterest
      Expense*.  Noninterest expense increased $1.4 million, or 28.31%,
      to $6.3 million for the year ended June 30, 2007 compared to $4.9 million
      for the same period in 2006.  Compensation and employee benefits
      expense increased $683,000, or 29.06%.  The adoption of Statement of
      Financial Accounting Standards (“SFAS”) 123R effective as of July 1, 2006,
      resulted in increased compensation and benefit expense of $155,000 during fiscal
      2007.  In addition, the Bank hired additional personnel to staff its
      new branch locations in Frankfort, Illinois and Schererville,
      Indiana.  Operating the two new branch facilities caused increases in
      various other expense categories during 2007 including occupancy and equipment
      expenses.  Also impacting noninterest expense was a loss on impairment
      of securities available for sale.  The Bank holds a floating rate
      corporate bond in its securities portfolio which had a rate of 4.66% at
      June 30, 2007.  The bond is AA-rated by Standard &
Poor’s and matures on April 1, 2016.  As a result of its
      evaluation of the security for impairment, the Company determined that the
      decline in the fair value of the bond is other than temporary, as it is below
      market by 13%, has been below market for over two years, and the Company does
      not intend to hold the security until it recovers.  As a result, a
      $64,075 impairment charge was recorded in the fourth quarter of fiscal
      2007.




The
      Company estimates that it will incur $139,000, pretax, of compensation expense
      annually over the next three years and $58,000, pretax, in the fourth year
      in
      adopting the provisions of SFAS 123R effective July 1, 2006. The amount is
      related to compensation expense attributable to unvested stock
      options.






31
 *Table
          of Contents*




*Income
      Taxes Expense (Benefits)*.  The benefit from income taxes was
      $(213,000) in 2007 compared to a tax provision of $44,000 recorded for the
      year
      ended June 30, 2006.  The resulting effective tax rates for 2007
      and 2006 were (15.00)% and 7.36%, respectively.  The effective rate in
      2006 reflects the non-taxable income from the death benefit on the bank-owned
      life insurance policy, the increase in the cash surrender value on remaining
      policies in force, and the valuation allowance established for a portion of
      the
      charitable contribution carryforward.  2007 was impacted by a
      valuation allowance established for deferred tax assets, charitable contribution
      carryforwards, and state net operating losses, as the Company currently believes
      it is more likely than not that these will not be used.  In addition,
      on a prospective basis, if the Company remains in a loss position, it will
      not
      be recording the benefit of the net operating losses generated.




**Comparison
      of Financial Condition at June 30, 2006 and June 30,
      2005**




Total
      assets increased $1.1 million, or 0.93%, to $114.3 million at June 30, 2006
      compared to $113.2 million at June 30, 2005.  The increase in
      total assets resulted primarily from increases in loans receivable and an
      increase in premises and equipment, partially offset by decreases in cash and
      cash equivalents and securities available for sale.  Total deposits
      increased $791,000 to $78.9 million, or 1.01%, for the year ended June 30,
      2006 compared to $78.1 million for the same period in 2005.  The
      increase in loans receivable of $25.0 million, or 47.78%, to $77.3 million
      at
      June 30, 2006 compared to $52.3 million at June 30, 2005, resulted
      from an increase in one-to-four family loans, commercial real estate loans
      and
      multi family loans, as well as the purchase of participation interests in
      commercial and commercial real estate loans.  The increase in premises
      and equipment resulted from the construction in progress related to two new
      branch locations located in Frankfort, Illinois and Schererville,
      Indiana.  These facilities were subsequently opened in August
      2006.  The decrease in securities available for sale of $11.7 million
      resulted from paydowns, calls and maturities of $5.9 million and the sale of
      select securities due to changes in market conditions.  This activity
      was partially offset by $2.0 million of securities available for sale purchases
      for the year ended June 30, 2006.  Total stockholders’ equity
      decreased $1.5 million, or 4.41%, to $32.8 million for the year ended
      June 30, 2006 compared to $34.3 million for the same period in
      2005.  This decrease in stockholders’ equity resulted primarily from
      the purchase of $1,948,000 of treasury stock, of which $1,164,000 was allocated
      to unearned shares to fund the Recognition and Retention Plan
      (RRP).  Stockholders’ equity also decreased by $280,000 as a result of
      an increase in unrealized losses (net of income taxes) on securities available
      for sale.  The decrease was offset by net income of $554,000 and
      shares earned in the Company’s ESOP and RRP plans of $299,000 and $209,000,
      respectively.




**Comparison
      of Results of Operations for the Years Ended June 30, 2006 and
      June 30, 2005**




*General*.  The
      Company’s net income amounted to $554,000 for the year ended June 30, 2006
      compared to a net loss of $644,000 for the year ended June 30,
      2005.  The increase in net income reflected increases in net interest
      income, and noninterest income.  Return on average assets was 0.49%
      for the year ended June 30, 2006 as compared to (0.58)% for the year ended
      June 30, 2005.  Return on average equity was 1.67% and (2.90)%
      for the years ended June 30, 2006 and 2005, respectively.  Equity
      to assets at June 30, 2006 and 2005 was 28.66% and 30.26%,
      respectively.




*Interest
      Income*.  Interest income increased by $1.5 million, or 35.83%, to
      $5.8 million for the year ended June 30, 2006 from $4.3 million for the
      same period in 2005.  The increase in interest income resulted
      primarily from an increase in average yield on interest earning assets to 5.88%
      per annum from 4.14% per annum in 2005.  The increase was partially
      offset by a decrease in total interest earning assets of $4.5 million, or 4.34%
      to $99.3 million for the year ended June 30, 2006 from $103.8 million for
      the same period in 2005.






32
 *Table
          of Contents*




Interest
      income on loans increased by $2.0 million, or 74.3%, for the year ended
      June 30, 2006 compared to the same period in 2005.  The increase
      was due to a $32.7 million, or 77.74%, increase in the average balance of loans
      for the year ended June 30, 2006 compared to the same period in 2005,
      offset by a 13 basis point decrease in the yield on loans, reflecting a change
      in the mix of loan products during 2006.




Interest
      income on securities available for sale decreased by $166,000, or 14.13%, due
      primarily to a $14.9 million decrease in the average balance on such securities
      for the year ended June 30, 2006 compared to the same period in 2005,
      offset by an increase in the yield on such assets to 4.63% per annum in 2006
      from 3.20% per annum in 2005.




*Interest
      Expense*.  Interest expense on deposits increased $155,000, or
      12.95%, to $1.4 million for the year ended June 30, 2006 from $1.2 million
      for the same period in 2005.  The increase was due to a 34 basis point
      increase in the rates paid on such deposits to 1.72% per annum for the year
      ended June 30, 2006 from 1.38% in 2005, offset by a decrease of $8.1
      million, or 9.29%, in the average balance of such deposits for the year ended
      June 30, 2006 from the same period in 2005.




*Net
      Interest Income*.  Net interest income is determined by the
      interest rate spread (i.e., the difference between the yields earned on
      interest-earning assets tax affected and the rates paid on interest-bearing
      liabilities) and the relative amounts of interest-earning assets and
      interest-bearing liabilities.  Net interest income increased $1.4
      million, or 47.30%, to $4.5 million for the year ended June 30, 2006
      compared to $3.0 million for the year ended June 30, 2005.  The
      increase was primarily due to an increase in the ratio of interest-earning
      assets to interest-bearing liabilities (126.09% from 118.08%) and an increase
      in
      our net interest rate spread to 4.16% per annum from 2.71% per
      annum.




*Provision
      for Losses on Loans*.  Provision for losses on loans is charged to
      earnings to bring the total allowance for loan losses to a level considered
      adequate by management to cover probable incurred losses based on a methodology
      implemented by the Bank that is designed to assess, among other things,
      experience, the volume and type of lending conducted by the Bank, overall
      portfolio mix, the amount of the Bank’s classified assets, the status of past
      due principal and interest payments, loan-to-value ratios of loans in the Bank’s
      loan portfolio, general economic conditions, particularly as they relate to
      the
      Bank’s market area, and other factors related to the collectibility of the
      Bank’s loan portfolio.  Management assesses the allowance for loan
      losses on a quarterly basis and will make a provision for loan losses as deemed
      appropriate by management in order to maintain the adequacy of the allowance
      for
      loan losses.  When the collection of a loan becomes doubtful, or
      otherwise troubled, the Company records a loan charge-off equal to the
      difference between the fair value of the property securing the loan and the
      loan’s carrying value.  The allowance for loan losses is increased by
      charges to earnings and decreased by charge-offs (net of
      recoveries).




For
      the
      years ended June 30, 2006 and June 30, 2005, the provision for losses
      on loans amounted to $127,000 and $50,000, respectively.  The
      additional provision in 2006 was the result of the changing composition and
      increase in the loan portfolio.  The Bank continued to have no
      nonperforming loans at June 30, 2006.  The allowance for loan
      losses was $400,000, or 0.52% of total loans, at June 30, 2006, as compared
      to $286,000, or 0.54% of total loans, at June 30, 2005.  While
      the Bank cannot assure that future charge-offs and/or additional provisions
      will
      not be necessary, the Bank believes that, as of June 30, 2006, its
      allowance for loan losses was adequate to cover probable incurred
      losses.




*Noninterest
      Income*.  Noninterest income increased $604,000, or 114.83%, to
      $1.1 million for the year ended June 30, 2006 compared to $526,000 for the
      same period in 2005.  This increase was primarily due to income from a
      death benefit from the bank-owned life insurance policy of $568,000, an increase
      in earnings on bank-owned life insurance of $179,000, offset by decrease in
      net
      securities gains of $221,000








33
 *Table
          of Contents*




over
      the
      prior year.  Noninterest income also reflected increases in service
      charges on deposit accounts of $26,000 and $70,000 of fee income from
      mortgage-banking activity.




*Noninterest
      Expense*.  Noninterest expense increased $316,000, or 6.92%, to
      $4.9 million for the year ended June 30, 2006 compared to $4.6 million for
      the same period in 2005.  Compensation and employee benefits increased
      $445,000, or 23.35%.  The increase was the result of $209,000 of
      compensation expense for stock awards under the Company’s RRP plan that was
      approved in 2006.  The Company expects to recognize approximately
      $207,000 in compensation expense annually as the shares vest over a five-year
      period.  Additionally, a new Chief Financial Officer (“CFO”) was hired
      in the current year due to the death of the Company’s previous CFO in the third
      quarter of 2006.  The Bank also hired additional personnel in
      anticipation of opening its Frankfort and Schererville branches in August
      2006.  Preparation of the two new branch facilities caused increases
      in various other expense categories during 2006.  The increase in
      compensation expense and other noninterest expenses was offset by a decrease
      in
      charitable foundation donation as the initial funding contribution of $600,000
      was made in 2005.




The
      Company estimates that it will incur $191,000 of additional compensation
      annually over the next four years in adopting the provisions of Statement of
      Financial Accounting Standards (“SFAS”) 123R effective July 1,
      2006.  The amount is related to compensation expense attributable to
      unvested stock options.




*Income
      Taxes Expense (Benefits)*.  The provision for income taxes was
      $44,000 in 2006 compared to a benefit of ($412,000) recorded for the year ended
      June 30, 2005.  The resulting effective tax rates for 2006 and
      2005 were 10.46% and (39.02)%, respectively.  The effective rate in
      2006 reflects the non-taxable income from the death benefit on the bank-owned
      life insurance policy, the increase in the cash surrender value on remaining
      policies in force, and the valuation allowance established for a portion of
      the
      charitable contribution carryforward.




**Liquidity
      and Capital Resources**




The
      Company’s primary sources of funds are deposits, principal and interest payments
      on loans and securities, proceeds from maturities and calls of securities and
      FHLB advances.  While maturities and scheduled amortization of loans
      and securities are predictable sources of funds, deposit flows and mortgage
      prepayments are greatly influenced by general interest rates, economic
      conditions, and competition.  The Bank maintains a liquidity ratio
      substantially above the regulatory requirement.




