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| R | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|-----------------------------------------------------------------------------------------|

| £ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|

|   | Indiana                                                    |   | 35-2042093          |   |
|--------|------------------------------------------------------------|--------|---------------------|--------|
|   | (State or other jurisdiction                               |   | (I.R.S. Employer    |   |
|   | of incorporation or organization)                          |   | Identification No.) |   |
|   |                                                       |   |                |   |
|   | 707 Ridge Road, Munster, Indiana                           |   | 46321               |   |
|   | (Address of principal executive offices)                   |   | (Zip code)          |   |
|   |                                                       |   |                |   |
|   | (219) 836-5500                                             |   |
|   | (Registrant’s telephone number, including area code) |   |

| Large accelerated filer £                                             | Accelerated filer £    |   |
|----------------------------------------------------------------------------|-----------------------------|--------|
| Non-accelerated filer £ (Do not check if a smaller reporting company) | Smaller reporting company R |   |

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TABLE OF CONTENTS

|                                                                          |                                                                                        | Page   |
|-------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|--------|
|                                                                          | PART I - FINANCIAL INFORMATION                                                              |   |
|                                                                          |                                                                                        |   |
| Item 1.                                                                       | Financial Statements (Unaudited)                                                            |   |
|                                                                          | Condensed Consolidated Statements of Condition                                              | 3      |
|                                                                          | Condensed Consolidated Statements of Income (Loss)                                          | 4      |
|                                                                          | Condensed Consolidated Statements of Changes in Shareholders’ Equity                  | 5      |
|                                                                          | Condensed Consolidated Statements of Cash Flows                                             | 6      |
|                                                                          | Notes to Condensed Consolidated Financial Statements                                        | 8      |
|                                                                          |                                                                                        |   |
| Item 2.                                                                       | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19     |
|                                                                          |                                                                                        |   |
| Item 3.                                                                       | Quantitative and Qualitative Disclosures about Market Risk                                  | 49     |
|                                                                          |                                                                                        |   |
| Item 4.                                                                       | Controls and Procedures                                                                     | 51     |
|                                                                          |                                                                                        |   |
|                                                                          |                                                                                        |   |
|                                                                          | PART II - OTHER INFORMATION                                                                 |   |
|                                                                          |                                                                                        |   |
| Item 1.                                                                       | Legal Proceedings                                                                           | 51     |
|                                                                          |                                                                                        |   |
| Item 1A.                                                                      | Risk Factors                                                                                | 51     |
|                                                                          |                                                                                        |   |
| Item 2.                                                                       | Unregistered Sales of Equity Securities and Use of Proceeds                                 | 53     |
|                                                                          |                                                                                        |   |
| Item 3.                                                                       | Defaults Upon Senior Securities                                                             | 53     |
|                                                                          |                                                                                        |   |
| Item 4.                                                                       | (Removed and Reserved)                                                                      | 53     |
|                                                                          |                                                                                        |   |
| Item 5.                                                                       | Other Information                                                                           | 53     |
|                                                                          |                                                                                        |   |
| Item 6.                                                                       | Exhibits                                                                                    | 53     |
|                                                                          |                                                                                        |   |
| Signature Page                                                                | 54                                                                                          |
|                                                                          |                                                                                        |   |
| Certifications of Principal Executive Officer and Principal Financial Officer |  55                                                                                    |
|                                                                          | Exhibit 31.1                                                                           |   |
|                                                                          | Exhibit 31.2                                                                           |   |
|                                                                          | Exhibit 32.0                                                                           |   |
|                                                                          |                                                                                        |

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table of contents

CFS BANCORP, INC.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | September 30, 2010 |      |   | December 31, 2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------|-------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Unaudited)        |      |   |              |   |
| Cash and amounts due from depository institutions                                                                                              |   | $                  | 23,098    |   |              | $      | 24,041 |   |
| Interest bearing deposits                                                                                                                      |   |               | 29,120    |   |              |   | 387 |   |
| Cash and cash equivalents                                                                                                                                     |   |               | 52,218    |   |              |   | 24,428 |   |
| Investment securities available-for-sale, at fair value                                                                                        |   |               | 210,717   |   |              |   | 188,781 |   |
| Investment securities held-to-maturity, at cost                                                                                                |   |               | 11,831    |   |              |   | 5,000 |   |
| Investment in Federal Home Loan Bank stock, at cost                                                                                            |   |               | 23,944    |   |              |   | 23,944 |   |
| Loans receivable, net of unearned fees                                                                                                         |   |               | 724,137   |   |              |   | 762,386 |   |
| Allowance for loan losses                                                                                                                                     |   |               | (17,485   | )      |              |   | (19,461 | ) |
| Net loans                                                                                                                                                               |   |               | 706,652   |   |              |   | 742,925 |   |
| Loans held for sale                                                                                                                            |   |               | 4,425     |   |              |   | ― |   |
| Accrued interest receivable                                                                                                                    |   |               | 3,315     |   |              |   | 3,469 |   |
| Other real estate owned                                                                                                                        |   |               | 24,211    |   |              |   | 9,242 |   |
| Office properties and equipment                                                                                                                |   |               | 20,611    |   |              |   | 20,382 |   |
| Investment in bank-owned life insurance                                                                                                        |   |               | 35,273    |   |              |   | 34,575 |   |
| Net deferred tax assets                                                                                                                        |   |               | 17,130    |   |              |   | 18,036 |   |
| Other assets                                                                                                                                   |   |               | 9,152     |   |              |   | 10,733 |   |
| Total assets                                                                                                                                                            |   | $                  | 1,119,479 |   |              | $      | 1,081,515 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |               |      |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |               |      |   |              |   |   |   |
| Deposits                                                                                                                                       |   | $                  | 929,856   |   |              | $      | 849,758 |   |
| Borrowed funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |               | 64,199    |   |              |   | 111,808 |   |
| Advance payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |               | 5,952     |   |              |   | 4,322 |   |
| Other liabilities                                                                                                                              |   |               | 5,592     |   |              |   | 5,254 |   |
| Total liabilities                                                                                                                                                       |   |               | 1,005,599 |   |              |   | 971,142 |   |
| Commitments and contingencies                                                                                                                  |   |               | ―   |   |              |   | ― |   |
| Shareholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |               |      |   |              |   |   |   |
| Preferred stock, $0.01 par value; 15,000,000 shares authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |               | ―   |   |              |   | ― |   |
| Common stock, $0.01 par value; 85,000,000 shares authorized;23,423,306 shares issued; 10,851,724 and 10,771,061 sharesoutstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |               | 234       |   |              |   | 234 |   |
| Additional paid-in capital                                                                                                                     |   |               | 187,075   |   |              |   | 188,930 |   |
| Retained earnings                                                                                                                              |   |               | 82,783    |   |              |   | 80,564 |   |
| Treasury stock, at cost; 12,571,582 and 12,652,245 shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |               | (155,022  | )      |              |   | (157,041 | ) |
| Accumulated other comprehensive loss, net of tax                                                                                               |   |               | (1,190    | )      |              |   | (2,314 | ) |
| Total shareholders’ equity                                                                                                                                        |   |               | 113,880   |   |              |   | 110,373 |   |
| Total liabilities and shareholders’ equity                                                                                                                        |   | $                  | 1,119,479 |   |              | $      | 1,081,515 |   |

