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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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CFS BANCORP, INC.

|                                                                          |                                                                                        | Page   |
|-------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|--------|
|                                                                          | PART I - FINANCIAL INFORMATION                                                              |   |
|                                                                          |                                                                                        |   |
| Item 1.                                                                       | Financial Statements (Unaudited)                                                            |   |
|                                                                          | Condensed Consolidated Statements of Condition                                              | 3      |
|                                                                          | Condensed Consolidated Statements of Income                                                 | 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                                                                                    | 54     |
|                                                                          |                                                                                        |   |
| Signature Page                                                                | 55                                                                                          |
|                                                                          |                                                                                        |   |
| Certifications of Principal Executive Officer and Principal Financial Officer | 56                                                                                          |
|                                                                          | Exhibit 31.1                                                                                |   |
|                                                                          | Exhibit 31.2                                                                           |   |
|                                                                          | Exhibit 32.0                                                                           |   |

----

table of contents

CFS BANCORP, INC.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | June 30, 2010 |      | December 31, 2009 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------|-------------------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Unaudited)   |      |              |   |
| Cash and amounts due from depository institutions                                                                                              |   | $             | 22,232    |              |   | $ | 24,041 |   |
| Interest-bearing deposits                                                                                                                      |   |          | 9,411     |              |   |   | 387 |   |
| Cash and cash equivalents                                                                                                                                     |   |          | 31,643    |              |   |   | 24,428 |   |
| Investment securities available-for-sale, at fair value                                                                                        |   |          | 190,893   |              |   |   | 188,781 |   |
| Investment securities held-to-maturity, at cost                                                                                                |   |          | 12,206    |              |   |   | 5,000 |   |
| Investment in Federal Home Loan Bank stock, at cost                                                                                            |   |          | 23,944    |              |   |   | 23,944 |   |
| Loans receivable, net of unearned fees                                                                                                         |   |          | 756,052   |              |   |   | 762,386 |   |
| Allowance for loan losses                                                                                                                                     |   |          | (17,608   | )                 |   |   | (19,461 | ) |
| Net loans                                                                                                                                                               |   |          | 738,444   |              |   |   | 742,925 |   |
| Accrued interest receivable                                                                                                                    |   |          | 3,486     |              |   |   | 3,469 |   |
| Other real estate owned                                                                                                                        |   |          | 11,825    |              |   |   | 9,242 |   |
| Office properties and equipment                                                                                                                |   |          | 20,383    |              |   |   | 20,382 |   |
| Investment in bank-owned life insurance                                                                                                        |   |          | 35,060    |              |   |   | 34,575 |   |
| Net deferred tax assets                                                                                                                        |   |          | 17,568    |              |   |   | 18,036 |   |
| Other assets                                                                                                                                   |   |          | 9,828     |              |   |   | 10,733 |   |
| Total assets                                                                                                                                                            |   | $             | 1,095,280 |              |   | $ | 1,081,515 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |          |      |              |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |          |      |              |   |   |   |   |
| Deposits                                                                                                                                       |   | $             | 899,482   |              |   | $ | 849,758 |   |
| Borrowed funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |          | 73,106    |              |   |   | 111,808 |   |
| Advance payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |          | 4,186     |              |   |   | 4,322 |   |
| Other liabilities                                                                                                                              |   |          | 5,733     |              |   |   | 5,254 |   |
| Total liabilities                                                                                                                                                       |   |          | 982,507   |              |   |   | 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; 10,846,650 and 10,771,061 sharesoutstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |          | 234       |              |   |   | 234 |   |
| Additional paid-in capital                                                                                                                     |   |          | 187,221   |              |   |   | 188,930 |   |
| Retained earnings                                                                                                                              |   |          | 82,028    |              |   |   | 80,564 |   |
| Treasury stock, at cost; 12,576,656 and 12,652,245 shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |          | (155,168  | )                 |   |   | (157,041 | ) |
| Accumulated other comprehensive loss, net of tax                                                                                               |   |          | (1,542    | )                 |   |   | (2,314 | ) |
| Total shareholders’ equity                                                                                                                                        |   |          | 112,773   |              |   |   | 110,373 |   |
| Total liabilities and shareholders’ equity                                                                                                                        |   | $             | 1,095,280 |              |   | $ | 1,081,515 |   |