The
      Company’s cash flows are comprised of three primary classifications: cash flows
      from operating activities, investing activities, and financing
      activities.  Net cash from operating activities were ($4,000) and
      $834,000 in 2007 and 2006, respectively.  Net cash from investing
      activities consisted primarily of disbursements for loan originations and
      participation interests and the purchase of securities, offset by principal
      collections on loans, proceeds from maturing securities and paydowns on
      mortgage-backed securities.  Net cash used in investing activities
      were $1.2 million and $13.7 million in 2007, and 2006,
      respectively.  Net cash from financing activities consisted primarily
      of the activity in deposit accounts, federal funds purchased, and treasury
      stock
      purchases.  The net cash from financing activities was $18.3 million
      in 2007 and $171,000 in 2006.




The
      Bank
      is required to maintain regulatory capital sufficient to meet Tier 1 leverage,
      Tier 1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0%
      and
      8.0%, respectively.  At June 30, 2007, the Bank exceeded each of
      its capital requirements with ratios of 17.81%, 26.26% and 26.88%,
      respectively.






34
 *Table
          of Contents*




**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 or other termination clauses and may
      require payment of a fee.  The commitments for equity lines of credit
      may expire without being drawn upon.  Therefore, the total commitment
      amounts do not necessarily represent future cash requirements.  The
      amount of collateral obtained, if it is deemed necessary by the Bank, is based
      on management’s credit evaluation of the customer.




At
      June 30, 2007, the Bank had outstanding commitments to originate $14.9
      million in loans, customer unused lines of credit of $10.4 million, the total
      amount of certificates of deposit that were scheduled to mature in the following
      12 months was $50.3 million.  Standby letters of credit amounted
      to $136,000 at June 30, 2007.




**Impact
      of Inflation and Changing Prices**




The
      financial statements and related financial data presented in this report
      regarding the Company have been prepared in accordance with accounting
      principles generally accepted in the United States of America, which generally
      require the measurement of financial position and operating results in terms
      of
      historical dollars, without considering changes in relative purchasing power
      over time due to inflation.  Unlike most industrial companies,
      virtually all of the Company’s assets and liabilities are monetary in
      nature.  As a result, interest rates generally have a more significant
      impact on the Company’s performance than does the effect of
      inflation.  Interest rates do not necessarily move in the same
      direction or in the same magnitude as the prices of goods and services, since
      such prices are affected by inflation to a larger extent than interest
      rates.




**Our
      Exposure to Changes in Interest Rates**




Our
      ability to maintain net interest income depends upon earning a higher yield
      on
      assets than the rates we pay on deposits and borrowings and sustaining this
      positive interest rate spread during fluctuations in prevailing interest
      rates.  Interest rate sensitivity is a measure of the difference
      between amounts of interest-earning assets and interest-bearing liabilities
      that
      either reprice or mature within a given period of time.  The
      difference, or the interest rate repricing “gap,” provides an indication of how
      an institution’s interest rate spread will be affected by changes in interest
      rates.  A gap is considered positive when the amount of
      interest-rate-sensitive assets exceeds the amount of interest-rate sensitive
      liabilities, and is considered negative when the amount of
      interest-rate-sensitive liabilities exceeds the amount of
      interest-rate-sensitive assets.  Generally, during a period of rising
      interest rates, a negative gap within shorter maturities would adversely affect
      net interest income, while a positive gap within shorter maturities would result
      in an increase in net interest income, and during a period of falling interest
      rates, a negative gap within shorter maturities would result in an increase
      in
      net interest income while a positive gap within shorter maturities would have
      the opposite effect.




Although
      interest rate sensitivity gap is a useful measurement and contributes toward
      effective asset and liability management, it is difficult to predict the effect
      of changing interest rates based solely on that measure.  As a result,
      management also regularly reviews interest rate risk by forecasting the impact
      of alternative interest rate environments on net interest income and net
      portfolio value, which is








35
 *Table
          of Contents*




defined
      as the net present value of a savings bank’s existing assets, liabilities and
      off-balance-sheet instruments, and evaluating such impacts against the maximum
      potential changes in net interest income and net portfolio value.




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
      Interim 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 Interim Chief Executive Officer
      and
      Chief Financial Officer concluded that the Company’s disclosure controls and
      procedures are effective, in all material respects, in timely alerting them
      to
      material information relating to the Company (and its consolidated subsidiary)
      required to be included in the periodic reports the Company is required to
      file
      and submit to the SEC under the Exchange Act.




ITEM
      8B. OTHER
      INFORMATION




None.






**PART III**




ITEM
      9.DIRECTORS,
      EXECUTIVE
      OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE ;


COMPLIANCE
      WITH SECTION 16(A) OF THE EXCHANGE ACT




(a)           *Directors*.  The
      information required in response to this item regarding the Company’s directors
      will be contained in the Company’s definitive Proxy Statement (the “Proxy
      Statement”) for its Annual Meeting of Stockholders to be held on
      October 31, 2007, under the captions “Beneficial Ownership”; “Election of
      Directors—Information with Respect to Nominees for Director,” “—Members of the
      Board of Directors Continuing in Office,” “Board Meetings,” “Board Committees”
and “Section 16(a) Beneficial Ownership Reporting Compliance” and the
      information included therein is incorporated herein by reference.




(b)           *Executive
      Officers of the Company*.  The information required in response to
      this item regarding the Company’s executive officers will be contained in the
      Company’s Proxy Statement under the captions “Election of Directors—Executive
      Officers Who Are Not Directors” and “Section 16(a) Beneficial Ownership
      Reporting Compliance” and the information included therein is incorporated
      herein by reference.




(c)           The
      Company has adopted a Code of Ethics as required by the rules of the
      SEC.  The Code of Ethics applies to all of the Company’s directors,
      officers, including the Company’s Chief








36
 *Table
          of Contents*




Executive
      Officer and Chief Financial Officer, and employees.  The Code of
      Ethics is posted and available on the Company’s website at
      www.royalsavingsbank.com.




ITEM
      10. EXECUTIVE
      COMPENSATION




The
      information required in response to this item will be contained in the Proxy
      Statement under the captions “Directors’ Compensation,” and “Executive
      Compensation” and the information included therein is incorporated herein by
      reference.




ITEM
      11.SECURITY OWNERSHIP
      OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED


STOCKHOLDER MATTERS




The
      information required in response to this item will be contained in the Proxy
      Statement under the caption “Beneficial Ownership” and the information included
      therein is incorporated herein by reference.




**Equity
      Compensation Plan Information**




The
      following table sets forth information as of June 30, 2007 regarding shares
      of the Company’s common stock to be issued upon exercise and the
      weighted-average exercise price of all outstanding options, warrants and rights
      granted under the Company’s equity compensation plans as well as the number of
      shares available for issuance under such plans.




**Plan
                  Category**
            
            **Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights**
                **(a)**
            
            
            **Weighted-average
                  exercise price of outstanding options, warrants and
                  rights**
                **(b)**
            
            
            **Number
                  of securities remaining for future issuance under equity compensation
                  plans(excluding securities reflected in column (a) and
                  (b))**
                **(c)**Equity
                compensation plans approved by security holders
            
            
            205,730
            
            
            $
            13.97
            
            
            
            56,125Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            205,730
            
            
            $
            13.97
            
            
            
            56,125




ITEM
      12. CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




The
      information required in response to this item will be contained in the Proxy
      Statement under the captions “Transactions with Related Persons” and “Election
      of Directors—Director Independence” and the information included therein is
      incorporated herein by reference.




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.






37
 *Table
          of Contents*




ITEM
      14. PRINCIPAL ACCOUNTANT
      FEES AND SERVICES




The
      information required in response to this item will be contained in the Proxy
      Statement under the captions “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and
“All Other Fees” and the information included therein is incorporated herein by
      reference.







38
 *Table
            of Contents*





**INDEX
      TO FINANCIAL
      STATEMENTS**




**Page**




REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                FIRM
            F-2CONSOLIDATED
                STATEMENTS OF FINANCIAL CONDITION AS OF JUNE 30, 2007 AND
                2006
            F-3


CONSOLIDATED
                STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2007 AND
                2006
            F-4


CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED JUNE 30, 2007
                AND 2006
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2007 AND
                2006
            F-7


NOTES
                TO CONSOLIDATED FINANCIAL
                STATEMENTS
            F-8





F-1
 *Table
            of Contents*




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




Board
      of
      Directors


Royal
      Financial, Inc. and Subsidiary


Chicago,
      Illinois




We
      have
      audited the accompanying consolidated statements of financial condition of
      Royal
      Financial, Inc. and Subsidiary as of June 30, 2007 and 2006, and the
      related consolidated statements of operations, stockholders’ equity, and cash
      flows for the years then ended.  These financial statements are the
      responsibility of the Company’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 Royal Financial, Inc. and
      Subsidiary as of June 30, 2007 and 2006, and the results of their
      operations and their cash flows for the years then ended in conformity with
      U.S.
      generally accepted accounting principles.




As
      discussed in Note 1 to the consolidated financial statements, the Company
      adopted Staff Accounting Bulletin No. 108, *Considering the Effects of Prior
      Year Misstatements When Quantifying Misstatements in the Current Year Financial
      Statements* and accordingly adjusted assets and liabilities at July 1, 2006
      with an offsetting adjustment to the opening balance of retained
      earnings.





/s/
      Crowe Chizck and Company LLC




Oak
      Brook, Illinois


September
      28, 2007







F-2
 *Table
            of Contents*





**ROYAL
      FINANCIAL, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF FINANCIAL CONDITION**


**June 30,
      2007 and 2006**




**Assets**
            
            **2007**
            
            
            **2006**Cash
                and noninterest bearing balances in financial
                institutions
            
            $
            3,629,356
            
            
            $
            3,434,914Interest
                bearing balances in financial institutions
            
            
            5,140,346
            
            
            
            19,914Federal
                funds sold
            
            
            12,626,252
            
            
            
            893,392Total
                cash and cash equivalents
            
            
            21,395,954
            
            
            
            4,348,220Securities
                available for sale
            
            
            15,595,283
            
            
            
            21,517,841Loans
                receivable, net of allowance for loan losses of $667,105 in 2007
                and
                $400,000 in 2006
            
            
            83,498,883
            
            
            
            77,325,934Federal
                Home Loan Bank stock, at cost
            
            
            340,500
            
            
            
            345,913Cash
                surrender value of life insurance
            
            
            4,741,698
            
            
            
            4,553,721Premises
                and equipment, net
            
            
            5,933,862
            
            
            
            5,402,419Accrued
                interest receivable
            
            
            508,835
            
            
            
            446,591Other
                assets
            
            
            616,696
            
            
            
            337,975**Total
                assets**
            
            $
            132,631,711
            
            
            $
            114,278,614





**Liabilities
                  and Stockholders’ Equity****Liabilities**Deposits
            
            $
            98,675,891
            
            
            $
            78,897,747Federal
                funds purchased
            
            
            —
            
            
            
            1,225,404Advances
                from borrowers for taxes and insurance
            
            
            571,730
            
            
            
            479,706Accrued
                interest payable and other liabilities
            
            
            753,988
            
            
            
            302,502Common
                stock in ESOP subject to contingent repurchase obligation
            
            
            968,070
            
            
            
            617,872Commitments
                and contingencies**Stockholders’
                equity**Preferred
                stock $0.01 par value per share, authorized 1,000,000 shares, no
                issues
                are outstanding
            
            
            —
            
            
            
            —Common
                stock, $0.01 par value per share, authorized 5,000,000 shares, 2,645,000
                shares issued at June 30, 2007 and 2006
            
            
            26,450
            
            
            
            26,450Additional
                paid-in capital
            
            
            24,169,282
            
            
            
            24,739,005Retained
                earnings
            
            
            11,510,299
            
            
            
            12,822,013Treasury
                stock, 69,498 shares and 52,900 shares, at cost
            
            
            (1,057,698
            )
            
            
            (783,611
            )Accumulated
                other comprehensive loss, net of tax
            
            
            (143,372
            )
            
            
            (393,231
            )Unearned
                RRP shares
            
            
            —
            
            
            
            (897,072
            )Unearned
                ESOP shares
            
            
            (1,874,859
            )
            
            
            (2,140,299
            )Reclassification
                of ESOP shares
            
            
            (968,070
            )
            
            
            (617,872
            )**Total
                stockholders’ equity**
            
            
            31,662,032
            
            
            
            32,755,383**Total
                liabilities and stockholders’ equity**
            
            $
            132,631,711
            
            
            $
            114,278,614





See
      accompanying notes to consolidated financial statements.