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table of contents

|                                                       |   | Three Months EndedSeptember 30, |       |   | Nine Months EndedSeptember 30, |   |
|------------------------------------------------------------|--------|---------------------------------|------------|--------|--------------------------------|--------|
|                                                       |   | 2010                            |       |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
| Interest income:                                           |   |                            |       |   |                           |   |   |   |   |   |   |   |
| Loans                                                      |   | $                               | 9,199      |   |                           | $      | 9,648 |   |   | $ | 28,503 |   |   | $ | 29,400 |   |
| Investment securities                                      |   |                            | 2,176      |   |                           |   | 2,742 |   |   |   | 6,552 |   |   |   | 8,805 |   |
| Other                                                      |   |                            | 90         |   |                           |   | 195 |   |   |   | 337 |   |   |   | 575 |   |
| Total interest income                                      |   |                            | 11,465     |   |                           |   | 12,585 |   |   |   | 35,392 |   |   |   | 38,780 |   |
| Interest expense:                                          |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                   |   |                            | 2,143      |   |                           |   | 2,431 |   |   |   | 6,342 |   |   |   | 8,276 |   |
| Borrowed funds                                             |   |                            | 436        |   |                           |   | 758 |   |   |   | 1,392 |   |   |   | 2,598 |   |
| Total interest expense                                     |   |                            | 2,579      |   |                           |   | 3,189 |   |   |   | 7,734 |   |   |   | 10,874 |   |
| Net interest income                                        |   |                            | 8,886      |   |                           |   | 9,396 |   |   |   | 27,658 |   |   |   | 27,906 |   |
| Provision for loan losses                                  |   |                            | 525        |   |                           |   | 9,430 |   |   |   | 3,052 |   |   |   | 10,767 |   |
| Net interest income (loss) after provision for loan losses |   |                            | 8,361      |   |                           |   | (34 | ) |   |   | 24,606 |   |   |   | 17,139 |   |
| Non-interest income:                                       |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and other fees                             |   |                            | 1,290      |   |                           |   | 1,479 |   |   |   | 3,830 |   |   |   | 4,154 |   |
| Card-based fees                                            |   |                            | 475        |   |                           |   | 429 |   |   |   | 1,398 |   |   |   | 1,249 |   |
| Commission income                                          |   |                            | 40         |   |                           |   | 56 |   |   |   | 140 |   |   |   | 197 |   |
| Net gain on sale of investment securities                  |   |                            | ―    |   |                           |   | 321 |   |   |   | 456 |   |   |   | 1,041 |   |
| Net gain (loss) on sale of other assets               |   |                            | 2          |   |                           |   | (15 | ) |   |   | 14 |   |   |   | (21 | ) |
| Income from bank-owned life insurance                      |   |                            | 217        |   |                           |   | 218 |   |   |   | 702 |   |   |   | 552 |   |
| Other income                                               |   |                            | 112        |   |                           |   | 112 |   |   |   | 392 |   |   |   | 504 |   |
| Total non-interest income                                  |   |                            | 2,136      |   |                           |   | 2,600 |   |   |   | 6,932 |   |   |   | 7,676 |   |
| Non-interest expense:                                      |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee benefits                         |   |                            | 4,709      |   |                           |   | 4,505 |   |   |   | 13,928 |   |   |   | 14,758 |   |
| Net occupancy expense                                      |   |                            | 691        |   |                           |   | 763 |   |   |   | 2,097 |   |   |   | 2,410 |   |
| FDIC insurance premiums and OTS assessments                |   |                            | 623        |   |                           |   | 574 |   |   |   | 1,891 |   |   |   | 1,540 |   |
| Professional fees                                          |   |                            | 512        |   |                           |   | 662 |   |   |   | 1,850 |   |   |   | 1,433 |   |
| Furniture and equipment expense                            |   |                            | 488        |   |                           |   | 526 |   |   |   | 1,547 |   |   |   | 1,581 |   |
| Data processing                                            |   |                            | 443        |   |                           |   | 407 |   |   |   | 1,316 |   |   |   | 1,246 |   |
| Marketing                                                  |   |                            | 189        |   |                           |   | 155 |   |   |   | 519 |   |   |   | 571 |   |
| OREO related expense                                       |   |                            | 479        |   |                           |   | 1,343 |   |   |   | 1,377 |   |   |   | 1,754 |   |
| Loan collection expense                                    |   |                            | 156        |   |                           |   | 290 |   |   |   | 478 |   |   |   | 818 |   |
| Severance and early retirement expense                     |   |                            | 88         |   |                           |   | ― |   |   |   | 528 |   |   |   | ― |   |
| FDIC special insurance premium assessment                  |   |                            | ―    |   |                           |   | ― |   |   |   | ― |   |   |   | 495 |   |
| Other general and administrative expenses                  |   |                            | 1,068      |   |                           |   | 1,023 |   |   |   | 2,990 |   |   |   | 3,013 |   |
| Total non-interest expense                                 |   |                            | 9,446      |   |                           |   | 10,248 |   |   |   | 28,521 |   |   |   | 29,619 |   |
| Income (loss) before income taxes                          |   |                            | 1,051      |   |                           |   | (7,682 | ) |   |   | 3,017 |   |   |   | (4,804 | ) |
| Income tax expense (benefit)                               |   |                            | 188        |   |                           |   | (3,011 | ) |   |   | 475 |   |   |   | (2,264 | ) |
| Net income (loss)                                          |   | $                               | 863        |   |                           | $      | (4,671 | ) |   | $ | 2,542 |   |   | $ | (2,540 | ) |
|                                                       |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Per share data:                                            |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per share                            |   | $                               | .08        |   |                           | $      | (.44 | ) |   | $ | .24 |   |   | $ | (.24 | ) |
| Diluted earnings (loss) per share                          |   |                            | .08        |   |                           |   | (.44 | ) |   |   | .24 |   |   |   | (.24 | ) |
| Cash dividends declared per share                          |   |                            | .01        |   |                           |   | .01 |   |   |   | .03 |   |   |   | .03 |   |
| Weighted-average common and common share                   |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| equivalents outstanding:                                   |   |                            |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                      |   |                            | 10,657,719 |   |                           |   | 10,603,828 |   |   |   | 10,626,890 |   |   |   | 10,563,814 |   |
| Diluted                                                    |   |                            | 10,707,163 |   |                           |   | 10,695,719 |   |   |   | 10,701,072 |   |   |   | 10,674,247 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                           |   | Common Stock |    |   | Additional Paid-In Capital |   |    | Retained Earnings |   |   | Treasury Stock |   |   | Unallocated CommonStock HeldBy ESOP |     |   | Accum-ulatedOther Compre-hensive Income(Loss) |   |    | Total  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------|----------------------------|--------|---------|-------------------|--------|--------|----------------|--------|--------|-------------------------------------|----------|--------|-----------------------------------------------|--------|---------|--------|--------|
| Balance at January 1, 2009                                                                                                                                                                                                                       |   | $            | 234     |   |                       | $      | 189,211 |              |   | $      | 81,525         |   |   | $                                   | (157,466 | )      |                                          | $      | (832    | )      |   | $ | (863 | ) |   | $ | 111,809 |   |
| Net loss                                                                              |   |         | ― |   |                       |   | ― |              |   |   | (2,540         | )      |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | (2,540 | ) |
| Other comprehensive loss:Change in unrealized depreciation on investment securities available-for-sale, net of reclassification and tax                                                                                                                                                                                                                        |   |         | ― |   |                       |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                          |   | ― |   |   |   | (436 | ) |   |   | (436 | ) |
| Total comprehensive loss                                                                                                                                                                       |   |         | ― |   |                       |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | (2,976 | ) |
| Net purchases of Rabbi Trust shares                                                                                                                                                                                                                                                                                                                            |   |         | ― |   |                       |   | (414    | )                 |   |   | ―        |   |   |                                | 958      |   |                                          |   | ― |   |   |   | ― |   |   |   | 544 |   |
| Shares earned under ESOP                                                                                                                                         |   |         | ― |   |                       |   | (401    | )                 |   |   | ―        |   |   |                                | ―  |   |                                          |   | 832     |   |   |   | ― |   |   |   | 431 |   |
| Amortization of award under RRP                                                                                                                                                                                                                                                                                                                                |   |         | ― |   |                       |   | 1       |              |   |   | ―        |   |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | 1 |   |
| Forfeiture of RRP award                                                               |   |         | ― |   |                       |   | 906     |              |   |   | 18             |   |   |                                | (906     | )      |                                          |   | ― |   |   |   | ― |   |   |   | 18 |   |
| Unearned compensation restricted stock awards                                                                                                                                                                                                                                                                                                                  |   |         | ― |   |                       |   | (373    | )                 |   |   | ―        |   |   |                                | 373      |   |                                          |   | ― |   |   |   | ― |   |   |   | ― |   |
| Dividends declared on common stock ($.03per share)                                                   |   |         | ― |   |                       |   | ― |              |   |   | (328           | )      |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | (328 | ) |
| Balance at September 30, 2009                                                                                                                                              |   | $            | 234     |   |                       | $      | 188,930 |              |   | $      | 78,675         |   |   | $                                   | (157,041 | )      |                                          | $      | ― |   |   | $ | (1,299 | ) |   | $ | 109,499 |   |
|                                                                                                                                                                                                                                                                                                                                                           |   |         |    |   |                       |   |    |              |   |   |           |   |   |                                |     |   |                                          |   |    |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2010                                                                                                                                                                                    |   | $            | 234     |   |                       | $      | 188,930 |              |   | $      | 80,564         |   |   | $                                   | (157,041 | )      |                                          | $      | ― |   |   | $ | (2,314 | ) |   | $ | 110,373 |   |
| Net income                                                                            |   |         | ― |   |                       |   | ― |              |   |   | 2,542          |   |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | 2,542 |   |
| Other comprehensive income:Change in unrealized depreciation on investment securities available-for-sale, net of reclassification and tax                                                                                                                                                                                                                      |   |         | ― |   |                       |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                          |   | ― |   |   |   |     1,124 |   |   |   |     1,124 |   |
| Total comprehensive income                                                                                                                                  |   |         | ― |   |                       |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | 3,666 |   |
| Net distribution of Rabbi Trust shares                                                                                                                                                                                                                                                                                                                         |   |         | ― |   |                       |   | (447    | )                 |   |   | ―        |   |   |                                | 447      |   |                                          |   | ― |   |   |   | ― |   |   |   | ― |   |
| Forfeiture of restricted stock awards                                                                                                                                                                                                                                                                                                                          |   |         | ― |   |                       |   | 295     |              |   |   | 4              |   |   |                                | (295     | )      |                                          |   | ― |   |   |   | ― |   |   |   | 4 |   |
| Vesting of restricted stock awards                                                                                                                                                                                                                                                                                                                             |   |         | ― |   |                       |   | 164     |              |   |   | ―        |   |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | 164 |   |
| Unearned compensation restricted stock awards                                                                                                                                                                                                                                                                                                                  |   |         | ― |   |                       |   | (436    | )                 |   |   | ―        |   |   |                                | 436      |   |                                          |   | ― |   |   |   | ― |   |   |   | ― |   |
| Reclassification of treasury stock issuances of restricted stock at average cost                                                                                                                                                                                                                                                                          |   |         | ― |   |                       |   | (1,431  | )                 |   |   | ―        |   |   |                                | 1,431    |   |                                          |   | ― |   |   |   | ― |   |   |   | ― |   |
| Dividends declared on common stock ($.03per share)                                                   |   |         | ― |   |                       |   | ― |              |   |   | (327           | )      |   |                                | ―  |   |                                          |   | ― |   |   |   | ― |   |   |   | (327 | ) |
| Balance at September 30, 2010                                                                                                                                                        |   | $            | 234     |   |                       | $      | 187,075 |              |   | $      | 82,783         |   |   | $                                   | (155,022 | )      |                                          | $      | ― |   |   | $ | (1,190 | ) |   | $ | 113,880 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Nine Months EndedSeptember 30, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 2010                           |    |   | 2009 |   |
| OPERATING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                           |    |   |   |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                              | 2,542   |   |   | $ | (2,540 | ) |
| Adjustments to reconcile net income to net cash provided byoperating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                           |    |   |   |   |   |   |
| Provision for loan losses                                                                                                                                                           |   |                           | 3,052   |   |   |   | 10,767 |   |
| Depreciation and amortization                                                                                                                                                       |   |                           | 1,200   |   |   |   | 1,171 |   |
| Premium amortization on the early extinguishment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                           | ― |   |   |   | 157 |   |
| Net discount accretion on investment securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                           | (406    | ) |   |   | (1,136 | ) |
| Net premium amortization on investment securities held-to-maturity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                           | 125     |   |   |   | ― |   |
| Deferred income tax expense (benefit)                                                                                                                                               |   |                           | 386     |   |   |   | (1,145 | ) |
| Share-based compensation                                                                                                                                                            |   |                           | ― |   |   |   | 432 |   |
| Origination of loans held-for-sale                                                                                                                                                  |   |                           | (4,144  | ) |   |   | ― |   |
| Net gain on sale of investment securities                                                                                                                                           |   |                           | (456    | ) |   |   | (1,041 | ) |
| Net (gain) loss on sale of other assets                                                                                                                                             |   |                           | (14     | ) |   |   | 21 |   |
| Increase in cash surrender value of bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                           | (702    | ) |   |   | (552 | ) |
| Decrease in other assets                                                                                                                                                            |   |                           | 2,336   |   |   |   | 1,483 |   |
| Increase in other liabilities                                                                                                                                                       |   |                           | 521     |   |   |   | 695 |   |
| Net cash provided by operating activities                                                                                                                                                     |   |                           | 4,440   |   |   |   | 8,312 |   |
| INVESTING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                           |    |   |   |   |   |   |
| Investment securities, available-for-sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                           |    |   |   |   |   |   |
| Proceeds from sales                                                                                                                                                  |   |                           | 9,603   |   |   |   | 11,657 |   |
| Proceeds from maturities and paydowns                                                                                                                                |   |                           | 61,744  |   |   |   | 66,550 |   |
| Purchases                                                                                                                                                            |   |                           | (90,724 | ) |   |   | (31,429 | ) |
| Investment securities, held-to-maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                           |    |   |   |   |   |   |
| Proceeds from maturities and paydowns                                                                                                                                |   |                           | 1,500   |   |   |   | 940 |   |
| Purchases                                                                                                                                                            |   |                           | (8,456  | ) |   |   | ― |   |
| Net loan repayments (fundings)                                                                                                                             |   |                           | 16,262  |   |   |   | (9,940 | ) |
| Proceeds from sale of other real estate owned                                                                                                              |   |                           | 1,144   |   |   |   | 408 |   |
| Proceeds from bank-owned life insurance                                                                                                                    |   |                           | ― |   |   |   | 496 |   |
| Purchases of property and equipment                                                                                                                        |   |                           | (1,429  | ) |   |   | (1,993 | ) |
| Net cash provided by (used for) investing activities                                                                                                                                |   |                           | (10,356 | ) |   |   | 36,689 |   |
| FINANCING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                           |    |   |   |   |   |   |
| Net increase in deposit accounts                                                                                                                           |   |                           | 80,012  |   |   |   | 23,007 |   |
| Proceeds from Federal Home Loan Bank borrowed funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                           | 18,000  |   |   |   | 119,000 |   |
| Repayments of Federal Home Loan Bank borrowed funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                           | (55,242 | ) |   |   | (177,226 | ) |
| Decrease in short-term borrowed funds                                                                                                                      |   |                           | (10,367 | ) |   |   | (9,511 | ) |
| Dividends paid on common stock                                                                                                                             |   |                           | (327    | ) |   |   | (649 | ) |
| Net increase in advance payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                           | 1,630   |   |   |   | 3,029 |   |
| Net disposition of Rabbi Trust shares                                                                                                                      |   |                           | ― |   |   |   | 544 |   |
| Net cash provided by (used for) financing activities                                                                                                                      |   |                           | 33,706  |   |   |   | (41,806 | ) |
| Increase in cash and cash equivalents                                                                                                       |   |                           | 27,790  |   |   |   | 3,195 |   |
| Cash and cash equivalents at beginning of period                                                                                            |   |                           | 24,428  |   |   |   | 19,106 |   |
| Cash and cash equivalents at end of period                                                                                                  |   | $                              | 52,218  |   |   | $ | 22,301 |   |

----

table of contents

| Supplemental disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Loans transferred to other real estate owned                                                                                         |   | $      | 16,741 |   |   | $      | 6,012 |   |
| Cash paid for interest on deposits                                                                                                   |   |   | 6,344  |   |   |   | 8,417 |   |
| Cash paid for interest on borrowed funds                                                                                             |   |   | 1,425  |   |   |   | 2,483 |   |
| Cash paid for taxes                                                                                                                  |   |   | 1,075  |   |   |   | 460 |   |

----

table of contents

| 1. | Basis of Presentation |
|----|-----------------------|

| 2. | Earnings Per Share |
|----|--------------------|

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                              |   | Three Months EndedSeptember 30,                         |       |   | Nine Months EndedSeptember 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|------------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                              |   | 2010                                                    |       |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   | (Dollars in thousands, except share and per share data) |       |
| Net income (loss)                                                                 |   | $                                                       | 863        |   |                           | $      | (4,671 | ) |   | $ | 2,542 |   |   | $ | (2,540 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                    |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average common shares:                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                    |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding                                                                                 |   |                                                    | 10,657,719 |   |                           |   | 10,603,828 |   |   |   | 10,626,890 |   |   |   | 10,563,814 |   |
| Equivalents                                                                                 |   |                                                    | 49,444     |   |                           |   | 91,891 |   |   |   | 74,182 |   |   |   | 110,433 |   |
| Total                                                                                                      |   |                                                    | 10,707,163 |   |                           |   | 10,695,719 |   |   |   | 10,701,072 |   |   |   | 10,674,247 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                    |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Earnings (loss) per share:                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                    |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                       |   | $                                                       | .08        |   |                           | $      | (.44 | ) |   | $ | .24 |   |   | $ | (.24 | ) |
| Diluted                                                                                     |   |                                                    | .08        |   |                           |   | (.44 | ) |   |   | .24 |   |   |   | (.24 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                    |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Number of anti-dilutive stock options excluded fromthe diluted earnings (loss) per share calculation                                                                                                                                                                                                                                                                                                              |   |                                                    | 651,995    |   |                           |   | 778,795 |   |   |   | 681,336 |   |   |   | 898,824 |   |
| Weighted-average exercise price of anti-dilutiveoption shares                                                                                                                                                                                                                                                                                                                                                     |   | $                                                       | 13.44      |   |                           | $      | 13.08 |   |   | $ | 13.37 |   |   | $ | 12.69 |   |

| 3. | Investment Securities |
|----|-----------------------|

|                                         |   | ParValue               |    |   | Amortized Cost |   |    | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | FairValue |    |
|----------------------------------------------|--------|------------------------|---------|--------|----------------|--------|---------|------------------------|--------|--------|-------------------------|--------|--------|-----------|---------|
|                                         |   | (Dollars in thousands) |    |
| At September 30, 2010:                       |   |                   |    |   |           |   |    |                   |   |   |                    |   |   |      |    |
| U.S. Treasury securities                     |   | $                      | 9,000   |   |           | $      | 9,050   |                   |   | $      | 105                     |   |   | $         | ― |   |   | $ | 9,155 |   |
| Government sponsored entity (GSE) securities |   |                   | 38,800  |   |           |   | 39,490  |                   |   |   | 1,043                   |   |   |      | ― |   |   |   | 40,533 |   |
| Corporate bonds                              |   |                   | 4,000   |   |           |   | 3,614   |                   |   |   | ―                 |   |   |      | (62     | ) |   |   | 3,552 |   |
| Collateralized mortgage obligations          |   |                   | 67,423  |   |           |   | 64,546  |                   |   |   | 2,466                   |   |   |      | (243    | ) |   |   | 66,769 |   |
| Commercial mortgage-backed securities        |   |                   | 68,633  |   |           |   | 69,290  |                   |   |   | 2,453                   |   |   |      | ― |   |   |   | 71,743 |   |
| Pooled trust preferred securities            |   |                   | 29,760  |   |           |   | 26,764  |                   |   |   | ―                 |   |   |      | (7,851  | ) |   |   | 18,913 |   |
| GSE preferred stock                          |   |                   | 5,837   |   |           |   | ― |                   |   |   | 52                      |   |   |      | ― |   |   |   | 52 |   |
|                                         |   | $                      | 223,453 |   |           | $      | 212,754 |                   |   | $      | 6,119                   |   |   | $         | (8,156  | ) |   | $ | 210,717 |   |
|                                         |   |                   |    |   |           |   |    |                   |   |   |                    |   |   |      |    |   |   |   |   |   |

|                                         |   | ParValue               |    |   | Amortized Cost |   |    | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | FairValue |    |
|----------------------------------------------|--------|------------------------|---------|--------|----------------|--------|---------|------------------------|--------|--------|-------------------------|--------|--------|-----------|---------|
|                                         |   | (Dollars in thousands) |    |
| At December 31, 2009:                        |   |                   |    |   |           |   |    |                   |   |   |                    |   |   |      |    |
| Government sponsored entity (GSE) securities |   | $                      | 40,450  |   |           | $      | 40,374  |                   |   | $      | 1,083                   |   |   | $         | ― |   |   | $ | 41,457 |   |
| Mortgage-backed securities                   |   |                   | 9,527   |   |           |   | 9,426   |                   |   |   | 409                     |   |   |      | ― |   |   |   | 9,835 |   |
| Collateralized mortgage obligations          |   |                   | 67,307  |   |           |   | 66,413  |                   |   |   | 1,336                   |   |   |      | (981    | ) |   |   | 66,768 |   |
| Commercial mortgage-backed securities        |   |                   | 49,722  |   |           |   | 49,210  |                   |   |   | 1,347                   |   |   |      | (35     | ) |   |   | 50,522 |   |
| Pooled trust preferred securities            |   |                   | 30,223  |   |           |   | 27,093  |                   |   |   | ―                 |   |   |      | (7,081  | ) |   |   | 20,012 |   |
| GSE preferred stock                          |   |                   | 5,837   |   |           |   | ― |                   |   |   | 187                     |   |   |      | ― |   |   |   | 187 |   |
|                                         |   | $                      | 203,066 |   |           | $      | 192,516 |                   |   | $      | 4,362                   |   |   | $         | (8,097  | ) |   | $ | 188,781 |   |