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table of contents

|                                                |   | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |   |
|-----------------------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                                |   | 2010                       |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
| Interest income:                                    |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Loans                                               |   | $                          | 9,626      |   |                     | $      | 9,807 |   |   | $ | 19,304 |   |   | $ | 19,752 |   |
| Investment securities                               |   |                       | 2,163      |   |                     |   | 3,020 |   |   |   | 4,376 |   |   |   | 6,063 |   |
| Other                                               |   |                       | 123        |   |                     |   | 137 |   |   |   | 247 |   |   |   | 380 |   |
| Total interest income                               |   |                       | 11,912     |   |                     |   | 12,964 |   |   |   | 23,927 |   |   |   | 26,195 |   |
| Interest expense:                                   |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                            |   |                       | 2,146      |   |                     |   | 2,749 |   |   |   | 4,199 |   |   |   | 5,845 |   |
| Borrowed funds                                      |   |                       | 437        |   |                     |   | 880 |   |   |   | 956 |   |   |   | 1,840 |   |
| Total interest expense                              |   |                       | 2,583      |   |                     |   | 3,629 |   |   |   | 5,155 |   |   |   | 7,685 |   |
| Net interest income                                 |   |                       | 9,329      |   |                     |   | 9,335 |   |   |   | 18,772 |   |   |   | 18,510 |   |
| Provision for loan losses                           |   |                       | 817        |   |                     |   | 713 |   |   |   | 2,527 |   |   |   | 1,337 |   |
| Net interest income after provision for loan losses |   |                       | 8,512      |   |                     |   | 8,622 |   |   |   | 16,245 |   |   |   | 17,173 |   |
| Non-interest income:                                |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and other fees                      |   |                       | 1,320      |   |                     |   | 1,376 |   |   |   | 2,540 |   |   |   | 2,675 |   |
| Card-based fees                                     |   |                       | 486        |   |                     |   | 432 |   |   |   | 923 |   |   |   | 820 |   |
| Commission income                                   |   |                       | 46         |   |                     |   | 70 |   |   |   | 100 |   |   |   | 141 |   |
| Net gain on sale of investment securities           |   |                       | ―    |   |                     |   | ― |   |   |   | 456 |   |   |   | 720 |   |
| Net gain (loss) on sale of other assets        |   |                       | 11         |   |                     |   | (6 | ) |   |   | 12 |   |   |   | (6 | ) |
| Income from bank-owned life insurance               |   |                       | 262        |   |                     |   | 156 |   |   |   | 485 |   |   |   | 334 |   |
| Other income                                        |   |                       | 125        |   |                     |   | 97 |   |   |   | 280 |   |   |   | 392 |   |
| Total non-interest income                           |   |                       | 2,250      |   |                     |   | 2,125 |   |   |   | 4,796 |   |   |   | 5,076 |   |
| Non-interest expense:                               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee benefits                  |   |                       | 4,550      |   |                     |   | 5,078 |   |   |   | 9,219 |   |   |   | 10,253 |   |
| Professional fees                                   |   |                       | 835        |   |                     |   | 604 |   |   |   | 1,519 |   |   |   | 954 |   |
| Net occupancy expense                               |   |                       | 651        |   |                     |   | 750 |   |   |   | 1,406 |   |   |   | 1,647 |   |
| FDIC insurance premiums                             |   |                       | 567        |   |                     |   | 468 |   |   |   | 1,065 |   |   |   | 772 |   |
| Furniture and equipment expense                     |   |                       | 526        |   |                     |   | 520 |   |   |   | 1,059 |   |   |   | 1,055 |   |
| Data processing                                     |   |                       | 443        |   |                     |   | 420 |   |   |   | 873 |   |   |   | 839 |   |
| Marketing                                           |   |                       | 216        |   |                     |   | 218 |   |   |   | 330 |   |   |   | 416 |   |
| OREO related expense                                |   |                       | 262        |   |                     |   | 212 |   |   |   | 898 |   |   |   | 411 |   |
| Loan collection expense                             |   |                       | 153        |   |                     |   | 230 |   |   |   | 322 |   |   |   | 528 |   |
| Severance and early retirement expense              |   |                       | 437        |   |                     |   | — |   |   |   | 440 |   |   |   | — |   |
| FDIC special assessment                             |   |                       | —    |   |                     |   | 495 |   |   |   | — |   |   |   | 495 |   |
| Other general and administrative expenses           |   |                       | 963        |   |                     |   | 948 |   |   |   | 1,944 |   |   |   | 2,001 |   |
| Total non-interest expense                          |   |                       | 9,603      |   |                     |   | 9,943 |   |   |   | 19,075 |   |   |   | 19,371 |   |
| Income before income taxes                          |   |                       | 1,159      |   |                     |   | 804 |   |   |   | 1,966 |   |   |   | 2,878 |   |
| Income tax expense                                  |   |                       | 178        |   |                     |   | 134 |   |   |   | 287 |   |   |   | 747 |   |
| Net income                                          |   | $                          | 981        |   |                     | $      | 670 |   |   | $ | 1,679 |   |   | $ | 2,131 |   |
|                                                |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Per share data:                                     |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                            |   | $                          | 0.09       |   |                     | $      | 0.06 |   |   | $ | 0.16 |   |   | $ | 0.20 |   |
| Diluted earnings per share                          |   |                       | 0.09       |   |                     |   | 0.06 |   |   |   | 0.16 |   |   |   | 0.20 |   |
| Cash dividends declared per share                   |   |                       | 0.01       |   |                     |   | 0.01 |   |   |   | 0.02 |   |   |   | 0.02 |   |
| Weighted-average common and common share            |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| equivalents outstanding:                            |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                               |   |                       | 10,640,347 |   |                     |   | 10,590,591 |   |   |   | 10,611,220 |   |   |   | 10,543,475 |   |
| Diluted                                             |   |                       | 10,721,909 |   |                     |   | 10,697,387 |   |   |   | 10,697,976 |   |   |   | 10,663,333 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Common Stock |    |   | Additional Paid-InCapital |   |    | Retained Earnings |   |   | Treasury Stock |   |   | Unallocated CommonStock HeldBy ESOP |     |   | Accum-ulated Other Compre-hensive Income (Loss) |   |    | Total  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------|---------------------------|--------|---------|-------------------|--------|--------|----------------|--------|--------|-------------------------------------|----------|--------|-------------------------------------------------|--------|---------|--------|--------|
| Balance at January 1, 2009                                                                                                                                                                                                                                                                                 |   | $            | 234     |   |                      | $      | 189,211 |              |   | $      | 81,525         |   |   | $                                   | (157,466 | )      |                                            | $      | (832    | )      |   | $ | (863 | ) |   | $ | 111,809 |   |
| Net income                                                                                                                                                          |   |         | ― |   |                      |   | ― |              |   |   | 2,131          |   |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | 2,131 |   |
| Other comprehensive income:Change in unrealized depreciation on investment securities available-for-sale, net of reclassification and tax                                                                                                                                                                                                                                                                                                    |   |         | ― |   |                      |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                            |   | ― |   |   |   |     1,128 |   |   |   |     1,128 |   |
| Total comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                              |   |         | ― |   |                      |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | 3,259 |   |
| Net purchases of Rabbi Trust shares                                                                                                                                                                                                                                                                                                                                                                                                          |   |         | ― |   |                      |   | (364    | )                 |   |   | ―        |   |   |                                | 515      |   |                                            |   | ― |   |   |   | ― |   |   |   | 151 |   |
| 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                                                                                                                                                                                                                                                                                                                                                                                      |   |         | ― |   |                      |   | (349    | )                 |   |   | ―        |   |   |                                | 349      |   |                                            |   | ― |   |   |   | ― |   |   |   | ― |   |
| Dividends declared on common stock ($0.02         per share)                                                                                                                                                                                                                                                                                                                                              |   |         | ― |   |                      |   | ― |              |   |   | (219           | )      |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | (219 | ) |
| Balance at June 30, 2009                                                                                                                                                                                                                                                                                                                                                                                                                |   | $            | 234     |   |                      | $      | 189,004 |              |   | $      | 83,455         |   |   | $                                   | (157,508 | )      |                                            | $      | ― |   |   | $ | 265 |   |   | $ | 115,450 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |         |    |   |                      |   |    |              |   |   |           |   |   |                                |     |   |                                            |   |    |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2010                                                                                                                                                                                                                                                                                                                                                                                                              |   | $            | 234     |   |                      | $      | 188,930 |              |   | $      | 80,564         |   |   | $                                   | (157,041 | )      |                                            | $      | ― |   |   | $ | (2,314 | ) |   | $ | 110,373 |   |
| Net income                                                                                                                                                          |   |         | ― |   |                      |   | ― |              |   |   | 1,679          |   |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | 1,679 |   |