F-3
 *Table
            of Contents*





**ROYAL
      FINANCIAL, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**Years
      ended June 30, 2007 and 2006**




**2007**
            
            
            **2006**Interest
                incomeLoans
            
            $
            5,624,628
            
            
            $
            4,610,024Securities,
                taxable
            
            
            717,516
            
            
            
            1,008,990Federal
                funds sold and other
            
            
            1,034,770
            
            
            
            215,201Total
                interest income
            
            
            7,376,914
            
            
            
            5,834,215Interest
                expenseDeposits
            
            
            2,821,984
            
            
            
            1,352,255Federal
                funds purchased
            
            
            2,151
            
            
            
            1,380Total
                interest expense
            
            
            2,824,135
            
            
            
            1,353,635**Net
                interest income**
            
            
            4,552,779
            
            
            
            4,480,580Provision
                for loan losses
            
            
            267,105
            
            
            
            127,470**Net
                interest income after provision for loan losses**
            
            
            4,285,674
            
            
            
            4,353,110Noninterest
                incomeService
                charges on deposit accounts
            
            
            258,555
            
            
            
            223,709(Loss)
                on sales of securities, net
            
            
            —
            
            
            
            (45,457
            )Mortgage-banking
                fees
            
            
            55,567
            
            
            
            85,666Earnings
                on bank-owned life insurance
            
            
            187,977
            
            
            
            217,263Income
                from death benefit of bank-owned life insurance
            
            
            —
            
            
            
            567,754Other
            
            
            57,563
            
            
            
            80,639Total
                noninterest income
            
            
            559,662
            
            
            
            1,129,574Noninterest
                expenseSalaries
                and employee benefits
            
            
            3,034,293
            
            
            
            2,351,023Occupancy
                and equipment
            
            
            1,247,280
            
            
            
            935,511Data
                processing
            
            
            404,682
            
            
            
            463,681Professional
                services
            
            
            577,546
            
            
            
            481,519Director
                fees
            
            
            136,800
            
            
            
            134,400Supplies
            
            
            108,849
            
            
            
            73,841Advertising
            
            
            263,959
            
            
            
            48,637Insurance
                premiums
            
            
            80,115
            
            
            
            81,473Loss
                on impairment of securities available for sale
            
            
            64,075
            
            
            
            —Other
            
            
            350,230
            
            
            
            314,936Total
                noninterest expense
            
            
            6,267,829
            
            
            
            4,885,021**Income
                (loss) before income taxes**
            
            
            (1,422,493
            )
            
            
            597,663Provision
                (benefit) for income taxes
            
            
            (213,485
            )
            
            
            43,986Net
                income (loss)
            
            $
            (1,209,008
            )
            
            $
            553,677Basic
                earnings (loss) per share
            
            $
            (0.51
            )
            
            $
            0.23Fully
                diluted earnings (loss) per share
            
            $
            (0.51
            )
            
            $
            0.23





See
      accompanying notes to consolidated financial statements.







F-4
 *Table
            of Contents*




**ROYAL
      FINANCIAL, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**Years
      ended June 30, 2007 and 2006**




**Common
                    Stock**
              
              
              **Additional
                    Paid-In Capital**
              
              
              **Retained
                    Earning**
              
              
              **Treasury
                    Stock**
              
              
              **Accumulated
                    Other**
                  **Comprehensive
                    Income**
                  **(Loss)**
              
              
              **Unearned
                    RRP Shares**
              
              
              **Unearned
                    ESOP**
                  **Shares**
              
              
              **Amount
                    Reclassified on ESOP Shares**
              
              
              **Total**Balance
                  at July 1, 2005
              
              $
              26,450
              
              
              $
              24,764,553
              
              
              $
              12,268,336
              
              
              $
              —
              
              
              $
              (113,322
              )
              
              $
              —
              
              
              $
              (2,406,726
              )
              
              $
              (272,964
              )
              
              $
              34,266,327Comprehensive
                  income (loss)Net
                  income
              
              
              —
              
              
              
              —
              
              
              
              553,677
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              553,677Net
                  decrease in fair value of securities classified as available for
                  sale, net
                  of income taxes and reclassification adjustments
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (279,909
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (279,909
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              273,768Reclassification
                  due to release and change in fair value of common stock in ESOP
                  subject to
                  contingent repurchase obligation of ESOP shares
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (344,908
              )
              
              
              (344,908
              )Purchase
                  of 132,250 Treasury shares at cost
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,947,609
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,947,609
              )Allocation
                  of 79,350 shares to the RRP Plan
              
              
              —
              
              
              
              (57,912
              )
              
              
              —
              
              
              
              1,163,998
              
              
              
              —
              
              
              
              (1,106,086
              )
              
              
              —
              
              
              
              —
              
              
              
              —RRP
                  shares earned
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              209,014
              
              
              
              —
              
              
              
              —
              
              
              
              209,014Release
                  of 21,160 of unearned ESOP shares
              
              
              —
              
              
              
              32,364
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              266,427
              
              
              
              —
              
              
              
              298,791Balance
                  at June 30, 2006
              
              $
              26,450
              
              
              $
              24,739,005
              
              
              $
              12,822,013
              
              
              $
              (783,611
              )
              
              $
              (393,231
              )
              
              $
              (897,072
              )
              
              $
              (2,140,299
              )
              
              $
              (617,872
              )
              
              $
              32,755,383


F-5
 *Table
          of Contents*
  **Common
                      Stock**
                
                
                **Additional
                      Paid-In Capital**
                
                
                **Retained
                      Earning**
                
                
                **Treasury
                      Stock**
                
                
                **Accumulated
                      Other**
                    **Comprehensive
                      Income**
                    **(Loss)**
                
                
                **Unearned
                      RRP Shares**
                
                
                **Unearned
                      ESOP**
                    **Shares**
                
                
                **Amount
                      Reclassified on ESOP Shares**
                
                
                **Total**Balance
                    at June 30, 2006
                
                $
                26,450
                
                
                $
                24,739,005
                
                
                $
                12,822,013
                
                
                $
                (783,611
                )
                
                $
                (393,231
                )
                
                $
                (897,072
                )
                
                $
                (2,140,299
                )
                
                $
                (617,872
                )
                
                $
                32,755,383Adjustment
                    to apply SAB No. 108, net of tax
                
                
                —
                
                
                
                —
                
                
                
                (102,706
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (102,706
                )Balance
                    at July 1, 2006
                
                
                26,450
                
                
                
                24,739,005
                
                
                
                12,719,307
                
                
                
                (783,611
                )
                
                
                (393,231
                )
                
                
                (897,072
                )
                
                
                (2,140,299
                )
                
                
                (617,872
                )
                
                
                32,652,677Comprehensive
                    income (loss)Net
                    loss
                
                
                —
                
                
                
                —
                
                
                
                (1,209,008
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (1,209,008
                )Net
                    increase in fair value of securities classified as available
                    for sale, net
                    of income taxes and reclassification adjustments
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                249,859
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                249,859Total
                    comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (959,149
                )Reclassification
                    due to release and change in fair value of common stock in ESOP
                    subject to
                    contingent repurchase obligation of ESOP shares
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (350,198
                )
                
                
                (350,198
                )Reclassification
                    of RRPS in conjunction with adoption of SFAS 123 (R)
                
                
                —
                
                
                
                (897,072
                )
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                897,072
                
                
                
                —
                
                
                
                —
                
                
                
                —Release
                    of  21,160 of unearned ESOP shares
                
                
                —
                
                
                
                57,250
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                265,440
                
                
                
                —
                
                
                
                322,690Issuance
                    of 5,000 shares to RRP plan
                
                
                —
                
                
                
                (74,250
                )
                
                
                
                
                
                
                74,250
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Tax
                    benefit on RRP shares vested
                
                
                —
                
                
                
                8,529
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                8,529Exercise
                    of 2,645 stock options, including the realization of tax benefits
                    of
                    $1,844
                
                
                —
                
                
                
                (668
                )
                
                
                
                
                
                
                39,278
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                38,610Purchase
                    of 24,243 Treasury shares at cost
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                (387,615
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (387,615
                )Stock-based
                    compensation
                
                
                —
                
                
                
                336,488
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                336,488Balance
                    at June 30, 2007
                
                $
                26,450
                
                
                $
                24,169,282
                
                
                $
                11,510,299
                
                
                $
                (1,057,698
                )
                
                $
                (143,372
                )
                
                $
                —
                
                
                $
                (1,874,859
                )
                
                $
                (968,070
                )
                
                $
                31,662,032
  See
        accompanying notes to consolidated financial statements.




F-6
 *Table
            of Contents*




**ROYAL
      FINANCIAL, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**Years
      ended June 30, 2007 and 2006**




**2007**
            
            
            **2006****Cash
                flows from operating activities**Net
                income (loss)
            
            $
            (1,209,008
            )
            
            $
            553,677Adjustments
                to reconcile net income (loss) to net cash from operating
                activitiesDepreciation
            
            
            440,536
            
            
            
            280,320Net
                amortization of securities
            
            
            (29,172
            )
            
            
            77,233Amortization
                of net deferred loan costs
            
            
            44,930
            
            
            
            (37,164
            )Provision
                for loan losses
            
            
            267,105
            
            
            
            127,470Bank-owned
                life insurance income
            
            
            (187,977
            )
            
            
            (217,263
            )Redemption
                of Bank-owned life insurance
            
            
            —
            
            
            
            (567,754
            )ESOP
                expense
            
            
            322,690
            
            
            
            298,791(Gain)/Loss
                on sale of securities, net
            
            
            —
            
            
            
            45,457Loss
                on impairment of securities available for sale
            
            
            64,075
            
            
            
            —Federal
                Home Loan Bank stock dividend
            
            
            —
            
            
            
            (8,014
            )Stock-based
                compensation
            
            
            336,488
            
            
            
            209,014Change
                in accrued interest receivable and other assets
            
            
            (364,199
            )
            
            
            (32,368
            )Change
                in other accrued interest payable and liabilities
            
            
            310,170
            
            
            
            105,083Net
                cash from operating activities
            
            
            (4,362
            )
            
            
            834,482**Cash
                flows from investing activities**Proceeds

                from maturities, calls, and paydowns of securities available for
                sale
            
            
            8,211,016
            
            
            
            7,013,723Proceeds
                from sales of securities available for sale
            
            
            —
            
            
            
            7,163,189Purchase
                of securities available for sale
            
            
            (2,003,129
            )
            
            
            (3,000,000
            )Purchase
                of Federal Home Loan Bank stock
            
            
            (17,508
            )
            
            
            —Redemption
                of Federal Home Loan Bank stock
            
            
            22,921
            
            
            
            31,601Change
                in loans receivable
            
            
            (4,638,421
            )
            
            
            (6,175,669
            )Purchase
                of loan participations
            
            
            (1,846,563
            )
            
            
            (18,915,000
            )Proceeds
                from death benefit of bank-owned life insurance
            
            
            —
            
            
            
            1,269,323Purchase
                of premises and equipment
            
            
            (971,979
            )
            
            
            (1,066,322
            )Net
                cash from investing activities
            
            
            (1,243,663
            )
            
            
            (13,679,155
            )**Cash
                flows from financing activities**Net
                increase in deposits
            
            
            19,778,144
            
            
            
            790,733Net
                increase (decrease) in federal funds purchased
            
            
            (1,225,404
            )
            
            
            1,225,404Purchase
                of treasury stock
            
            
            (387,615
            )
            
            
            (1,947,609
            )Proceeds
                from the exercise of stock options, including tax benefits
            
            
            38,610
            
            
            
            —Net
                increase in advances from borrowers for taxes and
              insurance
            
            
            92,024
            
            
            
            102,669Net
                cash from financing activities
            
            
            18,295,759
            
            
            
            171,197Net
                change in cash and cash equivalents
            
            
            17,047,734
            
            
            
            (12,673,476
            )Cash
                and cash equivalents:Beginning
                of the year
            
            
            4,348,220
            
            
            
            17,021,696End
                of the year
            
            $
            21,395,954
            
            
            $
            4,348,220Supplemental
                cash flow information:Interest
                paid
            
            $
            2,825,016
            
            
            $
            1,313,343Income
                taxes paid (refunded)
            
            
            —
            
            
            
            (143,630
            )Supplemental
                noncash disclosure:Common
                stock in ESOP subject to contingent repurchase obligation
            
            $
            968,070
            
            
            $
            617,872





See
      accompanying notes to consolidated financial statements.