----

table of contents

|                                |   | September 30, 2010     |    |
|-------------------------------------|--------|------------------------|---------|
|                                |   | Less than 12 Months    |    |   | 12 Months or More |   |   | Total |   |
|                                |   | Fair Value             |    |   | Unrealized Losses |   |   | Fair Value |   |   | Unrealized Losses |   |   | Fair Value |   |   | Unrealized Losses |   |
|                                |   | (Dollars in thousands) |    |
| Corporate bonds                     |   | $                      | 3,552   |   |   | $ | (62 | ) |   | $ | ― |   |   | $ | ― |   |   | $ | 3,552 |   |   | $ | (62 | ) |
| Collateralized mortgage obligations |   |                   | 7,832   |   |   |   | (83 | ) |   |   | 3,431 |   |   |   | (160 | ) |   |   | 11,263 |   |   |   | (243 | ) |
| Pooled trust preferred securities   |   |                   | ― |   |   |   | ― |   |   |   | 18,913 |   |   |   | (7,851 | ) |   |   | 18,913 |   |   |   | (7,851 | ) |
|                                |   | $                      | 11,384  |   |   | $ | (145 | ) |   | $ | 22,344 |   |   | $ | (8,011 | ) |   | $ | 33,728 |   |   | $ | (8,156 | ) |

|                                  |   | December 31, 2009      |    |
|---------------------------------------|--------|------------------------|---------|
|                                  |   | Less than 12 Months    |    |   | 12 Months or More |   |   | Total |   |
|                                  |   | Fair Value             |    |   | Unrealized Losses |   |   | Fair Value |   |   | Unrealized Losses |   |   | Fair Value |   |   | Unrealized Losses |   |
|                                  |   | (Dollars in thousands) |    |
| Collateralized mortgage obligations   |   | $                      | 12,461  |   |   | $ | (201 | ) |   | $ | 14,764 |   |   | $ | (780 | ) |   | $ | 27,225 |   |   | $ | (981 | ) |
| Commercial mortgage-backed securities |   |                   | 1,598   |   |   |   | (35 | ) |   |   | ― |   |   |   | ― |   |   |   | 1,598 |   |   |   | (35 | ) |
| Pooled trust preferred securities     |   |                   | ― |   |   |   | ― |   |   |   | 20,012 |   |   |   | (7,081 | ) |   |   | 20,012 |   |   |   | (7,081 | ) |
|                                  |   | $                      | 14,059  |   |   | $ | (236 | ) |   | $ | 34,776 |   |   | $ | (7,861 | ) |   | $ | 48,835 |   |   | $ | (8,097 | ) |

----

table of contents

|                                                          |   | Available-for-Sale     |    |
|---------------------------------------------------------------|--------|------------------------|---------|
|                                                          |   | AmortizedCost          |    |   | FairValue |   |
|                                                          |   | (Dollars in thousands) |    |
| U.S. Treasury securities:                                     |   |                   |    |
| Due after one year through five years                         |   | $                      | 9,050   |   |   | $ | 9,155 |   |
| GSE securities:                                          |   |                   |    |   |   |   |   |   |
| Due in one year or less                                       |   |                   | 12,499  |   |   |   | 12,649 |   |
| Due after one year through five years                         |   |                   | 26,991  |   |   |   | 27,884 |   |
| Corporate bonds:                                              |   |                   |    |   |   |   |   |   |
|     Due after one year through five years |   |                   | 3,614   |   |   |   | 3,552 |   |
| Collateralized mortgage obligations                           |   |                   | 64,546  |   |   |   | 66,769 |   |
| Commercial mortgage-backed securities                         |   |                   | 69,290  |   |   |   | 71,743 |   |
| Pooled trust preferred securities                             |   |                   | 26,764  |   |   |   | 18,913 |   |
| GSE preferred stock                                           |   |                   | ― |   |   |   | 52 |   |
|                                                          |   | $                      | 212,754 |   |   | $ | 210,717 |   |

|                                  |   | Held-to-Maturity       |   |
|---------------------------------------|--------|------------------------|--------|
|                                  |   | AmortizedCost          |   |   | FairValue |   |
|                                  |   | (Dollars in thousands) |   |
| Asset backed securities:              |   |                   |   |   |   |   |
| Due after five years                  |   | $                      | 7,831  |   |   | $ | 8,181 |   |
| State and municipal securities:  |   |                   |   |   |   |   |   |   |
| Due in one year or less               |   |                   | 2,000  |   |   |   | 2,028 |   |
| Due after one year through five years |   |                   | 2,000  |   |   |   | 2,087 |   |
|                                  |   | $                      | 11,831 |   |   | $ | 12,296 |   |

----

table of contents

| 4. | Fair Value Measurements |
|----|-------------------------|

|                                                                                                                                                                                                                                                                                                                                                         |   | Fair Value Measurements at September 30, 2010 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                         |   | Fair Value                                    |   |   | Quoted Prices inActive Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs (Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|                                                                                                                                                                                                                                                                                                                                                         |   | (Dollars in thousands)                        |   |
| Investment securities available-for-sale:                                                                                                                                                                                                                                                                                                                    |   |                                          |   |   |   |   |   |   |   |   |   |   |
|     U.S. Treasury securities                                                   |   | $                                             | 9,155  |   |   | $ | ― |   |   | $ | 9,155 |   |   | $ | ― |   |
| Government sponsored entity(GSE) securities                                                                                      |   |                                          | 40,533 |   |   |   | ― |   |   |   | 40,533 |   |   |   | ― |   |
|     Corporate bonds                                                            |   |                                          | 3,552  |   |   |   | ― |   |   |   | 3,552 |   |   |   | ― |   |
| Collateralized mortgage obligations                                                                                                                                                                                                                                                                                                                          |   |                                          | 66,769 |   |   |   | ― |   |   |   | 66,769 |   |   |   | ― |   |
| Commercial mortgage-backedsecurities                                                                                             |   |                                          | 71,743 |   |   |   | ― |   |   |   | 71,743 |   |   |   | ― |   |
| Pooled trust preferred securities                                                                                                                                                                                                                                                                                                                            |   |                                          | 18,913 |   |   |   | ― |   |   |   | ― |   |   |   | 18,913 |   |
| GSE preferred stock                                                                                               |   |                                          | 52     |   |   |   | 52 |   |   |   | ― |   |   |   | ― |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                 |   | Fair Value Measurements at December 31, 2009 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                 |   | Fair Value                                   |   |   | Quoted Prices inActive Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs (Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|                                                                                                                                                                                                                                                                                                                 |   | (Dollars in thousands)                       |   |
| Investment securities available-for-sale:                                                                                                                                                                                                                                                                            |   |                                         |   |   |   |   |   |   |   |   |   |   |
| Government sponsored entity(GSE) securities                                              |   | $                                            | 41,457 |   |   | $ | ― |   |   | $ | 41,457 |   |   | $ | ― |   |
| Mortgage-backed securities                                                |   |                                         | 9,835  |   |   |   | ― |   |   |   | 9,835 |   |   |   | ― |   |
| Collateralized mortgage obligations                                                                                                                                                                                                                                                                                  |   |                                         | 66,768 |   |   |   | ― |   |   |   | 66,768 |   |   |   | ― |   |
| Commercial mortgage-backedsecurities                                                     |   |                                         | 50,522 |   |   |   | ― |   |   |   | 50,522 |   |   |   | ― |   |
| Pooled trust preferred securities                                                                                                                                                                                                                                                                                    |   |                                         | 20,012 |   |   |   | ― |   |   |   | ― |   |   |   | 20,012 |   |
| GSE preferred stock                                                       |   |                                         | 187    |   |   |   | 187 |   |   |   | ― |   |   |   | ― |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Investment Securities Available-for-Sale |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Three Months Ended                       |   |   | Nine Months Ended |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | September 30, 2010                       |   |   | September 30, 2010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | (Dollars in thousands)                   |   |
| Balance at beginning of period                                                                               |   | $                                        | 20,124 |   |   | $ | 20,012 |   |
| Total realized and unrealized losses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                     |   |   |   |   |   |   |
| Included in accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | (1,107 | ) |   |   | (771 | ) |
| Purchases, sales, issuances and settlements, net                                                                            |   |                                     | (104   | ) |   |   | (328 | ) |
| Balance at end of period                                                                                     |   | $                                        | 18,913 |   |   | $ | 18,913 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Investment Securities Available-for-Sale |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Three Months Ended                       |   |   | Nine Months Ended |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | September 30, 2009                       |   |   | September 30, 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | (Dollars in thousands)                   |   |
| Balance at beginning of period                                                                               |   | $                                        | 25,832 |   |   | $ | 24,133 |   |
| Total realized and unrealized losses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                     |   |   |   |   |   |   |
| Included in accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | (4,749 | ) |   |   | (2,700 | ) |
| Purchases, sales, issuances and settlements, net                                                                            |   |                                     | (129   | ) |   |   | (479 | ) |
| Balance at end of period                                                                                     |   | $                                        | 20,954 |   |   | $ | 20,954 |   |

|                                                                                                                                                                                                                                               |   | Fair Value Measurements at September 30, 2010 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                                                                                                                                               |   | Fair Value                                    |   |   | Quoted Prices inActive Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs (Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|                                                                                                                                                                                                                                               |   | (Dollars in thousands)                        |   |
| Impaired loans                                       |   | $                                             | 16,314 |   |   | $ | ― |   |   | $ | ― |   |   | $ | 16,314 |   |
| Other real estate owned                                                                                                                                                                                                                            |   |                                          | 13,087 |   |   |   | ― |   |   |   | ― |   |   |   | 13,087 |   |

|                                                                                                                                                                                                                                               |   | Fair Value Measurements at December 31, 2009 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                                                                                                                               |   | Fair Value                                   |   |   | Quoted Prices inActive Markets for Identical Assets(Level 1) |   |   | Significant Other Observable Inputs (Level 2) |   |   | Significant Unobservable Inputs(Level 3) |   |
|                                                                                                                                                                                                                                               |   | (Dollars in thousands)                       |   |
| Impaired loans                                       |   | $                                            | 29,411 |   |   | $ | ― |   |   | $ | ― |   |   | $ | 29,411 |   |
| Other real estate owned                                                                                                                                                                                                                            |   |                                         | 1,740  |   |   |   | ― |   |   |   | ― |   |   |   | 1,740 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | September 30,          |      |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2010                   |      |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Carrying               |      |   | Fair         |   |   | Carrying |   |   | Fair |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Amount                 |      |   | Value        |   |   | Amount |   |   | Value |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars in thousands) |      |
| Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |      |   |         |   |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                            |   | $                      | 52,218    |   |         | $      | 52,218 |   |   | $ | 24,428 |   |   | $ | 24,428 |   |
| Investment securities, available-for-sale                                                                            |   |                   | 210,717   |   |         |   | 210,717 |   |   |   | 188,781 |   |   |   | 188,781 |   |
| Investment securities, held-to-maturity                                                                              |   |                   | 11,831    |   |         |   | 12,295 |   |   |   | 5,000 |   |   |   | 5,179 |   |
| Federal Home Loan Bank stock                                                                                         |   |                   | 23,944    |   |         |   | 23,944 |   |   |   | 23,944 |   |   |   | 23,944 |   |
| Loans receivable, net of allowance for loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   | 706,652   |   |         |   | 711,516 |   |   |   | 742,925 |   |   |   | 745,594 |   |
| Loans held for sale                                                                                                  |   |                   | 4,425     |   |         |   | 4,610 |   |   |   | — |   |   |   | — |   |
| Accrued interest receivable                                                                                          |   |                   | 3,315     |   |         |   | 3,315 |   |   |   | 3,469 |   |   |   | 3,469 |   |
| Total financial assets                                                                                               |   | $                      | 1,013,102 |   |         | $      | 1,018,615 |   |   | $ | 988,547 |   |   | $ | 991,395 |   |
| Financial Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                   |      |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                             |   | $                      | 929,856   |   |         | $      | 930,809 |   |   | $ | 849,758 |   |   | $ | 850,894 |   |
| Borrowed funds                                                                                                       |   |                   | 64,199    |   |         |   | 67,111 |   |   |   | 111,808 |   |   |   | 113,379 |   |
| Accrued interest payable                                                                                             |   |                   | 110       |   |         |   |  110 |   |   |   | 145 |   |   |   | 145 |   |
| Total financial liabilities                                                                                          |   | $                      | 994,165   |   |         | $      | 998,030 |   |   | $ | 961,711 |   |   | $ | 964,418 |   |

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| 5. | Share-Based Compensation |
|----|--------------------------|

|                           |   |   |    |   |  Number ofShares |    |    | Weighted-AverageGrant-Date FairValue |   |
|--------------------------------|--------|--------|---------|--------|-----------------------|---------|---------|--------------------------------------|--------|
| Unvested at December 31, 2009  |   |   |    |   |                  | 165,664 |    |                                 | $      | 6.04 |   |
| 2010 awards:                   |   |   |    |   |                  |    |    |                                 |   |   |   |
| Granted                        |   |   | 120,392 |   |                  |    |    |                                 |   |   | 3.62 |   |
| Forfeited                      |   |   | (10,132 | )      |                  |    |    |                                 |   |   | 3.49 |   |
| Net 2010 grant awards          |   |   |    |   |                  |    | 110,260 |                                 |   |   | 3.63 |   |
| Vested                         |   |   |    |   |                  |    | (14,883 | )                                    |   |   | 13.70 |   |
| Forfeited                      |   |   |    |   |                  |    | (73,014 | )                                    |   |   | 3.56 |   |
| Unvested at September 30, 2010 |   |   |    |   |                  |    | 188,027 |                                 |   | $ | 4.98 |   |