| Other comprehensive income:Change in unrealized depreciation on investment securities available-for-sale, net of reclassification and tax                                                                                                                                                                                                                                                                                                    |   |         | ― |   |                      |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                            |   | ― |   |   |   |     772 |   |   |   |     772 |   |
| Total comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                              |   |         | ― |   |                      |   | ― |              |   |   | ―        |   |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | 2,451 |   |
| Net distribution of Rabbi Trust shares                                                                                                                                                                                                                                                                                                                                                                                                       |   |         | ― |   |                      |   | (320    | )                 |   |   | ―        |   |   |                                | 320      |   |                                            |   | ― |   |   |   | ― |   |   |   | ― |   |
| Forfeiture of restricted stock awards                                                                                                                                                                                                                                                                                                                                                                                                        |   |         | ― |   |                      |   | 273     |              |   |   | 3              |   |   |                                | (273     | )      |                                            |   | ― |   |   |   | ― |   |   |   | 3 |   |
| Vesting of restricted stock awards                                                                                                                                                                                                                                                                                                                                                                                                           |   |         | ― |   |                      |   | 164     |              |   |   | ―        |   |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | 164 |   |
| Unearned compensation restricted stock awards                                                                                                                                                                                                                                                                                                                                                                                           |   |         | ― |   |                      |   | (395    | )                 |   |   | ―        |   |   |                                | 395      |   |                                            |   | ― |   |   |   | ― |   |   |   | ― |   |
| Reclassification of treasury stock issuances of         restricted stock at average cost                                                   |   |         | ― |   |                      |   | (1,431  | )                 |   |   | ―        |   |   |                                | 1,431    |   |                                            |   | ― |   |   |   | ― |   |   |   | ― |   |
| Dividends declared on common stock ($0.02         per share)                                                                                                                                                                                                                                                                                                                                         |   |         | ― |   |                      |   | ― |              |   |   | (218           | )      |   |                                | ―  |   |                                            |   | ― |   |   |   | ― |   |   |   | (218 | ) |
| Balance at June 30, 2010                                                                                                                                                                                                                                                                                                                                                              |   | $            | 234     |   |                      | $      | 187,221 |              |   | $      | 82,028         |   |   | $                                   | (155,168 | )      |                                            | $      | ― |   |   | $ | (1,542 | ) |   | $ | 112,773 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Six Months EndedJune 30, |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 2010                     |    |   | 2009 |   |
| OPERATING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                     |    |   |   |   |
| Net income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                        | 1,679   |   |   | $ | 2,131 |   |
| Adjustments to reconcile net income to net cash provided byoperating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                     |    |   |   |   |   |   |
| Provision for loan losses                                                                                                                                                           |   |                     | 2,527   |   |   |   | 1,337 |   |
| Depreciation and amortization                                                                                                                                                       |   |                     | 806     |   |   |   | 781 |   |
| Premium amortization on the early extinguishment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                     | ― |   |   |   | 133 |   |
| Net discount accretion on investment securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                     | (307    | ) |   |   | (786 | ) |
| Net premium amortization on investment securities held-to-maturity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                     | 51      |   |   |   | ― |   |
| Deferred income tax expense                                                                                                                                                         |   |                     | 55      |   |   |   | 149 |   |
| Share-based compensation                                                                                                                                                            |   |                     | ― |   |   |   | 432 |   |
| Net gain on sale of investment securities                                                                                                                                           |   |                     | (456    | ) |   |   | (720 | ) |
| Net (gain) loss on sale of other assets                                                                                                                                             |   |                     | (12     | ) |   |   | 6 |   |
| Increase in cash surrender value of bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     | (485    | ) |   |   | (334 | ) |
| Decrease in other assets                                                                                                                                                            |   |                     | 1,333   |   |   |   | 1,732 |   |
| Increase in other liabilities                                                                                                                                                       |   |                     | 649     |   |   |   | 1,431 |   |
| Net cash provided by operating activities                                                                                                                                                     |   |                     | 5,840   |   |   |   | 6,292 |   |
| INVESTING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                     |    |   |   |   |   |   |
| Investment securities, available-for-sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                     |    |   |   |   |   |   |
| Proceeds from sales                                                                                                                                                  |   |                     | 9,603   |   |   |   | 9,914 |   |
| Proceeds from maturities and paydowns                                                                                                                                |   |                     | 44,843  |   |   |   | 45,573 |   |
| Purchases                                                                                                                                                            |   |                     | (54,612 | ) |   |   | (21,285 | ) |
| Investment securities, held-to-maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                     |    |   |   |   |   |   |
| Proceeds from maturities and paydowns                                                                                                                                |   |                     | 1,199   |   |   |   | 940 |   |
| Purchases                                                                                                                                                            |   |                     | (8,456  | ) |   |   | ― |   |
| Net loan fundings                                                                                                                                          |   |                     | (2,013  | ) |   |   | (7,410 | ) |
| Proceeds from sale of other real estate owned                                                                                                              |   |                     | 1,004   |   |   |   | 296 |   |
| Proceeds from bank-owned life insurance                                                                                                                    |   |                     | ― |   |   |   | 491 |   |
| Purchases of property and equipment                                                                                                                        |   |                     | (807    | ) |   |   | (694 | ) |
| Net cash provided by (used for) investing activities                                                                                                                                |   |                     | (9,239  | ) |   |   | 27,825 |   |
| FINANCING ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                     |    |   |   |   |   |   |
| Net increase in deposit accounts                                                                                                                           |   |                     | 49,670  |   |   |   | 6,957 |   |
| Proceeds from Federal Home Loan Bank borrowed funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                     | 18,000  |   |   |   | 114,000 |   |
| Repayments of Federal Home Loan Bank borrowed funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                     | (46,087 | ) |   |   | (137,081 | ) |
| Decrease in short-term borrowed funds                                                                                                                      |   |                     | (10,615 | ) |   |   | (17,687 | ) |
| Dividends paid on common stock                                                                                                                             |   |                     | (218    | ) |   |   | (541 | ) |
| Net increase (decrease) in advance payments by borrowersfor taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                     | (136    | ) |   |   | 1,801 |   |
| Net disposition of Rabbi Trust shares                                                                                                                      |   |                     | ― |   |   |   | 151 |   |
| Net cash provided by (used for) financing activities                                                                                                                      |   |                     | 10,614  |   |   |   | (32,400 | ) |
| Increase in cash and cash equivalents                                                                                                       |   |                     | 7,215   |   |   |   | 1,717 |   |
| Cash and cash equivalents at beginning of period                                                                                            |   |                     | 24,428  |   |   |   | 19,106 |   |
| Cash and cash equivalents at end of period                                                                                                  |   | $                        | 31,643  |   |   | $ | 20,823 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Supplemental disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |   |   |
| Loans transferred to other real estate owned                                                                                         |   | $      | 4,007  |   |   | $      | 4,578 |   |
| Cash paid for interest on deposits                                                                                                   |   |   | 4,182  |   |   |   | 5,953 |   |
| Cash paid for interest on borrowed funds                                                                                             |   |   | 986    |   |   |   | 1,738 |   |
| Cash paid for taxes                                                                                                                  |   |   | 1,075  |   |   |   | 402 |   |