F-7
 *Table
          of Contents*




**ROYAL
      FINANCIAL, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June 30,
      2007 and 2006**




**NOTE
      1 - SIGNIFICANT ACCOUNTING POLICIES**




Principles
      of Consolidation:  The accompanying consolidated financial
      statements include the accounts of Royal Financial, Inc. (“the Company”) and its
      wholly owned subsidiary, Royal Savings Bank (“the Bank”).  All
      significant intercompany transactions and balances are eliminated in
      consolidation.




Change
      in Reporting Entity:  On August 18, 2004, the Board of
      Directors of the Bank unanimously adopted a plan of conversion providing for
      the
      conversion of the Bank from an Illinois-chartered mutual savings bank to an
      Illinois-chartered stock savings bank and the purchase of all of the common
      stock of the Bank by the Company.  The plan was approved by the
      Division of Banks and Real Estate for the state of Illinois, and the Bank
      received a nonobjection from the FDIC.  The stockholders of the Bank
      approved the plan at a meeting held on December 21, 2004.




In
      adopting the plan, the Board of Directors of the Bank determined that the
      conversion was advisable and in the best interests of its stockholders and
      the
      Bank.  The conversion was completed on January 20, 2005 when the
      Company issued 2,595,000 shares of common stock to the public resulting in
      $25,950,000 of gross proceeds.  Costs to complete the stock offering
      were deducted from the gross proceeds of the offering.  The Bank
      issued all of its outstanding capital stock to the Company in exchange for
      one
      half of the net proceeds of the offering, which amounted to $12.1
      million.  The Company contributed 50,000 shares of common stock and
      $100,000 of cash to the Royal Charitable Foundation in
      February 2005.




Nature
      of Business:  The primary business of the Company is the ownership
      of the Bank.  Through the Bank, the Company is engaged in the business
      of retail banking, with operations conducted through its main office and three
      branches, which are located in Chicago, Frankfort and Lansing, Illinois, and
      its
      fourth branch in Schererville, Indiana.  The Bank’s primary services
      include accepting deposits, making loans, and investing in
      securities.




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 future results could differ.  The allowance
      for loan losses and valuation allowance on deferred tax assets are particularly
      subject to change.




Cash
      Flows:  Cash and cash equivalents include cash, deposits with
      other financial institutions under 90 days, and federal funds
      sold.  Net cash flows are reported for loan and deposit transactions
      and federal funds purchased.




Securities:  Securities
      are classified as available-for-sale when they might be sold before maturity.
      Securities available-for-sale are carried at fair value with unrealized holding
      gains and losses reported in other comprehensive income or loss, net of
      tax.




Interest
      income is recognized under the interest method and includes amortization of
      purchase premium and discount.  Gains and losses on sales are based on
      the amortized cost of the security sold and determined using the specific
      identification method.







F-8
 *Table
            of Contents*





**NOTE
      1 – SIGNIFICANT ACCOUNTING POLICIES (continued)**




Declines
      in the fair value of securities below their cost that are other-than-temporary
      are reflected as realized losses.  In determining if losses are
      other-than-temporary, management considers (1) the length of time and
      extent that fair value has been less than cost or adjusted cost, as applicable;
      (2) the financial condition and near term prospects of the issuer; and
      (3) the Company’s ability and intent to hold the security for a period
      sufficient to allow for any anticipated recovery in fair value.




The
      Company evaluates its securities for impairment on a quarterly basis to
      determine whether an impairment charge should be recorded when a security has
      experienced a decline in value that is other-than-temporary.  This
      analysis includes reviewing credit ratings and discounted cash flows as well
      as
      evaluating intent and ability to hold the securities for a period sufficient
      to
      allow for any applicable recovery in fair value.




Loans:  Loans
      that management has the intent and ability to hold for the foreseeable future
      or
      until maturity or payoff are reported at the principal balance outstanding,
      net
      of unearned interest, deferred loan fees and costs, and an allowance for loan
      losses.




Participations
      purchased consist primarily of commercial and commercial real estate loans
      in
      Chicago, Northwest Indiana, and Florida.  The Bank utilizes the same
      underwriting standards and criteria as it would if it originated the
      loans.  These loans are generally made at a 75% loan-to-value ratio or
      less.




Transfer
      of financial assets, including loan participations, are accounted for as sales,
      when control over the assets has been surrendered.  Control over
      transferred assets is deemed to be surrendered when (1) the assets have
      been isolated from the Bank, (2) the transferee obtains the right (free of
      conditions that constrain it from taking advantage of that right) to pledge
      or
      exchange the transferred assets, and (3) the Bank does not maintain
      effective control over the transferred assets through an agreement to repurchase
      them before their maturity.




Interest
      income is reported on the interest method and includes amortization of net
      deferred loan fees and costs over the loan term.  Interest income on
      loans is discontinued at the time the loan is 90 days delinquent unless the
      credit is well-secured and in process of collection.




Loans
      are
      typically charged off no later than 90 to 120 days past due.  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 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.






F-9
 *Table
          of Contents*




**NOTE
      1 – SIGNIFICANT ACCOUNTING POLICIES (continued)**




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 it is probable that all amounts due will not be collected
      according to contractual terms of the loan agreement.  Commercial and
      commercial 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 consumer and residential
      real estate loans, are collectively evaluated for impairment, and accordingly,
      they are not separately identified for impairment disclosures.




Foreclosed
      Assets:  Assets acquired through or instead of loan foreclosure
      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.




Bank-Owned
      Life Insurance: The Company has purchased life insurance policies on certain
      key officers.  Bank-owned life insurance is recorded at its cash
      surrender value, which is the amount that can be realized.




Premises
      and Equipment:  Land is carried at cost.  Premises and
      equipment are stated at cost less accumulated depreciation and are depreciated
      using the straight-line method over the estimated useful
      lives.  Building and improvements are depreciated using the
      straight-line method with useful lives ranging from 5 to 40
      years.  Furniture and equipment are depreciated using the
      straight-line method with useful lives ranging from 3 to 10 years.




Federal
      Home Loan Bank (FHLB) Stock and Advances:  The Bank is a member of
      the FHLB system.  Members are required to own a certain amount of
      stock based on the level of borrowings and other factors, and may invest in
      additional amounts.  FHLB stock is carried at cost, classified as a
      restricted security, and periodically evaluated for impairment based on ultimate
      recovery of par value.  Both cash and stock dividends are reported as
      income.  At June 30, 2007 and 2006, the Bank had no outstanding
      advances from the FHLB.  The Bank could borrow up to $6,800,000 at
      June 30, 2007 from the FHLB under collateral pledge agreement
      guidelines.




Stock
      Compensation:  Effective July 1, 2006, the Company adopted
      Statement of Financial Accounting Standards (“SFAS”) No. 123(R), *Share-Based
      Payment*, using the modified prospective transition
      method.  Accordingly, the Company has recorded stock-based employee
      compensation cost using the fair value method starting in 2007.  For
      2007, adopting this standard resulted in an increase in the net loss before
      income taxes of $154,594, an increase in net loss of $102,032 and a decrease
      in
      basic and diluted earnings per share of $.04.




Prior
      to
      July 1, 2006, employee compensation expense under stock options was
      reported using the intrinsic value method; therefore, no stock-based
      compensation cost for stock options is reflected in net income for the year
      ending June 30, 2006, as all options granted had an exercise price equal to
      or greater than the market price of the underlying common stock at date of
      grant.







F-10
 *Table
            of Contents*





**NOTE
      1 – SIGNIFICANT ACCOUNTING POLICIES (continued)**




The
      following table illustrates the effect on net income and earnings per share
      if
      expense was measured using the fair value recognition provisions of FASB
      Statement No. 123, *Accounting for Stock-Based Compensation*, for the
      year ending June 30, 2006.




**2006**Net
                income as reported
            
            $
            553,677Deduct:
                Stock-based compensation expense determined under fair value based
                method
            
            
            117,695Pro
                forma net income
            
            $
            435,982Basic
                and diluted earnings per share as reported
            
            $
            0.23Pro
                forma basic and diluted earnings per share
            
            
            0.18





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 reduces deferred tax assets to the
      amount expected to be realized.




Employee
      Stock Ownership Plan:  The cost of shares issued to the employee
      stock ownership plan (“ESOP”) but not yet allocated to participants is presented
      in the consolidated balance sheet as a reduction of stockholders’
equity.  Compensation expense is recorded based on the market price of
      the shares as they are committed to be released for allocation to participant
      accounts.  Because participants may require the Company to purchase
      their ESOP shares upon termination of their employment, the market value of
      all
      earned and allocated ESOP shares is reclassified from stockholders’ equity to
      liabilities.  Unearned ESOP shares are reported as a reduction of
      stockholders’ equity.




Off-Balance-Sheet
      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.




Comprehensive
      Income (Loss):  Comprehensive income (loss) consists of net income
      and other comprehensive income (loss).  Other comprehensive income
      (loss) includes unrealized gains and losses on securities available for sale,
      net of tax, which are also recognized as separate components of
      equity.




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.




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 are such
      matters that will have a material effect on the financial
      statements.




Fair
      Values 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.






F-11
 *Table
          of Contents*




**NOTE
      1 – SIGNIFICANT ACCOUNTING POLICIES (continued)**




Earnings
      (Loss) Per Share:  Basic earnings (loss) per share is based on net
      income (loss) divided by the weighted average number of shares outstanding
      during the period, including allocated and committed-to-be-released ESOP
      shares.  Diluted earnings (loss) per share shows the dilutive effect,
      if any, of additional common shares issuable under stock options and stock
      awards.




Operating
      Segments:  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.




Reclassifications:  Some
      items in the prior-year financial statements were reclassified to conform to
      the
      current presentation.




Adoption
      of New Accounting Standards:  Effective January 1, 2006, the
      Securities and Exchange Commission (SEC) released Staff Accounting Bulletin
      No.
      108, Considering the Effects of Prior Year Misstatements when Qualifying
      Misstatements in Current Year Financial Statements (SAB 108), which is effective
      for fiscal years ending on or after November 15, 2006.  SAB 108
      provides guidance on how the effects of prior-year uncorrected financial
      statement misstatements should be considered in quantifying a current year
      misstatement.  SAB 108 requires public companies to quantify
      misstatements using both an income statement (rollover) and balance sheet (iron
      curtain) approach and evaluate whether either approach results in a misstatement
      that, when all relevant quantitative and qualitative factors are considered,
      is
      material.  If prior year errors that had been previously considered
      immaterial now are considered material based on either approach, no restatement
      is required so long as management properly applied its previous approach and
      all
      relevant facts and circumstances were considered.  Adjustments
      considered immaterial in prior years under the method previously used, but
      now
      considered material under the dual approach required by SAB 108, are to be
      recorded upon initial adoption of SAB 108.  The amount recorded is
      shown as a cumulative effect adjustment and is recorded in opening retained
      earnings as of July 1, 2006.  The company adopted SAB 108 and
      recorded a real estate liability in the amount of $70,800, a liability of
      $67,386 for the liability associated with vacation and sick time payouts and
      a
      liability of $17,420 for the difference between rent paid and the straight-line
      expense as required by SFAS No. 13.  This resulted in an increase in
      liabilities, net of tax and a decrease in retained earnings of
      $102,706.  These differences were not considered to be material to the
      June 30, 2007 income statement using the rollover approach, however, would
      have been material to the June 30, 2007 income statement using the
      iron-curtain approach.These
      misstatements have arisen over a number of years.  The financial
      statement impact in any single year was considered immaterial by management
      of
      the Company.




Effect
      of Newly Issued But Not Yet Effective Accounting Standards:  In
      February 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
      Instruments – an amendment to FASB Statements No. 133 and 140.  This
      Statement permits fair value re-measurement for any hybrid financial
      instruments, clarifies which instruments are subject to the requirements of
      Statement No. 133, and establishes a requirement to evaluate interests in
      securitized financial assets and other items.  The new standard is
      effective for financial assets acquired or issued after the beginning of the
      entity’s first fiscal year that begins after September 15,
      2006.  The adoption of this statement is not expected to have a
      material impact on the consolidated financial position or results of
      operations.