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|                                 |   | Number ofShares |     |   | Weighted-AverageExercise Price |   |
|-------------------------------------------|--------|-----------------|----------|--------|--------------------------------|--------|
| Options outstanding at December 31, 2009  |   |            | 769,795  |   |                           | $      | 13.08 |   |
| Granted                                   |   |            | ―  |   |                           |   | ― |   |
| Exercised                                 |   |            | ―  |   |                           |   | ― |   |
| Forfeited                                 |   |            | (3,000   | )      |                           |   | 13.48 |   |
| Expired unexercised                       |   |            | (114,800 | )      |                           |   | 11.00 |   |
| Options outstanding at September 30, 2010 |   |            | 651,995  |   |                           | $      | 13.44 |   |
|                                      |   |            |     |   |                           |   |   |   |
| Options exercisable at September 30, 2010 |   |            | 651,995  |   |                           | $      | 13.44 |   |

| 6. | Other Comprehensive Income (Loss) |
|----|-----------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Three Months EndedSeptember 30, |    |   | Nine Months EndedSeptember 30, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 2010                            |    |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (Dollars in thousands)          |    |
| Unrealized holding gains (losses) arising during the period:                                                                                                                                                                                                                                                                                                                                                                                           |   |                            |    |   |                           |   |   |   |   |   |   |   |
| Unrealized net gains (losses)                                                                           |   | $                               | 513     |   |                           | $      | (2,221 | ) |   | $ | 2,154 |   |   | $ | 247 |   |
| Related income tax benefit (expense)                                                                    |   |                            | (161    | )      |                           |   | 869 |   |   |   | (729 | ) |   |   | (16 | ) |
| Net unrealized gains (losses)                                                                           |   |                            | 352     |   |                           |   | (1,352 | ) |   |   | 1,425 |   |   |   | 231 |   |
| Less:  reclassification adjustment for net gainsrealized during the period:                                                                                                                                                                                                                                                                                                                                                                  |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Realized net gains                                                                                                     |   |                            | ― |   |                           |   | 321 |   |   |   | 456 |   |   |   | 1,041 |   |
| Related income tax expense                                                                                             |   |                            | ― |   |                           |   | (109 | ) |   |   | (155 | ) |   |   | (374 | ) |
| Net realized gains                                                                                                     |   |                            | ― |   |                           |   | 212 |   |   |   | 301 |   |   |   | 667 |   |
| Change in other comprehensive income (loss)                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                               | 352     |   |                           | $      | (1,564 | ) |   | $ | 1,124 |   |   | $ | (436 | ) |

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| 7. | Recent Accounting Pronouncements |
|----|----------------------------------|

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

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Three Months EndedSeptember 30, |    |   | Nine Months EndedSeptember 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2010                            |    |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars in thousands)          |    |
| Net income (loss)                                                                                        |   | $                               | 863     |   |                           | $      | (4,671 | ) |   | $ | 2,542 |   |   | $ | (2,540 | ) |
| Diluted earnings (loss) per share                                                                        |   |                            | .08     |   |                           |   | (.44 | ) |   |   | .24 |   |   |   | (.24 | ) |
| Pre-tax, pre-provision earnings from core operations (1)                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                            | 2,297   |   |                           |   | 3,075 |   |   |   | 7,982 |   |   |   | 8,010 |   |
| Return on average assets (2)                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                            | .31     | %      |                           |   | (1.70 | )% |   |   | .31 | % |   |   | (.31 | )% |
| Return on average equity (2)                                                                             |   |                            | 3.03    |   |                           |   | (16.06 | ) |   |   | 3.03 |   |   |   | (3.00 | ) |
| Average interest-earning assets                                                                          |   | $                               | 997,279 |   |                           | $      | 996,382 |   |   | $ | 989,290 |   |   | $ | 1,013,786 |   |
| Net interest income                                                                                      |   |                            | 8,886   |   |                           |   | 9,396 |   |   |   | 27,658 |   |   |   | 27,906 |   |
| Net interest margin                                                                                      |   |                            | 3.54    | %      |                           |   | 3.74 | % |   |   | 3.74 | % |   |   | 3.68 | % |
| Non-interest income                                                                                      |   | $                               | 2,136   |   |                           | $      | 2,600 |   |   | $ | 6,932 |   |   | $ | 7,676 |   |
| Non-interest expense                                                                                     |   |                            | 9,446   |   |                           |   | 10,248 |   |   |   | 28,521 |   |   |   | 29,619 |   |
| Efficiency ratio (3)                                                                                     |   |                            | 85.72   | %      |                           |   | 87.66 | % |   |   | 83.59 | % |   |   | 85.70 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| (1) See “Non-GAAP Financial Information” on page 26.                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| (2) Annualized.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| (3) The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interestincome, excluding net gain on sales of investment securities and other assets.                                                                                                                                                                                                                                                                    |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | September 30,2010 |   |   | December 31,2009 |   |   | September 30,2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------------|--------|--------|-------------------|--------|
| Book value per share                                                                                                           |   | $                 | 10.49  |   |             | $      | 10.25  |              |   | $ | 10.16 |   |
| Shareholders’ equity to total assets                                                                                          |   |              | 10.17  | %      |             |   | 10.21  | %                 |   |   | 10.15 | % |
| Tangible capital ratio (Bank only)                                                                                                  |   |              | 8.91   |   |             |   | 8.88   |              |   |   | 8.63 |   |
| Core capital ratio (Bank only)                                                                                                      |   |              | 8.91   |   |             |   | 8.88   |              |   |   | 8.63 |   |
| Risk based capital ratio (Bank only)                                                                                                |   |              | 13.21  |   |             |   | 12.35  |              |   |   | 11.91 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three Months EndedSeptember 30, |    |   | Nine Months EndedSeptember 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010                            |    |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)          |    |
| Income (loss) before income taxes                                                                                          |   | $                               | 1,051   |   |                           | $      | (7,682 | ) |   | $ | 3,017 |   |   | $ | (4,804 | ) |
| Provision for loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                            | 525     |   |                           |   | 9,430 |   |   |   | 3,052 |   |   |   | 10,767 |   |
| Pre-tax, pre-provision earnings                                                                                            |   |                            | 1,576   |   |                           |   | 1,748 |   |   |   | 6,069 |   |   |   | 5,963 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Add back (subtract):                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Net gain on sale of investment securities                                                                                                 |   |                            | ― |   |                           |   | (321 | ) |   |   | (456 | ) |   |   | (1,041 | ) |
| Net (gain) loss on sale of other assets                                                                                                   |   |                            | (2      | )      |                           |   | 15 |   |   |   | (14 | ) |   |   | 21 |   |
| OREO related expense                                                                                                                      |   |                            | 479     |   |                           |   | 1,343 |   |   |   | 1,377 |   |   |   | 1,754 |   |
| Loan collection expense                                                                                                                   |   |                            | 156     |   |                           |   | 290 |   |   |   | 478 |   |   |   | 818 |   |
| Severance and early retirement expense                                                                                                    |   |                            | 88      |   |                           |   | ― |   |   |   | 528 |   |   |   | ― |   |
| FDIC special insurance premium assessment                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                            | ― |   |                           |   | ― |   |   |   | ― |   |   |   | 495 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Pre-tax, pre-provision earnings from core operations                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                               | 2,297   |   |                           | $      | 3,075 |   |   | $ | 7,982 |   |   | $ | 8,010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                            |    |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Pre-tax, pre-provision earnings from core operationsto average assets                                                                     |   |                            | .82     | %      |                           |   | 1.12 | % |   |   | .97 | % |   |   | .97 | % |

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|                                                                                                                                                                                                                                                                                                                                      |   | Three Months Ended September 30, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                      |   | 2010                             |      |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                      |   | Average Balance                  |      |   | Interest |   |   | AverageYield/Cost |   |   | Average Balance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands)           |      |
| Interest-earning assets:                                                                                                                                                                                                                                                                                                                  |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable (1)                                                                           |   | $                                | 744,316   |   |   | $ | 9,199 |   |   |   | 4.90 | % |   | $ | 747,828 |   |   | $ | 9,648 |   |   |   | 5.12 | % |
| Investment securities (2)                                                                      |   |                             | 216,393   |   |   |   | 2,176 |   |   |   | 3.93 |   |   |   | 222,025 |   |   |   | 2,742 |   |   |   | 4.83 |   |
| Other interest-earning assets (3)                                                                                                                                                                                                                                                                                                         |   |                             | 36,570    |   |   |   | 90 |   |   |   | 0.98 |   |   |   | 26,529 |   |   |   | 195 |   |   |   | 2.92 |   |
| Total interest-earning assets                                                                                                                                                                                                                                                                                                             |   |                             | 997,279   |   |   |   | 11,465 |   |   |   | 4.56 |   |   |   | 996,382 |   |   |   | 12,585 |   |   |   | 5.01 |   |
|                                                                                                                                                                                                                                                                                                                                      |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                                     |   |                             | 114,363   |   |   |   |   |   |   |   |   |   |   |   | 92,728 |   |   |   |   |   |   |   |   |   |
| Total assets                                                                    |   | $                                | 1,111,642 |   |   |   |   |   |   |   |   |   |   | $ | 1,089,110 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                      |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                                                                                                                                                                                                                                                                             |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                 |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                                                                                        |   | $                                | 145,471   |   |   |   | 120 |   |   |   | 0.33 |   |   | $ | 133,719 |   |   |   | 74 |   |   |   | 0.22 |   |
| Money market accounts                                                                                    |   |                             | 159,445   |   |   |   | 245 |   |   |   | 0.61 |   |   |   | 154,347 |   |   |   | 263 |   |   |   | 0.68 |   |
| Savings accounts                                                                                         |   |                             | 120,486   |   |   |   | 80 |   |   |   | 0.26 |   |   |   | 118,134 |   |   |   | 98 |   |   |   | 0.33 |   |
| Certificates of deposit                                                                                  |   |                             | 404,586   |   |   |   | 1,698 |   |   |   | 1.67 |   |   |   | 364,876 |   |   |   | 1,996 |   |   |   | 2.17 |   |
| Total deposits                                                                                                                                                                      |   |                             | 829,988   |   |   |   | 2,143 |   |   |   | 1.02 |   |   |   | 771,076 |   |   |   | 2,431 |   |   |   | 1.25 |   |
|                                                                                                                                                                                                                                                                                                                                      |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed funds:                                                                                                                                                                                                                                                                                                                           |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowed funds (4)                                                                                                                                                                                                                                                                                                       |   |                             | 14,122    |   |   |   | 19 |   |   |   | 0.53 |   |   |   | 11,969 |   |   |   | 24 |   |   |   | 0.80 |   |
| FHLB borrowed funds                                                                                           |   |                             | 55,572    |   |   |   | 417 |   |   |   | 2.94 |   |   |   | 104,253 |   |   |   | 734 |   |   |   | 2.76 |   |
| Total borrowed funds                                                                                                    |   |                             | 69,694    |   |   |   | 436 |   |   |   | 2.45 |   |   |   | 116,222 |   |   |   | 758 |   |   |   | 2.55 |   |
| Total interest bearing liabilities                                                                                                                                                                                                                                                                                                        |   |                             | 899,682   |   |   |   | 2,579 |   |   |   | 1.14 |   |   |   | 887,298 |   |   |   | 3,189 |   |   |   | 1.43 |   |
| Non-interest bearing deposits                                                   |   |                             | 87,654    |   |   |   |   |   |   |   |   |   |   |   | 69,341 |   |   |   |   |   |   |   |   |   |
| Non-interest bearing other liabilities                                                                                                                                                                                                                                                                                                    |   |                             | 11,161    |   |   |   |   |   |   |   |   |   |   |   | 17,060 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                               |   |                             | 998,497   |   |   |   |   |   |   |   |   |   |   |   | 973,699 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                                      |   |                             | 113,145   |   |   |   |   |   |   |   |   |   |   |   | 115,411 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                          |   | $                                | 1,111,642 |   |   |   |   |   |   |   |   |   |   | $ | 1,089,110 |   |   |   |   |   |   |   |   |   |
| Net interest-earning assets                                                     |   | $                                | 97,597    |   |   |   |   |   |   |   |   |   |   | $ | 109,084 |   |   |   |   |   |   |   |   |   |
| Net interest income / interest rate spread                                                                                                                                                                                                                                                                                                |   |                             |      |   |   | $ | 8,886 |   |   |   | 3.42 | % |   |   |   |   |   | $ | 9,396 |   |   |   | 3.58 | % |
| Net interest margin                                                             |   |                             |      |   |   |   |   |   |   |   | 3.54 | % |   |   |   |   |   |   |   |   |   |   | 3.74 | % |
| Ratio of average interest-earning assetsto average interest bearing liabilities                                                                                                                                                                                                                                                           |   |                             |      |   |   |   |   |   |   |   | 110.85 | % |   |   |   |   |   |   |   |   |   |   | 112.29 | % |

|   |   |
|--------|--------|

| (1) | Loans receivable include non-performing loans, interest on which is recognized on a cash basis. |
|-----|-------------------------------------------------------------------------------------------------|

| (2) | Investment securities are based on amortized cost. |
|-----|----------------------------------------------------|

| (3) | Includes FHLB stock, money market accounts, federal funds sold, and interest-earning bank deposits. |
|-----|-----------------------------------------------------------------------------------------------------|

| (4) | Includes federal funds purchased, overnight borrowed funds from the Federal Reserve Bank |
|-----|------------------------------------------------------------------------------------------|