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table of contents

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

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

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                       |   | Three Months EndedJune 30,                              |       |   | Six Months EndedJune 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|------------|--------|--------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2010                                                    |       |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   | (Dollars in thousands, except share and per share data) |       |
| Net income                                                                 |   | $                                                       | 981        |   |                     | $      | 670 |   |   | $ | 1,679 |   |   | $ | 2,131 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                    |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average common shares:                                                                                                                                                                                                                                                                                                                                                                            |   |                                                    |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding                                                                          |   |                                                    | 10,640,347 |   |                     |   | 10,590,591 |   |   |   | 10,611,220 |   |   |   | 10,543,475 |   |
| Equivalents                                                                          |   |                                                    | 81,562     |   |                     |   | 106,796 |   |   |   | 86,756 |   |   |   | 119,858 |   |
| Total                                                                                               |   |                                                    | 10,721,909 |   |                     |   | 10,697,387 |   |   |   | 10,697,976 |   |   |   | 10,663,333 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                    |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per share:                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                    |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                |   | $                                                       | 0.09       |   |                     | $      | 0.06 |   |   | $ | 0.16 |   |   | $ | 0.20 |   |
| Diluted                                                                              |   |                                                    | 0.09       |   |                     |   | 0.06 |   |   |   | 0.16 |   |   |   | 0.20 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                    |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Number of anti-dilutive stock options excluded from    the diluted earnings per share calculation                                                                                                                                                                                                                                                                                           |   |                                                    | 651,995    |   |                     |   | 791,295 |   |   |   | 696,249 |   |   |   | 791,295 |   |
| Weighted-average exercise price of anti-dilutive    option shares                                                                                                                                                                                                                                                                                                                           |   | $                                                       | 12.95      |   |                     | $      | 13.07 |   |   | $ | 13.10 |   |   | $ | 13.07 |   |