F-12
 *Table
            of Contents*





**NOTE
      1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)**




In
      March
      2006, the FASB issued SFAS No. 156, *Accounting for Servicing of Financial
      Assets – an amendment of FASB Statement No. 140.*This statement provides
      the following (1) revised guidance on when a servicing asset and servicing
      liability should be recognized; (2) requires all separately recognized
      servicing assets and servicing liabilities to be initially measured at fair
      value, if practicable; (3) permits an entity to elect to measure servicing
      assets and servicing liabilities at fair value at each reporting date and report
      changes in fair value in earnings in the period in which the changes occur;
      (4) upon initial adoption, permits a one-time reclassification of
      available-for-sale securities to trading securities for securities which are
      identified as offsetting the entity’s exposure to changes in the fair value of
      servicing assets or liabilities that a servicer elects to subsequently measure
      at fair value; and (5) requires separate presentation of servicing assets
      and servicing liabilities subsequently measured at fair value in the statement
      of financial position and additional footnote disclosures.  This
      standard is effective as of the beginning of an entity’s first fiscal year that
      begins after September 15, 2006 with the effects of initial adoption being
      reported as a cumulative-effect adjustment to retained earnings.  The
      adoption of this statement is not expected to have a material impact on the
      consolidated financial position or results of operations.




In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*,
      to provide guidance on how to measure fair value, which would apply broadly
      to
      financial and non-financial assets and liabilities that are measured at fair
      value under other authoritative accounting pronouncements.  The
      statement defines fair value, provides a hierarchy that prioritizes inputs
      that
      should be used in valuation techniques used to measure fair value, and expands
      current disclosures about the use of fair value to measure assets and
      liabilities.  The disclosures focus on the methods used for the
      measurements and their effect on earnings and would apply whether the assets
      were measured at fair value in all periods, such as trading securities, or
      in
      only some periods, such as for impaired assets.  A transition
      adjustment would be recognized as a cumulative-effect adjustment to beginning
      retained earnings for the fiscal year in which statement is initially
      adopted.  This adjustment is measured as the difference between the
      carrying amounts and the fair values of those financial instruments at the
      date
      of adoption.  The statement is effective for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal
      years.  The Company will adopt the statement on July 1,
      2008.  The fair value disclosures required by this statement will be
      effective for the first interim period in which the statement is
      adopted.  The Company is currently evaluating the impact of the
      statement on its consolidated statement of financial position, results of
      operations, and liquidity.




In
      February 2007,****the FASB issued SFAS No. 159, *The Fair
      Value Option for Financial Assets and Financial
      Liabilities*.  “The objective of this new standard is to reduce
      both complexity in accounting for financial instruments and the volatility
      in
      earnings caused by measuring related assets and liabilities
      differently.”  This Statement permits companies to choose to measure
      many financial instruments and certain other items at fair value. Once a company
      chooses to report an item at fair value, changes in fair value would be reported
      in earnings at each reporting date. SFAS No. 159 is effective for the Company
      on
      July 1, 2008. The Company is currently evaluating the impact of the statement
      on
      its consolidated statement of financial position and results of
      operations.







F-13
 *Table
            of Contents*





**NOTE
      1 - SIGNIFICANT ACCOUNTING POLICIES** (Continued)




In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty
      in Income Taxes*(“FIN 48”), which was issued to require that all tax
      positions be evaluated using consistent criteria and measurement and further
      supplemented by enhanced disclosures.  FIN 48, an interpretation of
      FASB Statement No. 109, *Accounting for Income Taxes*, prescribes the
      minimum recognition threshold a tax position is required to meet before being
      recognized in the financial statements.  This interpretation provides
      clear criteria for subsequently recognizing, derecognizing, and measuring such
      tax positions for financial statement purposes, as well as provides guidance
      on
      accrual of interest and penalties, accounting in interim periods, disclosure,
      and transition.  FIN 48 is effective for fiscal years beginning after
      December 15, 2006.  Differences between the amounts recognized in
      the statements of financial position prior to the adoption of FIN 48 and the
      amounts reported after adoption would be accounted for as a cumulative-effect
      adjustment recorded to the beginning balance of retained
      earnings.  The cumulative-effective adjustment would not apply to
      those items that would not have been recognized in earnings, such as the effect
      of adopting FIN 48 on tax positions related to business
      combinations.  The adoption of this statement is not expected to have
      a material impact on the consolidated financial position or results of
      operations.




In
      September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4,
      *Accounting for Deferred Compensation and Postretirement Benefit Aspects
      of
      Endorsement Split-dollar Life Insurance Arrangements*.  This issue
      requires that a liability be recorded during the service period when a
      split-dollar life insurance agreement continues after participants’ employment
      or retirement.  The required accrued liability will be based on either
      the post-employment benefit cost for the continuing life insurance or based
      on
      the future death benefit depending on the contractual terms of the underlying
      agreement.  This issue is effective for fiscal years beginning after
      December 15, 2007.  The Company has evaluated the impact of the
      pronouncement and believes there would be no impact to the Company’s
      consolidated financial position and results of operations.




In
      September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5,
      *Accounting for Purchases of Life Insurance – Determining the Amount That
      Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4
      (Accounting for Purchases of life Insurance)*.  This issue
      requires that a policyholder consider contractual terms of a life insurance
      policy in determining the amount that could be realized under the insurance
      contract.  It also requires that if the contract provides for a
      greater surrender value if all individual policies in a group are surrendered
      at
      the same time, that the surrender value be determined based on the assumption
      that policies will be surrendered on an individual basis.  Lastly, the
      issue discusses whether the cash surrender value should be discounted when
      the
      policyholder is contractually limited in its ability to surrender a
      policy.  This issue is effective for fiscal years beginning after
      December 15, 2006.  The adoption of this statement is not
      expected to have a material impact on the consolidated financial position or
      results of operations.




**NOTE
      2 - CASH AND CASH EQUIVALENTS**




Cash
      and
      cash equivalents at June 30, 2007 and 2006 included balances of
      approximately $7,560,000 and $1,460,000 with LaSalle Bank, $7,346,420 and
      $1,839,000 with Zion’s Bank, and $5,140,000 and $20,000 with the Federal Home
      Loan Bank of Chicago.






F-14
 *Table
          of Contents*




**NOTE
      3 - SECURITIES**




The
      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 at June 30, 2007 and 2006:




**Fair
                  Value**
            
            
            **Gross**
                **Unrealized
                  Gains**
            
            
            **Gross**
                **Unrealized
                  Losses****2007**U.S.
                government-sponsored entity
            
            $
            6,922,120
            
            
            $
            —
            
            
            $
            (77,743
            )Mortgage-backed
            
            
            907,072
            
            
            
            323
            
            
            
            (24,954
            )Collateralized
                mortgage obligations
            
            
            7,330,166
            
            
            
            120
            
            
            
            (114,976
            )Corporate
            
            
            435,925
            
            
            
            —
            
            
            
            —Total
            
            $
            15,595,283
            
            
            $
            443
            
            
            $
            (217,673
            )**2006**U.S.
                government-sponsored entity
            
            $
            8,813,600
            
            
            $
            —
            
            
            $
            (184,568
            )Federal
                Home Loan Mortgage Corporation bonds
            
            
            2,903,000
            
            
            
            —
            
            
            
            (94,903
            )Mortgage-backed
            
            
            1,101,037
            
            
            
            362
            
            
            
            (47,278
            )Collateralized
                mortgage obligations
            
            
            8,245,004
            
            
            
            477
            
            
            
            (225,095
            )Corporate
            
            
            455,200
            
            
            
            —
            
            
            
            (44,800
            )Total
            
            $
            21,517,841
            
            
            $
            839
            
            
            $
            (596,644
            )





The
      fair
      value of securities available for sale at year-end 2007 by contractual maturity
      were as follows.  Securities not due at a single maturity date,
      primarily mortgage-backed securities and collateralized mortgage obligations,
      are shown separately.




**Fair
                  Value**Due
                in one year or less
            
            $
            1,985,750Due
                from one to five years
            
            
            4,936,370Due
                from five to ten years
            
            
            435,925Mortgage-backed
            
            
            907,072Collateralized
                mortgage obligations
            
            
            7,330,166Total
            
            $
            15,595,283





Sales
      of
      securities available for sale were as follows:




**2007**
            
            
            **2006**Proceeds
            
            $
            —
            
            
            $
            7,163,189Gross
                gains
            
            
            —
            
            
            
            17,538Gross
                losses
            
            
            —
            
            
            
            (62,995
            )








F-15
 *Table
            of Contents*





**NOTE
      3 – SECURITIES (continued)**




Securities
      with unrealized losses at June 30, 2007 and 2006, aggregated by investment
      category and length of time that individual securities have been in a continuous
      unrealized loss position, are as follows:




**Less
                  Than 12 months**
            
            
            **12
                  Months or More**
            
            
            **Total****Fair
                  Value**
            
            
            **Unrealized
                  Loss**
            
            
            **Fair
                  Value**
            
            
            **Unrealized
                  Loss**
            
            
            **Fair
                  Value**
            
            
            **Unrealized
                  Loss****2007**U.S.
                government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            6,922,120
            
            
            $
            (77,743
            )
            
            $
            6,922,120
            
            
            $
            (77,743
            )Mortgage-backed
            
            
            —
            
            
            
            —
            
            
            
            827,868
            
            
            
            (24,954
            )
            
            
            827,868
            
            
            
            (24,954
            )Collateralized
                mortgage obligations
            
            
            1,670,503
            
            
            
            (14,263
            )
            
            
            5,614,491
            
            
            
            (100,713
            )
            
            
            7,284,994
            
            
            
            (114,976
            )$
            1,670,503
            
            
            $
            (14,263
            )
            
            $
            13,364,479
            
            
            $
            (203,410
            )
            
            $
            15,034,982
            
            
            $
            (217,673
            )**2006**U.S.
                government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            8,813,600
            
            
            $
            (184,568
            )
            
            $
            8,813,600
            
            
            $
            (184,568
            )Federal
                Home Loan Mortgage Corporation
            
            
            —
            
            
            
            —
            
            
            
            2,903,000
            
            
            
            (94,903
            )
            
            
            2,903,000
            
            
            
            (94,903
            )Mortgage-backed
            
            
            119,270
            
            
            
            (1,107
            )
            
            
            943,891
            
            
            
            (46,171
            )
            
            
            1,063,161
            
            
            
            (47,278
            )Collateralized
                mortgage obligations
            
            
            290,869
            
            
            
            (338
            )
            
            
            7,850,686
            
            
            
            (224,757
            )
            
            
            8,141,555
            
            
            
            (225,095
            )Corporate
            
            
            —
            
            
            
            —
            
            
            
            455,200
            
            
            
            (44,800
            )
            
            
            455,200
            
            
            
            (44,800
            )$
            410,139
            
            
            $
            (1,445
            )
            
            $
            20,966,377
            
            
            $
            (595,199
            )
            
            $
            21,376,516
            
            
            $
            (596,644
            )





The
      Company 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 the length of time and the
      extent to which the fair value has been less than cost, the financial condition
      and near-term prospects of the issuer, and the interest and ability of the
      Company to retain its investment in the issuer for a period of time sufficient
      to allow for any anticipated recovery in fair value.  In analyzing an
      issuer’s financial condition, the Company may consider whether the securities
      are issued by the federal government or one of its sponsored entities, whether
      downgrades by bond rating agencies have occurred, and the result of reviews
      of
      the issuer’s financial condition.




Unrealized
      losses on U.S. government federal agency, mortgage-backed, and collateral
      mortgage obligation securities have not been recognized into income because
      the
      securities are of high credit quality, management has the intent and ability
      to
      hold the securities for the foreseeable future, and the decline in fair value
      is
      largely due to changes in interest rates.  The fair value is expected
      to recover as the securities approach their maturity date.




The
      corporate bond is a floating rate note with a rate of 4.66% at June 30,
      2007, AA-rated by Standard and Poor’s, and matures on April 1,
      2016.  The Company evaluated the security and determined the decline
      in fair value is other than temporary, as it is below market by 13%, has been
      below market for over two years, and the Company does not intend to hold the
      security until it recovers.  As a result, a $64,075 impairment charge
      was recorded in the fourth quarter of the fiscal year ending June 30,
      2007.