|   | discount window, and repurchase agreements (Repo Sweeps). |
|--------|-----------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                                                                      |   |  Nine Months Ended September 30, |      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                      |   | 2010                                  |      |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   | AverageBalance                        |      |   | Interest |   |   | AverageYield/Cost |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands)                |      |
| Interest-earning assets:                                                                                                                                                                                                                                                                                                                                                  |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable (1)                                                                                                                                                                                                                                                                                                                                                      |   | $                                     | 754,145   |   |   | $ | 28,503 |   |   |   | 5.05 | % |   | $ | 750,930 |   |   | $ | 29,400 |   |   |   | 5.23 | % |
| Investment securities (2)                                                                                                                                                                                                                                                                                                                                                 |   |                                  | 204,392   |   |   |   | 6,552 |   |   |   | 4.23 |   |   |   | 232,953 |   |   |   | 8,805 |   |   |   | 4.98 |   |
| Other interest-earning assets (3)                                                                                                                                                                                                                                                                                                                                         |   |                                  | 30,753    |   |   |   | 337 |   |   |   | 1.47 |   |   |   | 29,903 |   |   |   | 575 |   |   |   | 2.57 |   |
| Total interest-earning assets                                                                                                                                                                                                                                                                                                                                             |   |                                  | 989,290   |   |   |   | 35,392 |   |   |   | 4.78 |   |   |   | 1,013,786 |   |   |   | 38,780 |   |   |   | 5.11 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                                                                     |   |                                  | 105,755   |   |   |   |   |   |   |   |   |   |   |   | 87,242 |   |   |   |   |   |   |   |   |   |
| Total assets                                                                                                    |   | $                                     | 1,095,045 |   |   |   |   |   |   |   |   |   |   | $ | 1,101,028 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                                                                                                                                                                                                                                                                                                                             |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                 |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                                                                                                                        |   | $                                     | 144,661   |   |   |   | 240 |   |   |   | 0.22 |   |   | $ | 127,032 |   |   |   | 281 |   |   |   | 0.30 |   |
| Money market accounts                                                                                                                    |   |                                  | 149,519   |   |   |   | 750 |   |   |   | 0.67 |   |   |   | 158,125 |   |   |   | 881 |   |   |   | 0.74 |   |
| Savings accounts                                                                                                                         |   |                                  | 118,243   |   |   |   | 273 |   |   |   | 0.31 |   |   |   | 118,216 |   |   |   | 304 |   |   |   | 0.34 |   |
| Certificates of deposit                                                                                                                  |   |                                  | 389,824   |   |   |   | 5,079 |   |   |   | 1.74 |   |   |   | 367,274 |   |   |   | 6,810 |   |   |   | 2.48 |   |
| Total deposits                                                                                                                                          |   |                                  | 802,247   |   |   |   | 6,342 |   |   |   | 1.06 |   |   |   | 770,647 |   |   |   | 8,276 |   |   |   | 1.44 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Borrowed funds:                                                                                                                                                                                                                                                                                                                                   |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other short-term borrowed funds (4)                                                                                                                                                                                                                                                                                             |   |                                  | 14,823    |   |   |   | 56 |   |   |   | 0.51 |   |   |   | 13,412 |   |   |   | 77 |   |   |   | 0.77 |   |
|        FHLB borrowed funds                                                   |   |                                  | 65,190    |   |   |   | 1,336 |   |   |   | 2.70 |   |   |   | 122,727 |   |   |   | 2,521 |   |   |   | 2.71 |   |
|        Total borrowed funds                                                                 |   |                                  | 80,013    |   |   |   | 1,392 |   |   |   | 2.29 |   |   |   | 136,139 |   |   |   | 2,598 |   |   |   | 2.52 |   |
| Total interest bearing liabilities                                                                                                                                                                                                                                                                                                                                        |   |                                  | 882,260   |   |   |   | 7,734 |   |   |   | 1.17 |   |   |   | 906,786 |   |   |   | 10,874 |   |   |   | 1.60 |   |
| Non-interest bearing deposits                                                                                   |   |                                  | 90,041    |   |   |   |   |   |   |   |   |   |   |   | 65,919 |   |   |   |   |   |   |   |   |   |
| Non-interest bearing other liabilities                                                                                                                                                                                                                                                                                                                                    |   |                                  | 10,683    |   |   |   |   |   |   |   |   |   |   |   | 15,168 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                                                               |   |                                  | 982,984   |   |   |   |   |   |   |   |   |   |   |   | 987,873 |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                                                                                      |   |                                  | 112,061   |   |   |   |   |   |   |   |   |   |   |   | 113,155 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                                                          |   | $                                     | 1,095,045 |   |   |   |   |   |   |   |   |   |   | $ | 1,101,028 |   |   |   |   |   |   |   |   |   |
| Net interest-earning assets                                                                                     |   | $                                     | 107,030   |   |   |   |   |   |   |   |   |   |   | $ | 107,000 |   |   |   |   |   |   |   |   |   |
| Net interest income / interest rate spread                                                                                                                                                                                                                                                                                                                                |   |                                  |      |   |   | $ | 27,658 |   |   |   | 3.61 | % |   |   |   |   |   | $ | 27,906 |   |   |   | 3.51 | % |
| Net interest margin                                                                                             |   |                                  |      |   |   |   |   |   |   |   | 3.74 | % |   |   |   |   |   |   |   |   |   |   | 3.68 | % |
| Ratio of average interest-earning assets to    average interest bearing liabilities                                                                                                                                                                                                                                                              |   |                                  |      |   |   |   |   |   |   |   | 112.13 | % |   |   |   |   |   |   |   |   |   |   | 111.80 | % |

|   |   |
|--------|--------|

| (1) | Loans receivable include non-performing loans, interest on which is recognized on a cash basis. |
|-----|-------------------------------------------------------------------------------------------------|

| (2) | Investment securities are based on amortized cost. |
|-----|----------------------------------------------------|

| (3) | Includes FHLB stock, money market accounts, federal funds sold, and interest-earning bank deposits. |
|-----|-----------------------------------------------------------------------------------------------------|

| (4) | Includes federal funds purchased, overnight borrowed funds from the Federal Reserve Bank |
|-----|------------------------------------------------------------------------------------------|

|   | discount window, and Repo Sweeps. |
|--------|-----------------------------------|

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table of contents

| Rate / Volume Analysis of Net Interest Income |
|-----------------------------------------------|

|                              |   | September 30, 2010 compared to September 30, 2009 |   |
|-----------------------------------|--------|---------------------------------------------------|--------|
|                              |   | Three Months Ended                                |   |   | Nine Months Ended |   |
|                              |   | Increase (decrease) due to                        |   |
|                              |   | Rate                                              |   |   | Volume |   |   | Total Change |   |   | Rate |   |   | Volume |   |   | Total Change |   |
|                              |   | (Dollars in thousands)                            |   |
| Interest income:                  |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                  |   | $                                                 | (404   | ) |   | $ | (45 | ) |   | $ | (449 | ) |   | $ | (1,023 | ) |   | $ | 125 |   |   | $ | (897 | ) |
| Investment securities             |   |                                              | (498   | ) |   |   | (68 | ) |   |   | (566 | ) |   |   | (1,246 | ) |   |   | (1,007 | ) |   |   | (2,253 | ) |
| Other interest-earning assets     |   |                                              | (161   | ) |   |   | 56 |   |   |   | (105 | ) |   |   | (254 | ) |   |   | 16 |   |   |   | (238 | ) |
| Total                             |   |                                              | (1,063 | ) |   |   | (57 | ) |   |   | (1,120 | ) |   |   | (2,523 | ) |   |   | (866 | ) |   |   | (3,388 | ) |
|                              |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                 |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                         |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                 |   |                                              | 39     |   |   |   | 7 |   |   |   | 46 |   |   |   | (76 | ) |   |   | 35 |   |   |   | (41 | ) |
| Money market accounts             |   |                                              | (27    | ) |   |   | 9 |   |   |   | (18 | ) |   |   | (85 | ) |   |   | (46 | ) |   |   | (131 | ) |
| Savings accounts                  |   |                                              | (20    | ) |   |   | 2 |   |   |   | (18 | ) |   |   | (31 | ) |   |   | – |   |   |   | (31 | ) |
| Certificates of deposit           |   |                                              | (499   | ) |   |   | 201 |   |   |   | (298 | ) |   |   | (2,128 | ) |   |   | 397 |   |   |   | (1,731 | ) |
| Total deposits                    |   |                                              | (507   | ) |   |   | 219 |   |   |   | (288 | ) |   |   | (2,320 | ) |   |   | 386 |   |   |   | (1,934 | ) |
| Borrowed funds:                   |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowed funds   |   |                                              | (9     | ) |   |   | 4 |   |   |   | (5 | ) |   |   | (28 | ) |   |   | 7 |   |   |   | (21 | ) |
| FHLB borrowed funds               |   |                                              | 46     |   |   |   | (363 | ) |   |   | (317 | ) |   |   | (6 | ) |   |   | (1,179 | ) |   |   | (1,185 | ) |
| Total borrowed funds              |   |                                              | 37     |   |   |   | (359 | ) |   |   | (322 | ) |   |   | (34 | ) |   |   | (1,172 | ) |   |   | (1,206 | ) |
| Total                             |   |                                              | (470   | ) |   |   | (140 | ) |   |   | (610 | ) |   |   | (2,354 | ) |   |   | (786 | ) |   |   | (3,140 | ) |
| Net change in net interest income |   | $                                                 | (593   | ) |   | $ | 83 |   |   | $ | (510 | ) |   | $ | (169 | ) |   | $ | (80 | ) |   | $ | (248 | ) |

----

table of contents

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Three Months Ended September 30, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010                             |    |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Dollars in thousands)           |    |
| Service charges and other fees                                                                       |   | $                                | 1,290   |   |   | $ | 1,479 |   |   | $ | (189 | ) |   |   | (12.8 | )% |
| Card-based fees                                                                                      |   |                             | 475     |   |   |   | 429 |   |   |   | 46 |   |   |   | 10.7 |   |
| Commission income                                                                                    |   |                             | 40      |   |   |   | 56 |   |   |   | (16 | ) |   |   | (28.6 | ) |
| Subtotal fee based revenues                                                                                         |   |                             | 1,805   |   |   |   | 1,964 |   |   |   | (159 | ) |   |   | (8.1 | ) |
| Income from bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                 |   |                             | 217     |   |   |   | 218 |   |   |   | (1 | ) |   |   | (0.5 | ) |
| Other income                                                                                         |   |                             | 112     |   |   |   | 112 |   |   |   | ― |   |   |   | ― |   |
| Subtotal                                                                                                            |   |                             | 2,134   |   |   |   | 2,294 |   |   |   | (160 | ) |   |   | (7.0 | ) |
| Net gain on sale of investment securities                                                                                                                                                                                                                                                                                                                                                                             |   |                             | ― |   |   |   | 321 |   |   |   | (321 | ) |   |   | (100.0 | ) |
| Net gain (loss) on sale of other assets                                                              |   |                             | 2       |   |   |   | (15 | ) |   |   | 17 |   |   | NM |   |
| Total non-interest income                                                                                           |   | $                                | 2,136   |   |   | $ | 2,600 |   |   | $ | (464 | ) |   |   | (17.8 | )% |

|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Nine Months Ended September 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010                            |   |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Dollars in thousands)          |   |
| Service charges and other fees                                                                       |   | $                               | 3,830  |   |   | $ | 4,154 |   |   | $ | (324 | ) |   |   | (7.8 | )% |
| Card-based fees                                                                                      |   |                            | 1,398  |   |   |   | 1,249 |   |   |   | 149 |   |   |   | 11.9 |   |
| Commission income                                                                                    |   |                            | 140    |   |   |   | 197 |   |   |   | (57 | ) |   |   | (28.9 | ) |
| Subtotal fee based revenues                                                                                         |   |                            | 5,368  |   |   |   | 5,600 |   |   |   | (232 | ) |   |   | (4.1 | ) |
| Income from bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                 |   |                            | 702    |   |   |   | 552 |   |   |   | 150 |   |   |   | 27.2 |   |
| Other income                                                                                         |   |                            | 392    |   |   |   | 504 |   |   |   | (112 | ) |   |   | (22.2 | ) |
| Subtotal                                                                                                            |   |                            | 6,462  |   |   |   | 6,656 |   |   |   | (194 | ) |   |   | (2.9 | ) |
| Net gain on sale of investment securities                                                                                                                                                                                                                                                                                                                                                                             |   |                            | 456    |   |   |   | 1,041 |   |   |   | (585 | ) |   |   | (56.2 | ) |
| Net gain (loss) on sale of other assets                                                              |   |                            | 14     |   |   |   | (21 | ) |   |   | 35 |   |   | NM |   |
| Total non-interest income                                                                                           |   | $                               | 6,932  |   |   | $ | 7,676 |   |   | $ | (744 | ) |   |   | (9.7 | )% |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three Months Ended September 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010                             |   |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)           |   |
| Compensation and mandatory benefits                                                                                                                                                                                                                                                                                                                                                                           |   | $                                | 4,239  |   |   | $ | 3,650 |   |   | $ | 589 |   |   |   | 16.1 | % |
| Retirement and stock related compensation                                                                                                                                                                                                                                                                                                                                                                     |   |                             | 176    |   |   |   | 372 |   |   |   | (196 | ) |   |   | (52.7 | ) |
| Medical and life benefits                                                                    |   |                             | 285    |   |   |   | 475 |   |   |   | (190 | ) |   |   | (40.0 | ) |
| Other employee benefits                                                                      |   |                             | 9      |   |   |   | 8 |   |   |   | 1 |   |   |   | 12.5 |   |
| Subtotal compensation and employee benefits                                                                                                                                                                                                                                                                                                                                                                   |   |                             | 4,709  |   |   |   | 4,505 |   |   |   | 204 |   |   |   | 4.5 |   |
| Net occupancy expense                                                                        |   |                             | 691    |   |   |   | 763 |   |   |   | (72 | ) |   |   | (9.4 | ) |
| FDIC insurance premiums and OTS assessments                                                                                                                                                                                                                                                                                                                                                                   |   |                             | 623    |   |   |   | 574 |   |   |   | 49 |   |   |   | 8.5 |   |
| Professional fees                                                                            |   |                             | 512    |   |   |   | 662 |   |   |   | (150 | ) |   |   | (22.7 | ) |
| Furniture and equipment expense                                                              |   |                             | 488    |   |   |   | 526 |   |   |   | (38 | ) |   |   | (7.2 | ) |
| Data processing                                                                              |   |                             | 443    |   |   |   | 407 |   |   |   | 36 |   |   |   | 8.8 |   |
| Marketing                                                                                    |   |                             | 189    |   |   |   | 155 |   |   |   | 34 |   |   |   | 21.9 |   |
| OREO related expense                                                                         |   |                             | 479    |   |   |   | 1,343 |   |   |   | (864 | ) |   |   | (64.3 | ) |
| Loan collection expense                                                                      |   |                             | 156    |   |   |   | 290 |   |   |   | (134 | ) |   |   | (46.2 | ) |
| Severance and early retirement expense                                                                                                                                                                                                                                                                                                                                                                        |   |                             | 88     |   |   |   | ― |   |   |   | 88 |   |   |   | N/A |   |
| Other general and administrative expense                                                                                                                                                                                                                                                                                                                                                                      |   |                             | 1,068  |   |   |   | 1,023 |   |   |   | 45 |   |   |   | 4.4 |   |
| Total non-interest expense                                                                                  |   | $                                | 9,446  |   |   | $ | 10,248 |   |   | $ | (802 | ) |   |   | (7.8 | )% |