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

|                                         |   | ParValue               |    |   | AmortizedCost |   |    | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |    |
|----------------------------------------------|--------|------------------------|---------|--------|---------------|--------|---------|----------------------|--------|--------|-----------------------|--------|--------|-----------|---------|
|                                         |   | (Dollars in thousands) |    |
| At June 30, 2010:                            |   |                   |    |   |          |   |    |                 |   |   |                  |   |   |      |    |
| Government sponsored entity (GSE) securities |   | $                      | 43,800  |   |          | $      | 44,536  |                 |   | $      | 865                   |   |   | $         | (3      | ) |   | $ | 45,398 |   |
| Collateralized mortgage obligations          |   |                   | 61,065  |   |          |   | 59,259  |                 |   |   | 2,058                 |   |   |      | (535    | ) |   |   | 60,782 |   |
| Commercial mortgage-backed securities        |   |                   | 62,759  |   |          |   | 62,779  |                 |   |   | 1,777                 |   |   |      | (53     | ) |   |   | 64,503 |   |
| Pooled trust preferred securities            |   |                   | 29,903  |   |          |   | 26,869  |                 |   |   | ―               |   |   |      | (6,745  | ) |   |   | 20,124 |   |
| Equity securities                            |   |                   | 5,837   |   |          |   | ― |                 |   |   | 86                    |   |   |      | ― |   |   |   | 86 |   |
|                                         |   | $                      | 203,364 |   |          | $      | 193,443 |                 |   | $      | 4,786                 |   |   | $         | (7,336  | ) |   | $ | 190,893 |   |
|                                         |   |                   |    |   |          |   |    |                 |   |   |                  |   |   |      |    |   |   |   |   |   |

|                                         |   | ParValue               |    |   | AmortizedCost |   |    | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | 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 |   |
| Equity securities                            |   |                   | 5,837   |   |          |   | ― |                 |   |   | 187                   |   |   |      | ― |   |   |   | 187 |   |
|                                         |   | $                      | 203,066 |   |          | $      | 192,516 |                 |   | $      | 4,362                 |   |   | $         | (8,097  | ) |   | $ | 188,781 |   |

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table of contents

|                                        |   | June 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) |    |
| Government sponsored entity (GSE)securities |   | $                      | 4,071   |   |   | $ | (3 | ) |   | $ | ― |   |   | $ | ― |   |   | $ | 4,071 |   |   | $ | (3 | ) |
| Collateralized mortgage obligations         |   |                   | 5,126   |   |   |   | (58 | ) |   |   | 7,096 |   |   |   | (477 | ) |   |   | 12,222 |   |   |   | (535 | ) |
| Commercial mortgage-backed securities       |   |                   | 3,234   |   |   |   | (53 | ) |   |   | ― |   |   |   | ― |   |   |   | 3,234 |   |   |   | (53 | ) |
| Pooled trust preferred securities           |   |                   | ― |   |   |   | ― |   |   |   | 20,124 |   |   |   | (6,745 | ) |   |   | 20,124 |   |   |   | (6,745 | ) |
|                                        |   | $                      | 12,431  |   |   | $ | (114 | ) |   | $ | 27,220 |   |   | $ | (7,222 | ) |   | $ | 39,651 |   |   | $ | (7,336 | ) |

|                                  |   | 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 | ) |

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table of contents

|                                  |   | Available-for-Sale     |    |
|---------------------------------------|--------|------------------------|---------|
|                                  |   | AmortizedCost          |    |   | FairValue |   |
|                                  |   | (Dollars in thousands) |    |
| GSE securities:                  |   |                   |    |
| Due in one year or less               |   | $                      | 17,488  |   |   | $ | 17,825 |   |
| Due after one year through five years |   |                   | 27,048  |   |   |   | 27,573 |   |
| Collateralized mortgage obligations   |   |                   | 59,259  |   |   |   | 60,782 |   |
| Commercial mortgage-backed securities |   |                   | 62,779  |   |   |   | 64,503 |   |
| Pooled trust preferred securities     |   |                   | 26,869  |   |   |   | 20,124 |   |
| Equity securities                     |   |                   | ― |   |   |   | 86 |   |
|                                  |   | $                      | 193,443 |   |   | $ | 190,893 |   |

|                                  |   | Held-to-Maturity       |   |
|---------------------------------------|--------|------------------------|--------|
|                                  |   | AmortizedCost          |   |   | FairValue |   |
|                                  |   | (Dollars in thousands) |   |
| Asset backed securities:              |   |                   |   |   |   |   |
| Due after five years                  |   | $                      | 8,206  |   |   | $ | 8,323 |   |
| State and municipal securities:  |   |                   |   |   |   |   |   |   |
| Due in one year or less               |   |                   | 2,000  |   |   |   | 2,041 |   |
| Due after one year through five years |   |                   | 2,000  |   |   |   | 2,092 |   |
|                                  |   | $                      | 12,206 |   |   | $ | 12,456 |   |

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table of contents

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

|                                                                                                                                                                                                                                                                                                                |   | Fair Value Measurements at June 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:                                                                                                                                                                                                                                                                           |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Government sponsored entity(GSE) securities                                             |   | $                                        | 45,398 |   |   | $ | ― |   |   | $ | 45,398 |   |   | $ | ― |   |
| Collateralized mortgage obligations                                                                                                                                                                                                                                                                                 |   |                                     | 60,782 |   |   |   | ― |   |   |   | 60,782 |   |   |   | ― |   |
| Commercial mortgage-backedsecurities                                                    |   |                                     | 64,503 |   |   |   | ― |   |   |   | 64,503 |   |   |   | ― |   |
| Pooled trust preferred securities                                                                                                                                                                                                                                                                                   |   |                                     | 20,124 |   |   |   | ― |   |   |   | ― |   |   |   | 20,124 |   |
| Equity securities                                                        |   |                                     | 86     |   |   |   | 86 |   |   |   | ― |   |   |   | ― |   |