F-16
 *Table
          of Contents*




**NOTE
      4 - LOANS**




At
      June 30, 2007 and 2006, loans receivable consisted of the
      following:




**2007**
            
            
            **2006**Real
                estate loansOne-to-four-family
            
            $
            36,756,599
            
            
            $
            31,646,224Commercial
            
            
            32,880,378
            
            
            
            30,025,338Multi-family
            
            
            4,768,442
            
            
            
            5,286,956Total
                real estate loans
            
            
            74,405,419
            
            
            
            66,958,518Commercial
                loans
            
            
            9,237,266
            
            
            
            10,173,659Consumer
                loansHome
                equity loans
            
            
            342,492
            
            
            
            362,611Other
            
            
            187,195
            
            
            
            192,600Total
                consumer loans
            
            
            529,687
            
            
            
            555,211Less:Net
                deferred loan fees (cost)
            
            
            6,384
            
            
            
            (38,546
            )Allowance
                for loan losses
            
            
            667,105
            
            
            
            400,000Loans,
                net
            
            $
            83,498,883
            
            
            $
            77,325,934





There
      were no loans held for sale at June 30, 2007 or 2006.




A
      summary
      of changes in the allowance for loan losses for the years ended June 30,
      2007 and 2006 is as follows:




**2007**
            
            
            **2006**Balance
                at beginning of year
            
            $
            400,000
            
            
            $
            286,020Provision
                for loan loss
            
            
            267,105
            
            
            
            127,470Recoveries
            
            
            —
            
            
            
            (13,490
            )Balance
                at end of year
            
            $
            667,105
            
            
            $
            400,000





The
      Bank
      has two loans that it considered to be impaired as of June 30,
      2007.  The loans were determined to be impaired during the fourth
      quarter or as of quarter end.  The balance of the impaired loans at
      June 30, 2007 is $709,000 with a valuation allowance of
      $120,000.  The Bank recognized $6,718 of interest income and $3,682 of
      cash-basis interest income as a result of the impairment.




The
      Bank
      had no loan which it considered to be impaired as of June 30,
      2006.  For the year ended June 30, 2006, there were no impaired
      loans or income recognized on impaired loans.




Nonperforming
      loans were as follows at June 30, 2007 and 2006:




**2007**
            
            
            **2006**Loans
                past due over 90 days still on accrual
            
            $
            225,733
            
            
            $
            —Nonaccrual
                loans
            
            
            —
            
            
            
            —








F-17
 *Table
            of Contents*





**NOTE
      5 - PREMISES AND EQUIPMENT**




Premises
      and equipment as of June 30, 2007 and 2006 are as follows:




**2007**
            
            
            **2006**Land
            
            $
            1,014,635
            
            
            $
            357,731Buildings
                and improvements
            
            
            5,822,842
            
            
            
            5,049,120Furniture
                and equipment
            
            
            2,223,027
            
            
            
            1,754,712Construction
                in progress
            
            
            —
            
            
            
            978,724Total
                cost
            
            
            9,060,504
            
            
            
            8,140,287Less
                accumulated depreciation
            
            
            3,126,642
            
            
            
            2,737,868$
            5,933,862
            
            
            $
            5,402,419





Depreciation
      expense was $441,000 and $280,000 for the years ended June 30, 2007 and
      2006, respectively.




The
      Bank
      incurred costs of $369,000 and $405,000 related to the construction of its
      Frankfort and Schererville branches, respectively.  The branches
      opened in August, 2006.  The Company also purchased $657,000 of
      additional land in Frankfort during fiscal 2007 as a potential branch
      site.




The
      Bank
      leases three branch locations:  Frankfort, Lansing, and Schererville,
      under noncancelable operating leases with lease terms which expire in 2008,
      2009, and 2011.  The Frankfort lease has three one-year options
      remaining, and the Lansing and Schererville leases each have one five-year
      option remaining.  Rent expense was $346,325 and $209,026 for the year
      ended June 30, 2007 and 2006, respectively.  The leases provide
      that the Bank pays real estate taxes, insurance, and certain other operating
      expenses applicable to the leased premises in addition to the monthly minimum
      payments.  Rent commitments under noncancelable operations leases were
      as follows, assuming exercise of certain renewable options through 2016, for
      the
      12 months ended June 30:




2008
            
            $
            361,0002009
            
            
            319,0002010
            
            
            165,0002011
            
            
            145,0002012
            
            
            96,000Thereafter
            
            
            407,000Total
            
            $
            1,493,000





**NOTE
      6 - DEPOSITS**




Deposit
      account balances as of June 30, 2007 and 2006 are summarized as
      follows:




**2007**
            
            
            **2006**Savings
            
            $
            27,618,061
            
            
            $
            30,237,183NOW
                accounts
            
            
            5,449,016
            
            
            
            5,775,336Non-interest-bearing
                checking
            
            
            6,568,545
            
            
            
            6,337,035Money
                market
            
            
            4,191,973
            
            
            
            3,720,13443,827,595
            
            
            
            46,069,688Certificates
                of deposit
            
            
            47,114,018
            
            
            
            25,433,597Individual
                retirement accounts
            
            
            7,734,278
            
            
            
            7,394,46254,848,296
            
            
            
            32,828,059$
            98,675,891
            
            
            $
            78,897,747





Time
      deposits of $100,000 and over totaled $17,800,978 and $9,881,082 at
      June 30, 2007 and 2006, respectively.






F-18
 *Table
          of Contents*




**NOTE
      6 – DEPOSITS (continued)**




At
      June 30, 2007, scheduled maturities of certificates of deposit and
      individual retirement accounts are as follows:




2008
            
            $
            50,299,8702009
            
            
            2,064,7132010
            
            
            885,7092011
            
            
            670,9892012
            
            
            927,015Total
            
            $
            54,848,296





**NOTE
      7 – INCOME TAXES**




The
      components of the provision (benefit) for income taxes are as
      follows:




**2007**
            
            
            **2006**CurrentFederal
            
            $
            20,670
            
            
            $
            34,766State
            
            
            —
            
            
            
            —20,670
            
            
            
            34,766Deferred
            
            
            (500,361
            )
            
            
            (91,187
            )Change
                in valuation allowance
            
            
            266,206
            
            
            
            100,407$
            (213,485
            )
            
            $
            43,986





Deferred
      tax assets (liabilities) are comprised of the following at
      June 30:




**2007**
            
            
            **2006**Federal
                net operating loss carryforward
            
            $
            237,598
            
            
            $
            30,244Bad
                debts
            
            
            226,816
            
            
            
            135,836Deferred
                compensation
            
            
            19,494
            
            
            
            22,320Charitable
                contribution carryover
            
            
            209,411
            
            
            
            210,115Impairment
                of securities available for sale
            
            
            21,786
            
            
            
            —Stock
                option and RRP
            
            
            120,531
            
            
            
            —State
                NOL carryforward
            
            
            245,457
            
            
            
            280,957Accrued
                Rent, vacation and other liabilities
            
            
            84,228
            
            
            
            —Unrealized
                loss on securities available for sale
            
            
            73,858
            
            
            
            202,574Gross
                deferred tax assets
            
            
            1,239,179
            
            
            
            882,046Depreciation
                and other
            
            
            (196,691
            )
            
            
            (263,556
            )FHLB
                stock dividends
            
            
            (34,412
            )
            
            
            (34,959
            )Gross
                deferred tax liabilities
            
            
            (231,103
            )
            
            
            (298,515
            )Valuation
                allowance for deferred tax assets
            
            
            (647,163
            )
            
            
            (380,957
            )Net
                deferred tax assets (liabilities)
            
            $
            360,913
            
            
            $
            202,574





F-19
 *Table
          of Contents*




**NOTE
      7 – INCOME TAXES (continued)**




The
      difference between the provision (benefit) for income taxes in the financial
      statements and amounts computed by applying the current federal income tax
      rate
      of 34% to income (loss) before income taxes is reconciled as follows for the
      year ended June 30:




**Year
                Ended June 30,****2007**
            
            
            **2006**Income
                taxes (benefit) computed at the statutory rate
            
            $
            (483,648
            )
            
            $
            203,205Valuation
                allowance
            
            
            266,206
            
            
            
            100,407Earnings
                on life insurance and other net
            
            
            3,957
            
            
            
            (66,950
            )Income
                from death benefit of bank-owned life insurance
            
            
            —
            
            
            
            (193,036
            )Total
                provision (benefit) for income taxes
            
            $
            (213,485
            )
            
            $
            43,986




At
      June 30, 2007, the Company had federal and state net operating loss
      carryforwards of approximately $720,000 and $5.1 million, respectively, expiring
      between 2008 and 2027.  At June 30, 2006 these amounts
      approximated $90,000 and $5.8 million, respectively.  A valuation
      allowance has been established for the state net operating loss carryforwards
      as
      the Company believes it is more likely than not that they will not be
      realized.




Also
      at
      June 30, 2007 and 2006, the Company has charitable contribution
      carryforwards of approximately $616,000.  These contributions have a
      five-year life and are used on a last in, first out basis.  In
      addition, these contributions are subjected to a tax return deduction limitation
      of 10% of taxable income on an annual basis.  The Company has
      continually evaluated this carryforward and, based on an estimate of future
      taxable income during the period when these contributions can be used, the
      Company has determined that a valuation allowance of $210,000 is appropriate
      as
      of June 30, 2007.  There was a $100,000 valuation allowance for
      charitable contributions in 2006.




In
      addition at June 30, 2007, the Company has established a valuation
      allowance in the amount of $151,000 for the remaining net deferred tax assets
      based on all analysis that shows at this point in time it is more likely than
      not that a portion of these deferred tax assets will not be
      realized.  The Company will continue to evaluate its deferred tax
      position and make adjustments as necessary.




Prior
      to
      1997, the Bank had qualified under provisions of the Internal Revenue Code
      that
      permitted it to deduct from taxable income a provision for bad debts that
      differs from the provision charged to income on the financial
      statements.  Retained earnings at June 30, 2007 include
      approximately $1,309,000 for which no deferred federal income tax liability
      has
      been recorded.  This deferred federal income tax liability
      approximates $445,000.




**NOTE
      8 - EMPLOYEE BENEFITS**




On
      January 20, 2005, the Company adopted an employee stock ownership plan
      (“ESOP”) for the benefit of substantially all employees.  The ESOP
      borrowed $2,674,140 from the Company and used those funds to acquire 211,600
      shares of the Company’s stock in the open market over a period of time at an
      average price of approximately $12.64 per share.




Shares
      purchased by the ESOP with the loan proceeds are held in a suspense account
      and
      are allocated to ESOP participants on a pro rata basis as principal and interest
      payments are made by the ESOP to the Company.  The loan is secured by
      shares purchased with the loan proceeds and will be repaid by the ESOP with
      funds from the Company’s discretionary contributions to the ESOP and earnings on
      the ESOP assets.  Annual principal payments of approximately $267,000,
      plus interest at 7.25%, are to be made by the ESOP.






F-20
 *Table
          of Contents*




**NOTE
      8 - EMPLOYEE BENEFITS (continued)**




As
      shares
      are released from collateral, the Company will report compensation expense
      equal
      to the current market price of the shares and the shares will become outstanding
      for earnings-per-share (“EPS”) computations.




During
      2007 and 2006, 21,160 and 21,160 shares, with a fair value of $15.25 and $14.60
      per share, were committed to be released, resulting in ESOP compensation expense
      of $323,000 and $299,000, respectively.  Contributions to the ESOP for
      repayment of principal and interest were $423,000 and $441,000 for 2007 and
      2006, respectively.




**June 30,
                  2007**
            
            
            **June
                  30, 2006**Allocated
                shares
            
            
            63,480
            
            
            
            42,320Unallocated
                shares
            
            
            148,120
            
            
            
            169,280Total
                ESOP shares
            
            
            211,600
            
            
            
            211,600Fair
                value of unallocated shares
            
            $
            2,258,830
            
            
            $
            2,471,488Fair
                value of allocated shares subject to repurchase obligation
            
            $
            968,070
            
            
            $
            617,872





The
      Company sponsors a defined-contribution plan covering substantially all
      employees.  Contributions for the profit-sharing plan are determined
      by the Board of Directors.  There were no contributions to the
      profit-sharing plan during 2007 and 2006.




The
      Bank
      has a deferred compensation plan pursuant to which Barbara Minster, a current
      director of the Company and the Bank, is entitled to receive $1,000 per month
      for life as a former employee of the Bank and a director of the Bank prior
      to
      its conversion.  The present value of these agreements was recorded
      based on life expectancy and a discount rate of 7%.  At June 30,
      2007 and 2006, a liability of approximately $57,000 and $66,000 remained and
      was
      included in accrued interest payable and other liabilities in the consolidated
      statements of financial condition.