|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Nine Months Ended September 30, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010                            |    |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)          |    |
| Compensation and mandatory benefits                                                                                                                                                                                                                                                                                                                                                                           |   | $                               | 12,414  |   |   | $ | 12,288 |   |   | $ | 126 |   |   |   | 1.0 | % |
| Retirement and stock related compensation                                                                                                                                                                                                                                                                                                                                                                     |   |                            | 565     |   |   |   | 1,373 |   |   |   | (808 | ) |   |   | (58.8 | ) |
| Medical and life benefits                                                                    |   |                            | 910     |   |   |   | 1,055 |   |   |   | (145 | ) |   |   | (13.7 | ) |
| Other employee benefits                                                                      |   |                            | 39      |   |   |   | 42 |   |   |   | (3 | ) |   |   | (7.1 | ) |
| Subtotal compensation and employee benefits                                                                                                                                                                                                                                                                                                                                                                   |   |                            | 13,928  |   |   |   | 14,758 |   |   |   | (830 | ) |   |   | (5.6 | ) |
| Net occupancy expense                                                                        |   |                            | 2,097   |   |   |   | 2,410 |   |   |   | (313 | ) |   |   | (13.0 | ) |
| FDIC insurance premiums and OTS assessments                                                                                                                                                                                                                                                                                                                                                                   |   |                            | 1,891   |   |   |   | 1,540 |   |   |   | 351 |   |   |   | 22.8 |   |
| Professional fees                                                                            |   |                            | 1,850   |   |   |   | 1,433 |   |   |   | 417 |   |   |   | 29.1 |   |
| Furniture and equipment expense                                                              |   |                            | 1,547   |   |   |   | 1,581 |   |   |   | (34 | ) |   |   | (2.2 | ) |
| Data processing                                                                              |   |                            | 1,316   |   |   |   | 1,246 |   |   |   | 70 |   |   |   | 5.6 |   |
| Marketing                                                                                    |   |                            | 519     |   |   |   | 571 |   |   |   | (52 | ) |   |   | (9.1 | ) |
| OREO related expense                                                                         |   |                            | 1,377   |   |   |   | 1,754 |   |   |   | (377 | ) |   |   | (21.5 | ) |
| Loan collection expense                                                                      |   |                            | 478     |   |   |   | 818 |   |   |   | (340 | ) |   |   | (41.6 | ) |
| Severance and early retirement expense                                                                                                                                                                                                                                                                                                                                                                        |   |                            | 528     |   |   |   | ― |   |   |   | 528 |   |   |   | N/A |   |
| FDIC special insurance premium assessment                                                                                                                                                                                                                                                                                                                                                                     |   |                            | ― |   |   |   | 495 |   |   |   | (495 | ) |   |   | N/A |   |
| Other general and administrative expense                                                                                                                                                                                                                                                                                                                                                                      |   |                            | 2,990   |   |   |   | 3,013 |   |   |   | (23 | ) |   |   | (.8 | ) |
| Total non-interest expense                                                                                  |   | $                               | 28,521  |   |   | $ | 29,619 |   |   | $ | (1,098 | ) |   |   | (3.7 | )% |

----

table of contents

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                 |   | September 30,2010      |      |   | December 31, 2009 |   |      | $ Change |   |   | % Change |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|--------|-------------------|--------|-----------|----------|--------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars in thousands) |      |
| Assets:                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |      |   |              |   |      |     |   |   |     |   |
| Cash and cash equivalents                                                                           |   | $                      | 52,218    |   |              | $      | 24,428    |     |   | $      | 27,790   |   |   |   | 113.8 | % |
| Investment securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                             |   |                   | 210,717   |   |              |   | 188,781   |     |   |   | 21,936   |   |   |   | 11.6 |   |
| Investment securities held-to-maturity                                                              |   |                   | 11,831    |   |              |   | 5,000     |     |   |   | 6,831    |   |   |   | 136.6 |   |
| Investment in FHLB stock                                                                            |   |                   | 23,944    |   |              |   | 23,944    |     |   |   | ―  |   |   |   | ― |   |
| Loans receivable, net                                                                               |   |                   | 706,652   |   |              |   | 742,925   |     |   |   | (36,273  | )      |   |   | (4.9 | ) |
| Mortgage loans held for sale                                                                        |   |                   | 4,425     |   |              |   | —   |     |   |   | 4,425    |   |   | NM |   |
| Bank-owned life insurance                                                                           |   |                   | 35,273    |   |              |   | 34,575    |     |   |   | 698      |   |   |   | 2.0 |   |
| Other real estate owned                                                                             |   |                   | 24,211    |   |              |   | 9,242     |     |   |   | 14,969   |   |   |   | 162.0 |   |
| Other                                                                                               |   |                   | 50,208    |   |              |   | 52,620    |     |   |   | (2,412   | )      |   |   | (4.6 | ) |
| Total assets                                                                                                       |   | $                      | 1,119,479 |   |              | $      | 1,081,515 |     |   | $      | 37,964   |   |   |   | 3.5 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |      |   |              |   |      |     |   |   |     |   |   |   |   |   |
| Liabilities and Equity:                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |      |   |              |   |      |     |   |   |     |   |   |   |   |   |
| Deposits                                                                                            |   | $                      | 929,856   |   |              | $      | 849,758   |     |   | $      | 80,098   |   |   |   | 9.4 | % |
| Borrowed funds                                                                                      |   |                   | 64,199    |   |              |   | 111,808   |     |   |   | (47,609  | )      |   |   | (42.6 | ) |
| Other liabilities                                                                                   |   |                   | 11,544    |   |              |   | 9,576     |     |   |   | 1,968    |   |   |   | 20.6 |   |
| Total liabilities                                                                                                  |   |                   | 1,005,599 |   |              |   | 971,142   |     |   |   | 34,457   |   |   |   | 3.5 |   |
| Shareholders’ equity                                                                          |   |                   | 113,880   |   |              |   | 110,373   |     |   |   | 3,507    |   |   |   | 3.2 |   |
| Total liabilities and equity                                                                                       |   | $                      | 1,119,479 |   |              | $      | 1,081,515 |     |   | $      | 37,964   |   |   |   | 3.5 | % |

----

table of contents

|                                                                                  |   | September 30, 2010     |    |   | December 31, 2009 |   |   |   |   |
|---------------------------------------------------------------------------------------|--------|------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                                                                                  |   | Amount                 |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                                                                  |   | (Dollars in thousands) |    |
| Commercial loans:                                                                     |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                                                             |   | $                      | 71,403  |   |              |   | 9.9    | %      |   | $ | 78,600 |   |   |   | 10.3 | % |   |   | (9.2 | )% |
| Commercial real estate – owner occupied                                         |   |                   | 98,440  |   |              |   | 13.6   |   |   |   | 99,559 |   |   |   | 13.1 |   |   |   | (1.1 | ) |
| Commercial real estate – non-owner occupied                                     |   |                   | 207,787 |   |              |   | 28.7   |   |   |   | 218,329 |   |   |   | 28.6 |   |   |   | (4.8 | ) |
| Commercial real estate – multifamily                                            |   |                   | 70,318  |   |              |   | 9.7    |   |   |   | 63,008 |   |   |   | 8.3 |   |   |   | 11.6 |   |
| Commercial construction and land       development |   |                   | 35,889  |   |              |   | 4.9    |   |   |   | 55,733 |   |   |   | 7.3 |   |   |   | (35.6 | ) |
|     Total commercial loans                                        |   |                   | 483,837 |   |              |   | 66.8   |   |   |   | 515,229 |   |   |   | 67.6 |   |   |   | (6.1 | ) |
|                                                                                  |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Retail loans:                                                                         |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential                                                        |   |                   | 178,769 |   |              |   | 24.7   |   |   |   | 185,293 |   |   |   | 24.3 |   |   |   | (3.5 | ) |
| Home equity lines of credit                                                           |   |                   | 55,840  |   |              |   | 7.7    |   |   |   | 56,911 |   |   |   | 7.5 |   |   |   | (1.9 | ) |
| Retail construction and land development                                              |   |                   | 4,085   |   |              |   | .6     |   |   |   | 3,401 |   |   |   | .4 |   |   |   | 20.1 |   |
| Other                                                                                 |   |                   | 1,606   |   |              |   | .2     |   |   |   | 1,552 |   |   |   | .2 |   |   |   | 3.5 |   |
| Total retail loans                                                                    |   |                   | 240,300 |   |              |   | 33.2   |   |   |   | 247,157 |   |   |   | 32.4 |   |   |   | (2.8 | ) |
|                                                                                  |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans receivable, net of unearned fees                                          |   | $                      | 724,137 |   |              |   | 100.0  | %      |   | $ | 762,386 |   |   |   | 100.0 | % |   |   | (5.0 | )% |

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|                                 |   | September 30, 2010     |   |   | December 31, 2009 |   |   |       |   |
|--------------------------------------|--------|------------------------|--------|--------|-------------------|--------|--------|------------|--------|
|                                 |   | Count                  |   |   | Amount            |   |   | % of Total |   |   | Count |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                 |   | (Dollars in thousands) |   |
| Illinois                             |   |                   | 6      |   |              | $      | 6,197  |       |   |   | 23.4 | % |   |   | 14 |   |   | $ | 21,964 |   |   |   | 41.9 | % |   |   | (71.8 | )% |
| Indiana                              |   |                   | 6      |   |              |   | 5,950  |       |   |   | 22.4 |   |   |   | 5 |   |   |   | 13,149 |   |   |   | 25.1 |   |   |   | (54.7 | ) |
| Other states                         |   |                   | 5      |   |              |   | 14,341 |       |   |   | 54.2 |   |   |   | 9 |   |   |   | 17,252 |   |   |   | 33.0 |   |   |   | (16.9 | ) |
| Total participationsand syndications |   |                   | 17     |   |              | $      | 26,488 |       |   |   | 100.0 | % |   |   | 28 |   |   | $ | 52,365 |   |   |   | 100.0 | % |   |   | (49.4 | )% |

|                                             |   | ParValue               |    |   | Amortized Cost |   |    | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | FairValue |    |
|--------------------------------------------------|--------|------------------------|---------|--------|----------------|--------|---------|------------------------|--------|--------|-------------------------|--------|--------|-----------|---------|
|                                             |   | (Dollars in thousands) |    |
| At September 30, 2010:                           |   |                   |    |   |           |   |    |                   |   |   |                    |   |   |      |    |
|     U.S. treasury securities |   | $                      | 9,000   |   |           | $      | 9,050   |                   |   | $      | 105                     |   |   | $         | ― |   |   | $ | 9,155 |   |
| Government sponsored entity (GSE) securities     |   |                   | 38,800  |   |           |   | 39,490  |                   |   |   | 1,043                   |   |   |      | ― |   |   |   | 40,533 |   |
|     Corporate bonds          |   |                   | 4,000   |   |           |   | 3,614   |                   |   |   | ―                 |   |   |      | (62     | ) |   |   | 3,552 |   |
| Collateralized mortgage obligations              |   |                   | 67,423  |   |           |   | 64,546  |                   |   |   | 2,466                   |   |   |      | (243    | ) |   |   | 66,769 |   |
| Commercial mortgage-backed securities            |   |                   | 68,633  |   |           |   | 69,290  |                   |   |   | 2,453                   |   |   |      | ― |   |   |   | 71,743 |   |
| Pooled trust preferred securities                |   |                   | 29,760  |   |           |   | 26,764  |                   |   |   | ―                 |   |   |      | (7,851  | ) |   |   | 18,913 |   |
| GSE preferred stock                              |   |                   | 5,837   |   |           |   | ― |                   |   |   | 52                      |   |   |      | ― |   |   |   | 52 |   |
|                                             |   | $                      | 223,453 |   |           | $      | 212,754 |                   |   | $      | 6,119                   |   |   | $         | (8,156  | ) |   | $ | 210,717 |   |

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table of contents

|                                         |   | ParValue               |    |   | Amortized Cost |   |    | Gross Unrealized Gains |   |   | Gross Unrealized Losses |   |   | FairValue |    |
|----------------------------------------------|--------|------------------------|---------|--------|----------------|--------|---------|------------------------|--------|--------|-------------------------|--------|--------|-----------|---------|
|                                         |   | (Dollars in thousands) |    |
| At December 31, 2009:                        |   |                   |    |   |           |   |    |                   |   |   |                    |   |   |      |    |
| Government sponsored entity (GSE) securities |   | $                      | 40,450  |   |           | $      | 40,374  |                   |   | $      | 1,083                   |   |   | $         | ― |   |   | $ | 41,457 |   |
| Mortgage-backed securities                   |   |                   | 9,527   |   |           |   | 9,426   |                   |   |   | 409                     |   |   |      | ― |   |   |   | 9,835 |   |
| Collateralized mortgage obligations          |   |                   | 67,307  |   |           |   | 66,413  |                   |   |   | 1,336                   |   |   |      | (981    | ) |   |   | 66,768 |   |
| Commercial mortgage-backed securities        |   |                   | 49,722  |   |           |   | 49,210  |                   |   |   | 1,347                   |   |   |      | (35     | ) |   |   | 50,522 |   |
| Pooled trust preferred securities            |   |                   | 30,223  |   |           |   | 27,093  |                   |   |   | ―                 |   |   |      | (7,081  | ) |   |   | 20,012 |   |
| GSE preferred stock                          |   |                   | 5,837   |   |           |   | ― |                   |   |   | 187                     |   |   |      | ― |   |   |   | 187 |   |
|                                         |   | $                      | 203,066 |   |           | $      | 192,516 |                   |   | $      | 4,362                   |   |   | $         | (8,097  | ) |   | $ | 188,781 |   |