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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 |   |
| Equity securities                                                         |   |                                         | 187    |   |   |   | 187 |   |   |   | ― |   |   |   | ― |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Investment Securities Available-for-Sale |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Three Months Ended                       |   |   | Six Months Ended |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | June 30, 2010                            |   |   | June 30, 2010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | (Dollars in thousands)                   |   |
| Balance at beginning of period                                                                               |   | $                                        | 19,901 |   |   | $ | 20,012 |   |
| Total realized and unrealized gains:                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     |   |   |   |   |   |   |
| Included in accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                     | 333    |   |   |   | 336 |   |
| Purchases, sales, issuances and settlements, net                                                                            |   |                                     | (110   | ) |   |   | (224 | ) |
| Balance at end of period                                                                                     |   | $                                        | 20,124 |   |   | $ | 20,124 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Investment Securities Available-for-Sale |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Three Months Ended                       |   |   | Six Months Ended |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | June 30, 2009                            |   |   | June 30, 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | (Dollars in thousands)                   |   |
| Balance at beginning of period                                                                               |   | $                                        | 20,960 |   |   | $ | 24,133 |   |
| Total realized and unrealized gains:                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     |   |   |   |   |   |   |
| Included in accumulated other comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | 5,076  |   |   |   | 2,049 |   |
| Purchases, sales, issuances and settlements, net                                                                            |   |                                     | (204   | ) |   |   | (350 | ) |
| Balance at end of period                                                                                     |   | $                                        | 25,832 |   |   | $ | 25,832 |   |

|                                                                                                                                                                                                                                               |   | Fair Value Measurements at June 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                                       |   | $                                        | 7,374  |   |   | $ | ― |   |   | $ | ― |   |   | $ | 7,374 |   |
| Other real estate owned                                                                                                                                                                                                                            |   |                                     | 2,300  |   |   |   | ― |   |   |   | ― |   |   |   | 2,300 |   |

|                                                                                                                                                                                                                                               |   | 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 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | June 30,               |      |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2010                   |      |   | 2009         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Carrying               |      |   | Fair         |   |   | Carrying |   |   | Fair |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Amount                 |      |   | Value        |   |   | Amount |   |   | Value |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars in thousands) |      |
| Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |      |   |         |   |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                            |   | $                      | 31,643    |   |         | $      | 31,643 |   |   | $ | 24,428 |   |   | $ | 24,428 |   |
| Investment securities, available-for-sale                                                                            |   |                   | 190,893   |   |         |   | 190,893 |   |   |   | 188,781 |   |   |   | 188,781 |   |
| Investment securities, held-to-maturity                                                                              |   |                   | 12,206    |   |         |   | 12,456 |   |   |   | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   | 738,444   |   |         |   | 743,195 |   |   |   | 742,925 |   |   |   | 745,594 |   |
| Accrued interest receivable                                                                                          |   |                   | 3,486     |   |         |   | 3,486 |   |   |   | 3,469 |   |   |   | 3,469 |   |
| Total financial assets                                                                                               |   | $                      | 1,000,616 |   |         | $      | 1,005,617 |   |   | $ | 988,547 |   |   | $ | 991,395 |   |
| Financial Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                   |      |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                             |   | $                      | 899,482   |   |         | $      | 902,100 |   |   | $ | 849,758 |   |   | $ | 850,894 |   |
| Borrowed funds                                                                                                       |   |                   | 73,106    |   |         |   | 75,588 |   |   |   | 111,808 |   |   |   | 113,379 |   |
| Accrued interest payable                                                                                             |   |                   |  131 |   |         |   |  131 |   |   |   | 145 |   |   |   | 145 |   |
| Total financial liabilities                                                                                          |   | $                      | 972,719   |   |         | $      | 977,819 |   |   | $ | 961,711 |   |   | $ | 964,418 |   |

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table of contents

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

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|                          |   |   |    |   | Number ofShares |    |    | Weighted-AverageGrant-Date FairValue |   |
|-------------------------------|--------|--------|---------|--------|-----------------|---------|---------|--------------------------------------|--------|
| Unvested at December 31, 2009 |   |   |    |   |            | 165,664 |    |                                 | $      | 6.04 |   |
| 2010 awards:                  |   |   |    |   |            |    |    |                                 |   |   |   |
| Granted                       |   |   | 120,392 |   |            |    |    |                                 |   |   | 3.62 |   |
| Forfeited                     |   |   | (7,615  | )      |            |    |    |                                 |   |   | 3.49 |   |
| Net 2010 grant awards         |   |   |    |   |            |    | 112,777 |                                 |   |   | 3.63 |   |
| Vested                        |   |   |    |   |            |    | (14,883 | )                                    |   |   | 13.70 |   |
| Forfeited                     |   |   |    |   |            |    | (70,692 | )                                    |   |   | 3.48 |   |
| Unvested at June 30, 2010     |   |   |    |   |            |    | 192,866 |                                 |   | $ | 4.98 |   |

|                                |   | 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 June 30, 2010     |   |            | 651,995  |   |                           | $      | 13.44 |   |
|                                     |   |            |     |   |                           |   |   |   |
| Options exercisable at June 30, 2010     |   |            | 651,995  |   |                           | $      | 13.44 |   |