**NOTE
      9 - STOCK-BASED COMPENSATION**




The
      Company has two share-based compensation plans as described
      below.  Total compensation cost that has been charged against income
      for those plans was $410,000 and $209,000 for 2007 and 2006. The total income
      tax benefit was $140,000 and $71,000, respectively.




**Stock
      Option Plan:**




The
      Company’s 2005 stock option plan (the Plan), which is stockholder-approved,
      permits the grant of share options to its employees and directors of up to
      264,500 shares of common stock.  At June 30, 2007, there are
      56,125 of shares available for future grants under this plan.  The
      Company believes that such awards better align the interests of its employees
      with those of its stockholders.  Option awards are generally granted
      with an exercise price equal to the market price of the Company’s common stock
      at the date of grant; those option awards generally have vesting periods of
      5
      years and have 10-year contractual terms.  The Company has a policy of
      using shares held as treasury stock to satisfy share option
      exercises.  Currently, the Company has a sufficient number of treasury
      shares to satisfy expected share option exercises.




The
      fair
      value of each option award is estimated on the date of grant using a closed
      form
      option valuation (Black-Scholes) model that uses the assumptions noted in the
      table below.  Expected volatilities are based on historical
      volatilities of the Company’s common stock.  The risk-free interest
      rate for the expected term of the option is based on the U.S. Treasury yield
      curve in effect at the time of the grant.







F-21
 *Table
            of Contents*





**NOTE
      9 - STOCK-BASED COMPENSATION (continued)**




The
      fair
      value of options granted was determined using the following weighted-average
      assumptions as of grant date.




**2007**
            
            
            **2006**Risk-free
                interest rate
            
            
            5.10
            %
            
            
            4.52
            %Expected
                term
            
            
            7
            
            
            
            7Expected
                stock volatility
            
            
            20
            
            
            
            20Dividend
                yield
            
            
            0
            %
            
            
            0
            %





A
      summary
      of the activity in the stock option plan for 2007 follows:




**Shares**
            
            
            **Weighted
                  Average Exercise Price**
            
            
            **Weighted
                  Average Remaining Contractual Term**
            
            
            **Aggregate
                  Intrinsic Value**Outstanding
                at beginning of year
            
            
            198,375
            
            
            $
            13.94Granted
            
            
            10,000
            
            
            
            14.60Exercised
            
            
            (2,645
            )
            
            
            13.90Forfeited
                or expired
            
            
            (42,320
            )
            
            
            13.90Outstanding
                at end of year
            
            
            163,410
            
            
            
            13.99
            
            
            
            8.40
            
            
            $
            205,897Exercisable
                at end of year
            
            
            47,610
            
            
            $
            13.93
            
            
            
            8.35
            
            
            $
            62,845





Information
      related to the stock option plan during each year follows:




**2007**
            
            
            **2006**Intrinsic
                value of options exercised
            
            $
            3,571
            
            
            $
            —Cash
                received from option exercises
            
            
            36,766
            
            
            
            —Tax
                benefit realized from option exercises
            
            
            1,844
            
            
            
            —Weighted
                average fair value of options granted
            
            
            5.33
            
            
            
            4.83





As
      of
      June 30, 2007, there was $474,000 of total unrecognized compensation cost
      related to nonvested stock options granted under the Plan.  The cost
      is expected to be recognized over a weighted-average period of 3.4
      years.




Forfeitures
      for options granted prior to 2006 were recognized as they
      occurred.  Beginning July 1, 2006, the Company is estimating the
      impact of future forfeitures consistent with the provision of FAS
      123(R).




**Share
      Award Plan:**




A
      Recognition and Retention Plan (“RRP”) provides for issue of shares to
      directors, officers, and employees. Compensation expense is recognized over
      the
      vesting period of the shares based on the market value of the Company’s common
      stock at the issue date. Pursuant to the RRP, the Company can award up to
      105,800 shares of restricted stock.  These shares vest over a
      five-year period.  Prior to July 1, 2006, the unamortized cost of
      shares not yet earned (vested) was reported as a reduction of shareholders’
equity.  Upon adoption of FAS 123(R), the unamortized cost of shares
      not yet awarded was reclassified to additional paid-in capital.  As of
      June 30, 2007, 21,450 shares could still be granted under the
      plan.







F-22
 *Table
            of Contents*





**NOTE
      9 - STOCK-BASED COMPENSATION (continued)**




A
      summary
      of changes in the Company’s nonvested shares for the year follows:




**Nonvested
                  Shares**
            
            **Shares**
            
            
            **Weighted-Average
                  Grant-Date Fair Value**Nonvested
                at June 30, 2006
            
            
            74,060
            
            
            $
            13.94Granted
            
            
            5,000
            
            
            
            14.60Vested
            
            
            (14,812
            )
            
            
            13.94Forfeited
            
            
            (16,928
            )
            
            
            13.90Nonvested
                at June 30, 2007
            
            
            47,320
            
            
            $
            14.03





As
      of
      June 30, 2007, there was $556,000 of total unrecognized compensation cost
      related to nonvested shares granted under the Plan.  The cost is
      expected to be recognized over a weighted-average period of 3.4
      years.  The total fair value of shares vested during the years ended
      June 30, 2007 and 2006 was $226,000 and $74,000.




The
      death
      of the Company’s former chief financial officer resulted in the immediate
      vesting of his stock awards.  The Company recognized $74,000 of
      compensation expense related to the vesting of these awards for the year ended
      June 30, 2006.




**NOTE
      10 - EARNINGS (LOSS) PER SHARE**




The
      following table presents a reconciliation of the components used to compute
      basic and diluted earnings (loss) per share for 2006:




**2007**
            
            
            **2006**Basic
                and diluted earnings (loss)  per shareNet
                income (loss) for the year ended June 30,
            
            $
            (1,209,008
            )
            
            $
            553,677Weighted
                average common shares outstanding
            
            
            2,357,228
            
            
            
            2,432,352Basic
                and diluted earnings (loss) per share
            
            $
            (0.51
            )
            
            $
            0.23





The
      effect of stock options and stock awards was not included in the calculation
      of
      diluted earnings (loss) per share because to do so would have been anti-dilutive
      for all shares.




**NOTE
      11 – LOAN COMMITMENTS AND OTHER OFF-BALANCE SHEET ACTIVITY**




The
      Company is a party to financial instruments with off-balance-sheet risk in
      the
      normal course of business to meet the financing needs of its customers and
      to
      reduce its own exposure to fluctuations in interest rates.  These
      financial instruments include commitments to extend credit.  These
      instruments involve, to varying degrees, elements of credit and interest-rate
      risk in excess of the amount recognized in the statement of financial
      condition.




The
      Company’s exposure to credit loss in the event of nonperformance by the other
      party to the financial instrument for commitments to extend credit is
      represented by the contractual amount of those instruments.  The
      Company uses the same credit policies in making commitments and conditional
      obligations as it does for loans recorded in the statement of financial
      condition.






F-23
 *Table
          of Contents*




**NOTE
      11 - LOAN COMMITMENTS AND OTHER OFF-BALANCE SHEET ACTIVITY
      (Continued)**




At
      June 30, 2007 and 2006, commitments to extend credit were:




**2007**
            
            
            **2006****Fixed**
                **Rate**
            
            
            **Variable**
                **Rate**
            
            
            **Fixed**
                **Rate**
            
            
            **Variable**
                **Rate**Unused
                lines of
                credit
            
            $
            390,000
            
            
            $
            9,970,000
            
            
            $
            2,325,000
            
            
            $
            7,617,000Commitment
                to fund
                loans
            
            
            3,254,000
            
            
            
            11,680,000
            
            
            
            541,000
            
            
            
            2,660,000





Fixed
      rate commitments have rates ranging from 7.38% to 9.25% and 6.00% to 9.23%
      at
      June 30, 2007 and 2006, respectively.  The commitments have terms
      of up to 90 days.  Since many commitments to make loans expire without
      being used, the amounts above do not necessarily represent future cash
      commitments.  Collateral may be obtained upon exercise of a
      commitment.  The amount of collateral is determined by management and
      may include commercial and residential real estate and other business and
      consumer assets.




At
      June 30, 2007 and 2006, the Company had standby letters of credit of
      $136,000 and $147,000.  These are considered financial guarantees
      under FASB Interpretation 45.  The fair value of these guarantees was
      not considered material.




The
      Company’s primary financial instruments where concentrations of credit risk may
      exist are loans.  The Company’s principal loan customers are located
      on the southeast side of Chicago and surrounding suburbs.  Most loans
      are secured by specific collateral, including residential and commercial real
      estate.




**NOTE
      12 - REGULATORY MATTERS**




The
      Bank
      is subject to regulatory capital requirements administered by federal regulatory
      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 about components, risk weightings, and
      other
      factors, and the regulators can lower classifications in certain
      cases.  Failure to meet various capital requirements can initiate
      regulatory action that could have a direct material effect on the financial
      statements.




The
      prompt corrective action regulations provide five classifications including
      well
      capitalized, adequately capitalized, undercapitalized, significantly
      undercapitalized, and critically undercapitalized, although these terms are
      not
      used to represent overall financial condition.  If only adequately
      capitalized, regulatory approval is required to accept brokered
      deposits.  If undercapitalized, capital distributions are limited, as
      is asset growth and expansion, and plans of capital restoration are
      required.






F-24
 *Table
          of Contents*




**NOTE
      12 - REGULATORY MATTERS (continued)**




At
      year
      end, the Bank’s actual capital levels and minimum required levels (dollars in
      thousands) were as follows:




**Actual**
            
            
            **Minimum
                  Required**
                **for
                  Capital**
                **Adequacy
                  Purposes**
            
            
            **Minimum**
                **Required
                  to Be Well**
                **Capitalized
                  Under**
                **Prompt
                  Corrective**
                **Action
                  Regulations****Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio****2007**Total
                capital (to risk-weighted assets)
            
            $
            23,881
            
            
            
            26.88
            %
            
            $
            7,108
            
            
            
            8.00
            %
            
            $
            8,885
            
            
            
            10.00
            %Tier
                I capital (to risk-weighted assets)
            
            
            23,334
            
            
            
            26.26
            
            
            
            3,554
            
            
            
            4.00
            
            
            
            5,331
            
            
            
            6.00Tier
                I capital (to average assets)
            
            
            23,334
            
            
            
            17.81
            
            
            
            5,241
            
            
            
            4.00
            
            
            
            6,551
            
            
            
            5.00





**Actual**
            
            
            **Minimum
                  Required**
                **for
                  Capital**
                **Adequacy
                  Purposes**
            
            
            **Minimum**
                **Required
                  to Be Well**
                **Capitalized
                  Under**
                **Prompt
                  Corrective**
                **Action
                  Regulations****Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio****2006**Total
                capital (to risk-weighted assets)
            
            $
            24,115
            
            
            
            30.04
            %
            
            $
            6,422
            
            
            
            8.00
            %
            
            $
            8,028
            
            
            
            10.00
            %Tier
                I capital (to risk-weighted assets)
            
            
            23,715
            
            
            
            29.54
            
            
            
            3,211
            
            
            
            4.00
            
            
            
            4,817
            
            
            
            6.00Tier
                I capital (to average assets)
            
            
            23,715
            
            
            
            21.22
            
            
            
            4,471
            
            
            
            4.00
            
            
            
            5,589
            
            
            
            5.00





The
      Bank
      was categorized by its regulators as well capitalized at June 30, 2007 and
      2006.  Management is not aware of any conditions or events since the
      most recent notification that would change the Bank’s category at June 30,
      2007.