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table of contents

|                                   |   | September 30, 2010     |    |   | December 31, 2009 |   |   |   |   |
|----------------------------------------|--------|------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                                   |   | Amount                 |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                   |   | (Dollars in thousands) |    |
| Core deposits:                         |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing checking accounts |   | $                      | 94,927  |   |              |   | 10.2   | %      |   | $ | 89,261 |   |   |   | 10.5 | % |   |   | 6.3 | % |
| Interest bearing checking accounts     |   |                   | 123,381 |   |              |   | 13.3   |   |   |   | 106,013 |   |   |   | 12.5 |   |   |   | 16.4 |   |
| Money market accounts                  |   |                   | 144,610 |   |              |   | 15.6   |   |   |   | 136,411 |   |   |   | 16.0 |   |   |   | 6.0 |   |
| Savings accounts                       |   |                   | 121,732 |   |              |   | 13.1   |   |   |   | 113,865 |   |   |   | 13.4 |   |   |   | 6.9 |   |
| Subtotal core deposits                 |   |                   | 484,650 |   |              |   | 52.2   |   |   |   | 445,550 |   |   |   | 52.4 |   |   |   | 8.8 |   |
| Certificates of deposit                |   |                   | 399,350 |   |              |   | 42.9   |   |   |   | 354,401 |   |   |   | 41.7 |   |   |   | 12.7 |   |
| Non-municipal deposits                 |   |                   | 884,000 |   |              |   | 95.1   |   |   |   | 799,951 |   |   |   | 94.1 |   |   |   | 10.5 |   |
| Municipal core deposits                |   |                   | 39,493  |   |              |   | 4.2    |   |   |   | 38,993 |   |   |   | 4.6 |   |   |   | 1.3 |   |
| Municipal certificates of deposit      |   |                   | 6,363   |   |              |   | 0.7    |   |   |   | 10,814 |   |   |   | 1.3 |   |   |   | (41.2 | ) |
| Municipal deposits                     |   |                   | 45,856  |   |              |   | 4.9    |   |   |   | 49,807 |   |   |   | 5.9 |   |   |   | (7.9 | ) |
| Total deposits                         |   | $                      | 929,856 |   |              |   | 100.0  | %      |   | $ | 849,758 |   |   |   | 100.0 | % |   |   | 9.4 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                        |   | September 30, 2010               |    |   | December 31, 2009 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Weighted-AverageContractual Rate |    |   |  Amount      |   |   | Weighted- AverageContractual Rate |   |   |  Amount |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars in thousands)           |    |
| Short-term variable-rate borrowed funds:                                                                                                                                                                                                                                                                                                                                                                                    |   |                             |    |   |              |   |   |   |   |   |   |   |
| Repo Sweep accounts                                                                                        |   |                             | 0.50    | %      |              | $      | 13,931 |   |   |   | 0.50 | % |   | $ | 15,659 |   |
|     Federal Reserve Bank discount window                                                                                                                                                                                                                                                                                                                                                                |   |                             | ― |   |              |   | ― |   |   |   | 0.50 |   |   |   | 8,640 |   |
| Secured borrowed funds from FHLB – Indianapolis:                                                                                                                                                                                                                                                                                                                                                                      |   |                             |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Maturing in 2010 – variable-rate                                                                |   |                             | ― |   |              |   | ― |   |   |   | 0.47 |   |   |   | 6,000 |   |
| Maturing in 2010 – fixed-rate                                                                   |   |                             | 0.69    |   |              |   | 10,000 |   |   |   | 1.56 |   |   |   | 41,000 |   |
| Maturing in 2011 – fixed-rate                                                                   |   |                             | 3.75    |   |              |   | 15,000 |   |   |   | 3.75 |   |   |   | 15,000 |   |
| Maturing in 2013 – fixed-rate                                                                   |   |                             | 2.22    |   |              |   | 15,000 |   |   |   | 2.22 |   |   |   | 15,000 |   |
| Maturing in 2014 – fixed-rate (1)                                                               |   |                             | 6.71    |   |              |   | 1,097 |   |   |   | 6.71 |   |   |   | 1,122 |   |
| Maturing in 2018 – fixed-rate (1)                                                               |   |                             | 5.54    |   |              |   | 2,582 |   |   |   | 5.54 |   |   |   | 2,582 |   |
| Maturing in 2019 – fixed-rate (1)                                                               |   |                             | 6.30    |   |              |   | 6,589 |   |   |   | 6.30 |   |   |   | 6,805 |   |
| Subtotal FHLB – Indianapolis borrowed funds                                                                                                                                                                                                                                                                                                                                                                           |   |                             |    |   |              |   | 50,268 |   |   |   |   |   |   |   | 87,509 |   |
| Total borrowed funds                                                                        |   |                             |    |   |              | $      | 64,199 |   |   |   |   |   |   | $ | 111,808 |   |
| Weighted-average contractual interest rate                                                                                                                                                                                                                                                                                                                                                                                  |   |                             | 2.59    | %      |              |   |   |   |   |   | 2.09 | % |   |   |   |   |

|  (1) | These advances are amortizing and are listed by their contractual maturity. |
|-----------|-----------------------------------------------------------------------------|

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | September 30,2010      |   |   | June 30,2010 |   |    | December 31,2009 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------------|--------|---------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars in thousands) |   |
| Non-accrual loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                   |   |   |         |   |    |             |   |
| Commercial loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                   |   |   |         |   |    |             |   |
| Commercial and industrial                                                                                                                         |   | $                      | 868    |   |         | $      | 883     |             |   | $ | 1,399 |   |
| Commercial real estate – owner occupied                                                                                                     |   |                   | 8,811  |   |         |   | 4,940   |             |   |   | 3,627 |   |
| Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                   | 27,549 |   |         |   | 19,826  |             |   |   | 22,103 |   |
| Commercial real estate – multifamily                                                                                                        |   |                   | 1,089  |   |         |   | 1,477   |             |   |   | 623 |   |
| Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   | 14,101 |   |         |   | 25,745  |             |   |   | 26,059 |   |
| Total commercial loans                                                                                                                            |   |                   | 52,418 |   |         |   | 52,871  |             |   |   | 53,811 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |         |   |    |             |   |   |   |   |
| Retail loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   |   |   |         |   |    |             |   |   |   |   |
| One-to-four family residential                                                                                                                    |   |                   | 2,870  |   |         |   | 2,937   |             |   |   | 4,519 |   |
| Home equity lines of credit                                                                                                                       |   |                   | 636    |   |         |   | 365     |             |   |   | 393 |   |
| Retail construction and land development                                                                                                          |   |                   | 169    |   |         |   | 298     |             |   |   | 279 |   |
| Other                                                                                                                                             |   |                   | 5      |   |         |   | 11      |             |   |   | 7 |   |
| Total retail loans                                                                                                                                |   |                   | 3,680  |   |         |   | 3,611   |             |   |   | 5,198 |   |
| Total non-accrual loans                                                                                                                           |   |                   | 56,098 |   |         |   | 56,482  |             |   |   | 59,009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |   |   |         |   |    |             |   |   |   |   |
| Other real estate owned, net:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   |   |   |         |   |    |             |   |   |   |   |
| Commercial real estate – non-owner occupied                                                                                  |   |                   | 5,391  |   |         |   | 2,781   |             |   |   | 2,819 |   |
| Commercial real estate – multifamily                                                                                         |   |                   | 328    |   |         |   | — |             |   |   | — |   |
| Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   | 17,746 |   |         |   | 8,200   |             |   |   | 5,940 |   |
| One-to-four family residential                                                                                                     |   |                   | 746    |   |         |   | 844     |             |   |   | 483 |   |
| Total other real estate owned                                                                                                      |   |                   | 24,211 |   |         |   | 11,825  |             |   |   | 9,242 |   |
| Total non-performing assets                                                                                                                       |   |                   | 80,309 |   |         |   | 68,307  |             |   |   | 68,251 |   |
| 90 days past due and still accruing interest                                                                             |   |                   | 3,388  |   |         |   | 3,272   |             |   |   | 640 |   |
| Total non-performing assets plus 90 days past dueloans still accruing interest                                                                                   |   | $                      | 83,697 |   |         | $      | 71,579  |             |   | $ | 68,891 |   |
| Non-performing assets to total assets                                                                                    |   |                   | 7.17   | %      |         |   | 6.24    | %                |   |   | 6.31 | % |
| Non-performing loans to total loans                                                                                      |   |                   | 7.75   | %      |         |   | 7.47    | %                |   |   | 7.74 | % |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | September 30,2010      |   |   | June 30,2010 |   |   | December 31, 2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands) |   |
| Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                         |   | $                      | 5,302  |   |         | $      | 7,856  |              |   | $ | 10,158 |   |
| Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                              |   |                   | 4,827  |   |         |   | 17,059 |              |   |   | 16,571 |   |
| Total non-performing syndications andpurchased participations                                                           |   | $                      | 10,129 |   |         | $      | 24,915 |              |   | $ | 26,729 |   |
| Percentage of total non-performing loans                                                                                                                                                                                                                                                                                                                                                                                  |   |                   | 18.1   | %      |         |   | 44.1   | %                 |   |   | 45.3 | % |
| Percentage of total syndications and purchasedparticipations                                                                                                                                                                                                                                                                                                                                                              |   |                   | 38.2   |   |         |   | 53.3   |              |   |   | 51.0 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | September 30,  2010 |   |   | June 30,2010 |   |   | December 31, 2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|--------|--------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Dollars in thousands)   |   |
| Illinois                                                                                        |   | $                        | 2,984  |   |         | $      | 10,251 |              |   | $ | 10,659 |   |
| Indiana                                                                                         |   |                     | 5,302  |   |         |   | 12,767 |              |   |   | 12,767 |   |
| Florida                                                                                         |   |                     | 1,843  |   |         |   | 1,897  |              |   |   | 3,303 |   |
| Total non-performing syndications and purchasedparticipations                                                            |   | $                        | 10,129 |   |         | $      | 24,915 |              |   | $ | 26,729 |   |

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|                                       |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|--------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                       |   | 2010                            |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
|                                       |   | (Dollars in thousands)          |   |
| Balance at beginning of period             |   | $                               | 17,608 |   |                           | $      | 14,934 |   |   | $ | 19,461 |   |   | $ | 15,558 |   |
| Loan charge-offs                           |   |                            | (690   | )      |                           |   | (3,623 | ) |   |   | (5,205 | ) |   |   | (5,677 | ) |
| Recoveries of loans previously charged-off |   |                            | 42     |   |                           |   | 58 |   |   |   | 177 |   |   |   | 151 |   |
| Net loan charge-offs                       |   |                            | (648   | )      |                           |   | (3,565 | ) |   |   | (5,028 | ) |   |   | (5,526 | ) |
| Provision for loan losses                  |   |                            | 525    |   |                           |   | 9,430 |   |   |   | 3,052 |   |   |   | 10,767 |   |
| Balance at end of period                   |   | $                               | 17,485 |   |                           | $      | 20,799 |   |   | $ | 17,485 |   |   | $ | 20,799 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | September 30, 2010 |    |   | December 31,2009 |   |    | September 30,2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|------------------|--------|---------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands)  |    |
| Allowance for loan losses                                                                                                             |   | $                       | 17,485  |   |             | $      | 19,461  |              |   | $ | 20,799 |   |
| Total loans receivable, net of unearned fees                                                                                          |   |                    | 724,137 |   |             |   | 762,386 |              |   |   | 748,464 |   |
| Allowance for loan losses to total loans                                                                                              |   |                    | 2.41    | %      |             |   | 2.55    | %                 |   |   | 2.78 | % |
| Allowance for loan losses to non-performing loans                                                                                     |   |                    | 31.17   |   |             |   | 32.98   |              |   |   | 37.15 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | September 30,2010      |   |   | June 30,2010 |   |   | December 31, 2009 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands) |   |
| Impaired loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                   |   |   |         |   |   |              |   |
| With a valuation reserve                                                                                                                           |   | $                      | 21,599 |   |         | $      | 12,928 |              |   | $ | 17,200 |   |
| With no valuation reserve required*                                                                                                                |   |                   | 38,000 |   |         |   | 46,234 |              |   |   | 42,021 |   |
| Total impaired loans                                                                                                                               |   | $                      | 59,599 |   |         | $      | 59,162 |              |   | $ | 59,221 |   |
| Valuation reserves relating to impaired loans                                                                                       |   | $                      | 7,588  |   |         | $      | 7,539  |              |   | $ | 9,181 |   |
| Average outstanding impaired loans                                                                                                  |   |                   | 59,164 |   |         |   | 59,163 |              |   |   | 48,547 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |   |   |         |   |   |              |   |   |   |   |
| *Net of partial charge-offs on impaired loans withno valuation reserves                                                                            |   | $                      | 7,300  |   |         | $      | 12,090 |              |   | $ | 9,412 |   |

|   | • | deposits and Repo Sweeps; |
|--------|---------|---------------------------|

|   | • | scheduled payments of amortizing loans and mortgage-backed investment securities;  |
|--------|---------|-----------------------------------------------------------------------------------------|

|   | • | prepayments and maturities of outstanding loans and mortgage-backed investment securities;  |
|--------|---------|--------------------------------------------------------------------------------------------------|

|   | • | maturities of investment securities and other short-term investments;  |
|--------|---------|-----------------------------------------------------------------------------|

|   | • | funds provided from operations; |
|--------|---------|---------------------------------|

|   | • | federal funds line of credit; and |
|--------|---------|-----------------------------------|

|   | • | borrowed funds from the FHLB and Federal Reserve Bank. |
|--------|---------|--------------------------------------------------------|