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| 6. | Other Comprehensive Income |
|----|----------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         |    |   |                   |   |    |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|--------|------------------------|--------|---------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |  Three Months Ended     |    |   |  Six Months Ended |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |  June 30,               |    |   |  June 30,         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   2010             |    |   |  2009             |   |    |  2010 |   |   |  2009 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |  (Dollars in thousands) |
| Unrealized holding gains arising during the period:                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                         |    |   |                   |   |    |       |   |   |   |
| Unrealized net gains                                                                                                      |   | $                            | 839     |   |                   | $      | 6,291   |       |   | $ | 1,641 |   |   | $ | 2,468 |   |
| Related income tax expense                                                                                                |   |                         | (296    | )      |                   |   | (2,309  | )          |   |   | (568 | ) |   |   | (885 | ) |
| Net unrealized gains                                                                                                      |   |                         | 543     |   |                   |   | 3,982   |       |   |   | 1,073 |   |   |   | 1,583 |   |
| Less:  reclassification adjustment for net gainsrealized during the period:                                                                                                                                                                                                                                                                                                                                                                                    |   |                         |    |   |                   |   |    |       |   |   |   |   |   |   |   |   |
| Realized net gains                                                                                                                       |   |                         | — |   |                   |   | — |       |   |   | 456 |   |   |   | 720 |   |
| Related income tax expense                                                                                                               |   |                         | — |   |                   |   | — |       |   |   | (155 | ) |   |   | (265 | ) |
| Net realized gains                                                                                                                       |   |                         | — |   |                   |   | — |       |   |   | 301 |   |   |   | 455 |   |
| Change in other comprehensive income                                                                       |   | $                            | 543     |   |                   | $      | 3,982   |       |   | $ | 772 |   |   | $ | 1,128 |   |

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

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Item 2.

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|                                                                                                                                                                                                                                          |   |  Three Months Ended           |          |   |  Six Months Ended |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|---------------|--------|------------------------|--------|
|                                                                                                                                                                                                                                          |   |   June 30,               |          |   |  June 30,         |   |
|                                                                                                                                                                                                                                          |   |  2010                         |          |   |  2009             |   |   |  2010 |   |   |  2009 |   |
|                                                                                                                                                                                                                                          |   |   (Dollars in thousands) |          |
| Net income                                                                                                                                                                                                                                    |   | $                                  | 981           |   |                   | $      | 670  |   |   | $ | 1,679  |   |   | $ | 2,131  |   |
| Diluted earnings per share                                                                                                                                                                                                                    |   |                               |  0.09    |   |                   |   | 0.06  |   |   |   | 0.16  |   |   |   | 0.20  |   |
| Pre-tax, pre-provision earnings from core operations (1)                                                                                                                                                                                      |   |                               |  2,817   |   |                   |   | 2,460  |   |   |   | 5,685  |   |   |   | 4,935  |   |
| Return on average assets (2)                                                                                                                                                                                                                  |   |                               | 0.36     | %      |                   |   | 0.24  | % |   |   | 0.31  | % |   |   | 0.39  | % |
| Return on average equity (2)                                                                                                                                                                                                                  |   |                               | 3.52     |   |                   |   | 2.41 |   |   |   | 3.04  |   |   |   | 3.84  |   |
| Average interset-earning assets                                                                                                                                                                                                               |   | $                                  | 987,801  |   |                   | $      | 1,014,576  |   |   | $ | 985,230  |   |   | $ | 1,022,634  |   |
| Net interest income                                                                                                                                                                                                                           |   |                               | 9,329    |   |                   |   | 9,335  |   |   |   | 18,772  |   |   |   | 18,510  |   |
| Net interest margin                                                                                                                                                                                                                           |   |                               | 3.79     | %      |                   |   | 3.69  | % |   |   | 3.84  | % |   |   | 3.65  | % |
| Non-interest income                                                                                                                                                                                                                           |   | $                                  | 2,250    |   |                   | $      | 2,125  |   |   | $ | 4,796  |   |   | $ | 5,076  |   |
| Non-interest expense                                                                                                                                                                                                                          |   |                               | 9,603    |   |                   |   | 9,943  |   |   |   | 19,075  |   |   |   | 19,371  |   |
| Efficiency ratio (3)                                                                                                                                                                                                                          |   |                               | 83.01    | %      |                   |   | 86.72  | % |   |   | 82.58  | % |   |   | 84.69  | % |
|                                                                                                                                                                                                                                          |   |                               |          |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| (1) See "Non-GAAP Financial Information" on page 27.                                                                                                                                                                                          |
| (2) Annualized.                                                                                                                                                                                                                               |
| (3) The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest       income, excluding net gain on sales of investment securities and other assets. |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | June 30,2010 |   |   | December 31,2009 |   |   | June 30,2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------|------------------|--------|--------|--------------|--------|
| Book value per share                                                                                                           |   | $            | 10.40  |   |             | $      | 10.25  |         |   | $ | 10.73 |   |
| Shareholders’ equity to total assets                                                                                          |   |         | 10.30  | %      |             |   | 10.21  | %            |   |   | 10.55 | % |
| Tangible capital ratio (Bank only)                                                                                                  |   |         | 9.05   |   |             |   | 8.88   |         |   |   | 9.53 |   |
| Core capital ratio (Bank only)                                                                                                      |   |         | 9.05   |   |             |   | 8.88   |         |   |   | 9.53 |   |
| Risk based capital ratio (Bank only)                                                                                                |   |         | 12.81  |   |             |   | 12.35  |         |   |   | 13.21 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |  Three Months Ended June 30,         |    |    |  Six Months EndedJune 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|---------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |    2010                    |    |    | 2009                           |   |   |  2010  |   |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     (Dollars in thousands) |    |
| Income before income taxes                                                                                                 |   | $                                         | 1,159   |    |                           | $      | 804 |   |   | $ | 1,966 |   |   | $ | 2,878 |   |
| Provision for loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | 817     |    |                           |   | 713 |   |   |   | 2,527 |   |   |   | 1,337 |   |
| Pre-tax, pre-provision earnings                                                                                            |   |                                      | 1,976   |    |                           |   | 1,517 |   |   |   | 4,493 |   |   |   | 4,215 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                      |    |    |                           |   |   |   |   |   |   |   |   |   |   |   |
| Add back (subtract):                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                      |    |    |                           |   |   |   |   |   |   |   |   |   |   |   |
| Net gain on sale of investment securities                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | ― |    |                           |   | ― |   |   |   | (456) |   |   |   | (720 | ) |
| Net (gain) loss on sale of other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                      | (11     | )  |                           |   | 6 |   |   |   | (12 | )  |   |   | 6 |   |
| OREO related expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                      | 262     |    |                           |   | 212 |   |   |   | 898 |   |   |   | 411 |   |
| Loan collection expense                                                                                                                   |   |                                      | 153     |    |                           |   | 230 |   |   |   | 322 |   |   |   | 528 |   |
| Severance and early retirement expense                                                                                                    |   |                                      | 437     |    |                           |   | ― |   |   |   | 440 |   |   |   | ― |   |
| Special assessment – FDIC insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | ― |    |                           |   | 495 |   |   |   | ― |   |   |   | 495 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                      |    |    |                           |   |   |   |   |   |   |   |   |   |   |   |
| Pre-tax, pre-provision earnings from core operations                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                         | 2,817   |    |                           | $      | 2,460 |   |   | $ | 5,685 |   |   | $ | 4,935 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                      |    |    |                           |   |   |   |   |   |   |   |   |   |   |   |
| Pre-tax, pre-provision earnings from core operations toaverage assets                                                                     |   |                                      | 1.03    | %       |                           |   | 0.89 | % |   |   | 1.05 | % |   |   | 0.89 | % |