**NOTE
      13 - OTHER COMPREHENSIVE INCOME (LOSS)**




Other
      comprehensive income (loss) components were as follows:




**2007**
            
            
            **2006**Unrealized
                holding gains (losses) on securities available for sale
            
            $
            314,500
            
            
            $
            (469,562
            )Less
                reclassification adjustments for net (gains)/losses recognized in
                income
            
            
            —
            
            
            
            45,457Net
                unrealized gains (losses)
            
            
            314,500
            
            
            
            (424,105
            )Loss
                on impairment of securities available for sale
            
            
            64,075
            
            
            
            —Tax
                expense (benefit)
            
            
            128,716
            
            
            
            (144,196
            )Other
                comprehensive income (loss)
            
            $
            249,859
            
            
            
            (279,909
            )






F-25
 *Table
          of Contents*




**NOTE
      14 - RELATED-PARTY TRANSACTIONS**




Loans
      to
      principal officers, directors, and their affiliates during the fiscal year
      ended
      June 30, 2007 were as follows:




Beginning
                balance
            
            $
            92,073New
                loans
            
            
            110,000Repayments
            
            
            (21,370
            )Ending
                balance
            
            $
            180,703





Deposits
      from principal officers, directors, and their affiliates at year-end 2007and
      2006 were $1,186,000 and $1,212,000, respectively.







F-26
 *Table
            of Contents*





**NOTE
      15 - FAIR VALUES OF FINANCIAL INSTRUMENTS**




Carrying
      amount and estimated fair values of financial instruments were as follows at
      year end (in thousands):




**2007**
            
            
            **2006****Carrying**
                **Amount**
            
            
            **Fair**
                **Value**
            
            
            **Carrying**
                **Amount**
            
            
            **Fair**
                **Value**Financial
                assetsCash
                and cash equivalent
            
            $
            21,396
            
            
            $
            21,396
            
            
            $
            4,348
            
            
            $
            4,348Securities
                available for sale
            
            
            15,595
            
            
            
            15,595
            
            
            
            21,518
            
            
            
            21,518Loans,
                net
            
            
            83,499
            
            
            
            82,219
            
            
            
            77,326
            
            
            
            77,547FHLB
                stock
            
            
            341
            
            
            
            341
            
            
            
            346
            
            
            
            346Accrued
                interest receivable
            
            
            509
            
            
            
            509
            
            
            
            447
            
            
            
            447Financial
                liabilitiesDeposits
            
            $
            (98,676
            )
            
            $
            (98,711
            )
            
            $
            (78,898
            )
            
            $
            (80,377
            )Federal
                Funds purchased
            
            
            —
            
            
            
            —
            
            
            
            (1,225
            )
            
            
            (1,225
            )Advances
                from borrowers for taxes and insurance
            
            
            (572
            )
            
            
            (572
            )
            
            
            (480
            )
            
            
            (480
            )Accrued
                interest payable
            
            
            (81
            )
            
            
            (81
            )
            
            
            (82
            )
            
            
            (82
            )





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,
      interest-bearing deposits, FHLB stock, accrued interest receivable and payable,
      demand deposits, short-term debt, 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 allowance for loan losses is considered to be a reasonable
      estimate of discount for credit risk on loans.  Fair value of debt is
      based on current rates for similar financing.  The fair value of
      off-balance-sheet items is not material.







F-27
 *Table
            of Contents*





**NOTE
      16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION**




Condensed
      financial information of Royal Financial, Inc. follows:




**CONDENSED
      BALANCE SHEETS**




**June
                  30, 2007**
            
            
            **June
                  30, 2006****ASSETS**Cash
                and cash equivalents
            
            $
            6,909,650
            
            
            $
            7,774,673Investment
                in bank subsidiary
            
            
            23,191,074
            
            
            
            23,321,618ESOP
                loan
            
            
            1,871,898
            
            
            
            2,139,312Land
            
            
            656,904
            
            
            
            -Other
                assets
            
            
            157,024
            
            
            
            183,673Total
                assets
            
            $
            32,786,550
            
            
            $
            33,419,276**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Other
                liabilities
            
            $
            156,448
            
            
            $
            46,021Common
                stock in ESOP subject to contingent repurchase obligation
            
            
            968,070
            
            
            
            617,872Stockholders’
                equity
            
            
            31,662,032
            
            
            
            32,755,383Total
                liabilities and stockholders’ equity
            
            $
            32,786,550
            
            
            $
            33,419,276





**CONDENSED
      STATEMENT OF INCOME**




**Year
                  Ended June 30, 2007**
            
            
            **Year
                  Ended June 30, 2006****Income**Interest
                on ESOP loan
            
            $
            155,100
            
            
            $
            174,488**Expense**Other
                expense
            
            
            280,301
            
            
            
            366,978Loss
                before income tax expense
              and
                undistributed subsidiary income (loss)
            
            
            (125,201
            )
            
            
            (192,490
            )Income
                tax expense
            
            
            (57,615
            )
            
            
            (34,327
            )Equity
                in undistributed subsidiary income/(loss)
            
            
            (1,026,192
            )
            
            
            780,494Net
                income/(loss)
            
            $
            (1,209,008
            )
            
            $
            553,677








F-28
 *Table
            of Contents*





**NOTE
      16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION** **(continued)**




**CONDENSED
      STATEMENT OF CASH FLOWS**




**Year
                  Ended June 30, 2007**
            
            
            **Year
                  Ended June 30, 2006****Cash
                flows from operating activities**Net
                income/(loss)
            
            $
            (1,209,008
            )
            
            $
            553,677Adjustments:Equity
                in undistributed subsidiary (income)/loss
            
            
            1,026,192
            
            
            
            (780,494
            )Change
                in other assets
            
            
            26,649
            
            
            
            34,327Change
                in other liabilities
            
            
            29,639
            
            
            
            46,021Net
                cash from operating activities
            
            $
            (126,528
            )
            
            
            (146,469
            )**Cash
                flows from investing activities**Repayment
                of ESOP loan
            
            
            267,414
            
            
            
            267,414Purchase
                of land
            
            
            (656,904
            )
            
            
            —Net
                cash from investing activities
            
            
            (389,490
            )
            
            
            267,414**Cash
                flows from financing activities**Purchase
                of treasury stock
            
            
            (387,615
            )
            
            
            (1,947,609
            )Proceeds
                from the exercise of stock options
            
            
            38,610
            
            
            
            —Net
                cash from financing activities
            
            
            (349,005
            )
            
            
            (1,947,609
            )Net
                change in cash and cash equivalents
            
            
            (865,023
            )
            
            
            (1,826,664
            )Beginning
                cash and cash equivalents
            
            
            7,774,673
            
            
            
            9,601,337**Ending
                cash and cash equivalents**
            
            $
            6,909,650
            
            
            $
            7,774,673





**NOTE
      17 -  PENDING INVESTIGATION**




On
          June
          18, 2007, the Company’s Chief Executive Officer and President, Donald A. Moll,
          was suspended with pay from acting in his capacity as CEO and President
          of the
          Company and the Bank, during the pendency of an internal investigation
          being
          conducted by the Audit Committee of the Board. The investigation was based
          on
          information provided to the Audit Committee by certain members of the Company’s
          senior management regarding alleged irregularities with respect to the
          Company’s
          internal controls and alleged misconduct by Mr. Moll.
  Under
          the
          direction of the Audit Committee of the Board of Directors, the Company
          conducted an investigation of the allegations, which included engaging
          a team of
          outside specialists and advisers to assist in the investigation. The report
          of
          the investigation does not implicate Mr. Moll in fraudulent activities
          relating
          to the specific allegations of alleged irregularities with respect to the
          Company’s internal controls and Bank policies.  However, the
          investigation has uncovered evidence of irregularities in connection with
          the
          Company’s stock conversion and initial public offering in 2005,
          including the alleged unauthorized receipt by certain investors of shares
          of stock in the offering. The Company continues to work with special counsel
          and
          federal and state regulators in this regard, and cannot currently predict
          when
          this aspect of the investigation will conclude or what the outcome of this
          investigation will be.
  On
          September 26, 2007, Mr. Moll agreed to resign from all positions he currently
          holds with the Company and each of its subsidiaries, including as a director
          of
          the Company and the Bank, as part of a Separation Agreement and Release
          (the
“Agreement”) with the Company and the Bank.  The Agreement provides
          for the payment to Mr. Moll of $48,077 to settle all of the Company’s remaining
          obligations under his employment agreement.  In addition, Mr. Moll
          agreed to forfeit all unvested stock options and shares of restricted stock
          previously granted to him under the Company’s equity compensation
          plans.  The Company has recorded the effects of the Agreement as of
          June 30, 2007, and the consolidated financial statements for the fiscal
          year
          ended June 30, 2007 reflect the effect of forfeiture of Mr. Moll’s unvested
          options and restricted shares.


F-29
 *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 28th day of
      September 2007.




ROYAL
                FINANCIAL, INC.
              
              By:/s/ Leonard Szwajkowski
              Leonard
                Szwajkowski
              Interim
                Chief Executive
                Officer





KNOW
      ALL
      PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
      constitutes and appoints Alan W. Bird and Leonard Szwajkowski, 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 1933, this report has
      been
      signed below by the following persons on behalf of the Company and in the
      capacities and on the dates indicated.




**Name**
            **Title**
            **Date**/s/
                Alan W. Bird
              Alan
                W. Bird
            Chairman
                of the Board
            September 28,
                2007/s/
                  Leonard Szwajkowski
                Leonard
                  Szwajkowski
            Interim
                Chief Executive Officer, Senior Vice President and Chief Financial
                Officer
                (principal executive officer, principal financial and accounting
                officer)
            September 28,
                2007/s/
                  John T. Dempsey
              John
                T. Dempsey
            Director
            September 28,
                2007/s/
                James A. Fitch, Jr.
              James A. Fitch, Jr.
            Director
            September
                28, 2007/s/
                  Barbara K. Minster
                Barbara
                  K. Minster
            Director
            September 28,
                2007Peter
                  C. Rolewicz
            Director/s/
                  Rodolfo Serna
              Rodolfo
                Serna
            Director
            September 28,
                2007








S-1
 *Table
            of Contents*





**EXHIBIT INDEX**




**Exhibit No.**
            **Description
                  of Exhibit**3.1
            Certificate
                of Incorporation of Royal Financial, Inc. (filed as an exhibit to
                the
                Company’s Registration Statement on Form SB-2 (File No. 333-119138)
                and incorporated herein by reference).3.2
            Bylaws
                of Royal Financial, Inc. (filed as an exhibit to the Company’s
                Registration Statement on Form SB-2 (File No. 333-119138) and
                incorporated herein by reference).10.1
            Employee
                Stock Ownership Plan (filed as an exhibit to the Company’s Registration
                Statement on Form SB-2 (File No. 333-119138) and incorporated herein
                by reference).*10.2
            Employment
                Agreement dated as of January 20, 2005, by and between Royal Financial,
                Inc., Royal Savings Bank and Donald A. Moll (filed as an exhibit
                to the
                Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30,
                2005 and incorporated herein by reference).*10.3
            Separation
                Agreement and Release dated September 26, 2007, between Donald A.
                Moll, Royal Financial, Inc. and Royal Savings Bank.*10.4
            Employment
                Agreement dated as of January 20, 2005, by and between Royal Financial,
                Inc., Royal Savings Bank and Alan W. Bird (filed as an exhibit to the
                Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30,
                2005 and incorporated herein by reference).*10.5
            Employment
                Agreement dated as of February 21, 2006, by and between Royal Financial,
                Inc., Royal Savings Bank, and Leonard Szwajkowski (filed as an exhibit
                to
                the Company’s Quarterly Report on Form 10-QSB for the quarter ended March
                31, 2006 and incorporated herein by reference).*10.6
            Employment
                Agreement dated as of January 20, 2005, by and between Royal Financial,
                Inc., Royal Savings Bank and Andrew Morua.*10.7
            Royal
                Financial, Inc. 2005 Stock Option Plan (filed as Appendix B to the
                Company’s proxy statement in connection with its 2005 Annual Stockholders
                Meeting and incorporated herein by reference).*10.8
            Royal
                Financial, Inc. 2005 Recognition and Retention Plan (filed as Appendix
                C
                to the Company’s proxy statement in connection with its 2005 Annual
                Stockholders Meeting and incorporated herein by
                reference).*21.1
            List
                of Subsidiaries (filed as an exhibit to the Company’s Registration
                Statement on Form SB-2 (File No. 333-119138) and incorporated herein
                by reference).23.1
            Consent
              of Crowe Chizek and Company LLC.24.1
            Powers
                of Attorney (included on signature page).31.1
            Certification
                of Interim Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.






*Table
          of Contents*


32.1
            Certification
                of Interim Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002.


_____________


*
            Indicates
                management contract or compensatory plan or arrangement required
                to be
                filed as an exhibit.








*Table
            of Contents*