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table of contents

|   | • | increases in deposit accounts totaling $80.0 million; |
|--------|---------|-------------------------------------------------------|

|   | • | proceeds from sales, maturities, and paydowns of investment |
|--------|---------|-------------------------------------------------------------|

|   | securities aggregating $72.8 million; |
|--------|---------------------------------------|

|   | • | proceeds from FHLB advances totaling $18.0 million; and |
|--------|---------|---------------------------------------------------------|

|   | • | net loan repayments totaling $16.3 million. |
|--------|---------|---------------------------------------------|

|   | • | purchases of investment securities totaling $99.2 million; |
|--------|---------|------------------------------------------------------------|

|   | • | repayment of FHLB advances totaling $55.2 million; and |
|--------|---------|--------------------------------------------------------|

|   | • | repayment of short-term borrowed funds totaling $10.4 million. |
|--------|---------|----------------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                        |   | Payments Due By Period |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                                                                                                                                                                                                                                        |   | Less Than1 Year        |    |   | 1 To 3 Years |   |   | 3 To 5Years |   |   | Over 5Years |   |   | Total |   |
|                                                                                                                                                                                                                                                                                                        |   | (Dollars in thousands) |    |
| Certificates of deposit                                               |   | $                      | 310,986 |   |   | $ | 71,473 |   |   | $ | 22,550 |   |   | $ | 704 |   |   | $ | 405,713 |   |
| FHLB borrowed funds (1)                                               |   |                   | 25,329  |   |   |   | 727 |   |   |   | 16,767 |   |   |   | 7,445 |   |   |   | 50,268 |   |
| Short-term borrowed funds (2)                                                                                                                                                                                                                                                                               |   |                   | 13,931  |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 13,931 |   |
| Service bureau contract                                               |   |                   | 1,548   |   |   |   | 3,096 |   |   |   | 3,096 |   |   |   | ― |   |   |   | 7,740 |   |
| Operating leases                                                      |   |                   | 405     |   |   |   | 505 |   |   |   | 262 |   |   |   | 2,031 |   |   |   | 3,203 |   |
| Dividends payable on common stock                                                                                                                                                                                                                                                                           |   |                   | 109     |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 109 |   |
|                                                                                                                                                                                                                                                                                                        |   | $                      | 352,308 |   |   | $ | 75,801 |   |   | $ | 42,675 |   |   | $ | 10,180 |   |   | $ | 480,964 |   |

| (1) | Does not include interest expense at the weighted-average contractual rate of 3.17% for the periods presented. |
|-----|----------------------------------------------------------------------------------------------------------------|

| (2) | Does not include interest expense at the weighted-average contractual rate of 0.50% for the periods presented. |
|-----|----------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | Less Than              |   |   | 1 To 3 |    |   | 3 To 5 |    |    | Over 5        |    |    |    |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------|---------|--------|--------|---------|---------|---------------|---------|---------|---------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 1 Year                 |   |   | Years  |    |   | Years  |    |    | Years         |    |    | Total   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | (Dollars in thousands) |   |
| Commitments to extend credit:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                   |   |   |   |    |   |   |    |    |          |    |    |    |   |
|        Commercial and industrial                                                                                                                                                                                                                                                                          |   | $                      | 7,785  |   |   | $       | 598    |   |    | $       |  ― |    |    | $       | 256    |   |   | $ | 8,639 |   |
|        Commercial real estate – owner occupied                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                   | 3,924  |   |   | ― |   |   |    | 135     |          |    | ― |    |   |   | 4,059 |   |
|        Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   | 360    |   |   | ― |   |   | ― |    |          | ― |    |    |   | 360 |   |
|        Commercial real estate – multifamily                                                                                                                                                                                                  |   |                   | 1,226  |   |   | ― |   |   | ― |    |          | ― |    |    |   | 1,226 |   |
|        Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                   | 2,462  |   |   |    | 150    |   |    | ― |          |    | ― |    |   |   | 2,612 |   |
|        Retail                                                                                                         |   |                   | 2,917  |   |   | ― |   |   | ― |    |          | ― |    |    |   | 2,917 |   |
| Commitments to fund unused:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |   |    |   |   |    |    |          |    |    |    |   |   |   |   |   |   |
|        Construction loans                                                                              |   |                   | 4,562  |   |   | ― |   |   | ― |    |          |    | 228     |    |   |   | 4,790 |   |
|        Commercial business lines                                                                                                                                                                                                                                                                                                                                                                                        |   |                   | 33,825 |   |   |    | 1,174  |   |    |    | 171           |    |    | ― |   |   |   | 35,170 |   |
|        Equity lines of credit                                                                          |   |                   | 12,497 |   |   | ― |   |   | ― |    |          |    | 42,073  |    |   |   | 54,570 |   |
| Commitments to sell one-to-four family mortgage loans                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                   | 282    |   |   | ― |   |   | ― |    |          | ― |    |    |   | 282 |   |
| Letters of credit                                                                                                                         |   |                   | 3,784  |   |   |    | 119    |   |    | ― |          |    | ― |    |   |   | 3,903 |   |
| Credit enhancements                                                                                                                       |   |                   | 11,275 |   |   | ― |   |   | ― |    |          |    | 13,771  |    |   |   | 25,046 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                      | 84,899 |   |   | $       | 2,041  |   |    | $       | 306           |    |    | $       | 56,328 |   |   | $ | 143,574 |   |

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|                                           |   | Actual                 |    |   | For Capital Adequacy Purposes |   |   | To Be Well Capitalized Under Prompt Corrective Action Provisions |   |
|------------------------------------------------|--------|------------------------|---------|--------|-------------------------------|--------|--------|------------------------------------------------------------------|--------|
|                                           |   | Amount                 |    |   | Ratio                         |   |   | Amount                                                           |   | Ratio |   |   | Amount |   | Ratio |   |
|                                           |   | (Dollars in thousands) |    |
| As of September 30, 2010:                      |   |                   |    |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted assets          |   | $                      | 108,639 |   |                          |   | 13.21  | %                                                                |   | $ | 65,782 |   | >8.00 | % |   | $ | 82,227 |   | >10.00 | % |
| Tier 1 (core) capital to risk-weighted assets  |   |                   | 98,763  |   |                          |   | 12.01  |                                                             |   |   | 32,891 |   | >4.00 |   |   |   | 49,336 |   | >6.00 |   |
| Tier 1 (core) capital to adjusted total assets |   |                   | 98,763  |   |                          |   | 8.91   |                                                             |   |   | 44,323 |   | >4.00 |   |   |   | 55,404 |   | >5.00 |   |
| Tangible capital to adjusted total assets      |   |                   | 98,763  |   |                          |   | 8.91   |                                                             |   |   | 16,621 |   | >1.50 |   |   |   | 22,161 |   | >2.00 |   |
|                                           |   |                   |    |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2009:                       |   |                   |    |   |                          |   |   |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted assets          |   | $                      | 105,323 |   |                          |   | 12.35  | %                                                                |   | $ | 68,200 |   | >8.00 | % |   | $ | 85,250 |   | >10.00 | % |
| Tier 1 (core) capital to risk-weighted assets  |   |                   | 95,078  |   |                          |   | 11.15  |                                                             |   |   | 34,100 |   | >4.00 |   |   |   | 51,150 |   | >6.00 |   |
| Tier 1 (core) capital to adjusted total assets |   |                   | 95,078  |   |                          |   | 8.88   |                                                             |   |   | 42,838 |   | >4.00 |   |   |   | 53,548 |   | >5.00 |   |
| Tangible capital to adjusted total assets      |   |                   | 95,078  |   |                          |   | 8.88   |                                                             |   |   | 16,064 |   | >1.50 |   |   |   | 21,419 |   | >2.00 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Tangible               |    |   | Core   |   |    | Risk-Based |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------|--------|--------|---------|------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (Dollars in thousands) |    |
| Shareholder’s equity of the Bank                                                                                          |   | $                      | 111,615 |   |   | $      | 111,615 |       |   | $ | 111,615 |   |
| Disallowed deferred tax asset                                                                                                   |   |                   | (13,212 | )      |   |   | (13,212 | )          |   |   | (13,212 | ) |
| Adjustment for available-for-sale securities                                                                                    |   |                   | 1,191   |   |   |   | 1,191   |       |   |   | 1,191 |   |
| Other                                                                                                                           |   |                   | (831    | )      |   |   | (831    | )          |   |   | (831 | ) |
| General allowance for loan losses                                                                                               |   |                   | ― |   |   |   | ― |       |   |   | 9,876 |   |
| Regulatory capital of the Bank                                                                                                  |   | $                      | 98,763  |   |   | $      | 98,763  |       |   | $ | 108,639 |   |

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Item 3.     Quantitative and Qualitative Disclosures about Market Risk

|                                            |                |   | Net Portfolio Value    |   |
|-------------------------------------------------|---------------------|--------|------------------------|--------|
|                                            |                |   | At September 30, 2010  |   |   | At December 31, 2009 |   |
|                                            |                |   | $ Amount               |   |   | $ Change |   |   | % Change |   |   | $ Amount |   |   | $ Change |   |   | % Change |   |
|                                            |                |   | (Dollars in thousands) |   |
| Assumed Change in Interest Rates (Basis Points) |                |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            | +300                |   |                   | $      | 135,957 |   |   | $ | 12,894 |   |   |   | 10.5 | % |   | $ | 130,797 |   |   | $ | 2,065 |   |   |   | 1.6 | % |
|                                            | +200                |   |                   |   | 135,000 |   |   |   | 11,937 |   |   |   | 9.7 |   |   |   | 131,109 |   |   |   | 2,377 |   |   |   | 1.8 |   |
|                                            | +100                |   |                   |   | 131,445 |   |   |   | 8,382 |   |   |   | 6.8 |   |   |   | 130,917 |   |   |   | 2,185 |   |   |   | 1.7 |   |
|                                            |    0 |   |                   |   | 123,063 |   |   |   | ― |   |   |   | ― |   |   |   | 128,732 |   |   |   | ― |   |   |   | ― |   |
|                                            | -100                |   |                   |   | 110,069 |   |   |   | (12,994 | ) |   |   | (10.6 | ) |   |   | 117,387 |   |   |   | (11,345 | ) |   |   | (8.8 | ) |
|                                            | -200                |   |                   |   |  100,335 |   |   |   |  (22,728 | )  |   |   |  (18.5 | )  |   |   |  105,417 |   |   |   |  (23,315 | )  |   |   |  (18.1 | )  |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Percentage of Deposits MaturingIn First Year |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | September 30, 2010                           |   |   | December 31, 2009 |   |
| Deposit Category:                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                         |   |   |   |   |
| Business checking accounts                                                                       |   |                                         | 20     | % |   |   | 20 | % |
| Interest checking accounts                                                                       |   |                                         | 20     |   |   |   | 20 |   |
| High-yield checking accounts                                                                     |   |                                         | 95     |   |   |   | 95 |   |
| Savings accounts                                                                                 |   |                                         | 30     |   |   |   | 30 |   |
| Money market accounts                                                                            |   |                                         | 50     |   |   |   | 50 |   |

|                                                  |   |   | Percentage Change inNet Interest IncomeOver a Twelve MonthTime Period |   |
|-------------------------------------------------------|--------|--------|-----------------------------------------------------------------------|--------|
|                                                  |   |   | September 30, 2010                                                    |   |   | December 31, 2009 |   |
| Assumed Change in Interest Rates (Basis Points): |   |   |                                                                  |   |   |   |   |
|                                                  | +300   |   |                                                                  |   | 2.5 | % |   |   | 0.1 | % |
|                                                  | +200   |   |                                                                  |   | 1.7 |   |   |   | 0.2 |   |
|                                                  | +100   |   |                                                                  |   | 0.6 |   |   |   | 0.0 |   |
|                                                  | -100   |   |                                                                  |   | 2.9 |   |   |   | 3.3 |   |
|                                                  | -200   |   |                                                                  |   | 2.1 |   |   |   | 1.5 |   |

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Item 4.      Controls and Procedures

Item 1.       Legal Proceedings

Item 1A.     Risk Factors

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Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds

| (a)    | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (b)    | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (c)    | We did not repurchase any shares of our common stock during the quarter ended September 30, 2010 or through October 27, 2010.  Under our repurchase plan publicly announced on March 20, 2008 for 530,000 shares, we have 448,612 shares that may yet be purchased.  We are currently prohibited from repurchasing our common stock without prior OTS approval pursuant to an informal regulatory agreement with the OTS. |

Item 3.        Defaults Upon Senior Securities

| (a)    | None.           |
|--------|-----------------|
|   |            |
| (b)    | Not applicable. |

Item 4.       (Removed and Reserved)

|   |   |
|--------|--------|

Item 5.       Other Information

Item 6.       Exhibits

| (a)  |   | List of exhibits (filed herewith unless otherwise noted). |
|------|--------|-----------------------------------------------------------|
| 3.1  |   | Articles of Incorporation of CFS Bancorp, Inc. (1)        |
| 3.2  |   | Bylaws of CFS Bancorp, Inc. (2)                           |
| 4.0  |   | Form of Stock Certificate of CFS Bancorp, Inc. (3)        |
| 31.1 |   | Rule 13a-14(a) Certification of Chief Executive Officer   |
| 31.2 |   | Rule 13a-14(a) Certification of Chief Financial Officer   |
| 32.0 |   | Section 1350 Certifications                               |

| (1) | Incorporated herein by Reference to the Company’s Definitive Proxy Statement from the Annual Meeting of Shareholders filed with the SEC on March 25, 2005 (File No. 000-24611). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated herein by Reference to the Company’s Form 8-K filed with the SEC on July 31, 2009. |
|-----|-------------------------------------------------------------------------------------------------------|

| (3) | Incorporated herein by Reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 15, 2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

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SIGNATURES

| Date:  October 28, 2010 | By:    | /s/ Thomas F. Prisby                                                         |
|-----------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   | Thomas F. Prisby, Chairman of the Board and                                                                                                                                                                                                                                                                                                                |
|                              |   | Chief Executive Officer                                                                                                                                                                                                                                                                                                                                    |
|                              |   |                                                                                                                                                                                                                                                                                                                                                       |
| Date:  October 28, 2010 | By:    | /s/ Jerry A. Weberling                                                       |
|                              |   | Jerry A. Weberling, Executive Vice President and                                                                                                                                                                                                                                                                                                           |
|                              |   | Chief Financial Officer                                                                                                                                                                                                                                                                                                                                    |

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| 31.1 | Rule 13a-14(a) Certification of Cheif Executive Officer |
|------|---------------------------------------------------------|
| 31.2 | Rule 13a-14(a) Certification of Cheif Financial Officer |
| 32.0 | Section 1350 Certification                              |

----