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|                                                                                                                                                                                                                                                                                                                          |   | Three Months Ended June 30, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                          |   | 2010                        |      |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                          |   | AverageBalance              |      |   | Interest |   |   | AverageYield/Cost |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)      |      |
| Interest-earning assets:                                                                                                                                                                                                                                                                                                      |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable (1)                                                               |   | $                           | 757,478   |   |   | $ | 9,626 |   |   |   | 5.10 | % |   | $ | 751,957 |   |   | $ | 9,807 |   |   |   | 5.23 | % |
| Investment securities (2)                                                                                                                                                                                                                                                                                                |   |                        | 201,735   |   |   |   | 2,163 |   |   |   | 4.24 |   |   |   | 232,853 |   |   |   | 3,020 |   |   |   | 5.13 |   |
| Other interest-earning assets (3)                                                                                                                                                                                                                                                                                             |   |                        | 28,588    |   |   |   | 123 |   |   |   | 1.73 |   |   |   | 29,766 |   |   |   | 137 |   |   |   | 1.85 |   |
| Total interest-earning assets                                                                                                                                                                                                                                                                                                 |   |                        | 987,801   |   |   |   | 11,912 |   |   |   | 4.84 |   |   |   | 1,014,576 |   |   |   | 12,964 |   |   |   | 5.13 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                                                                                                                                                                                                                                                                              |   |                        | 102,063   |   |   |   |   |   |   |   |   |   |   |   | 85,174 |   |   |   |   |   |   |   |   |   |
| Total assets                                                        |   | $                           | 1,089,864 |   |   |   |   |   |   |   |   |   |   | $ | 1,099,750 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                          |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                                                                                                                                                                                                                                                                 |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                     |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                                                                                                                                                                                                                                                                                                             |   | $                           | 132,870   |   |   |   | 51 |   |   |   | 0.15 |   |   | $ | 135,470 |   |   |   | 115 |   |   |   | 0.34 |   |
| Money market accounts                                                                                                                                                                                                                                                                                                    |   |                        | 156,937   |   |   |   | 261 |   |   |   | 0.67 |   |   |   | 158,341 |   |   |   | 286 |   |   |   | 0.72 |   |
| Savings accounts                                                                                                                                                                                                                                                                                                              |   |                        | 118,691   |   |   |   | 99 |   |   |   | 0.33 |   |   |   | 119,879 |   |   |   | 104 |   |   |   | 0.35 |   |
| Certificates of deposit                                                                                                                                                                                                                                                                                                       |   |                        | 396,378   |   |   |   | 1,735 |   |   |   | 1.76 |   |   |   | 367,418 |   |   |   | 2,244 |   |   |   | 2.45 |   |
| Total deposits                                                                                              |   |                        | 804,876   |   |   |   | 2,146 |   |   |   | 1.07 |   |   |   | 781,108 |   |   |   | 2,749 |   |   |   | 1.41 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed funds:                                                                                                                                                                                                                                                                                                               |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowed funds (4)                                                                                                                                                                                                                                                                                           |   |                        | 13,663    |   |   |   | 16 |   |   |   | 0.47 |   |   |   | 10,870 |   |   |   | 20 |   |   |   | 0.74 |   |
| FHLB borrowed funds                                                                                                                                                                                                                                                                                                           |   |                        | 60,121    |   |   |   | 421 |   |   |   | 2.77 |   |   |   | 117,170 |   |   |   | 860 |   |   |   | 2.90 |   |
| Total borrowed funds                                                                                                                                                                                                                                                                                                          |   |                        | 73,784    |   |   |   | 437 |   |   |   | 2.34 |   |   |   | 128,040 |   |   |   | 880 |   |   |   | 2.72 |   |
| Total interest-bearing liabilities                                                                                                                                                                                                                                                                                            |   |                        | 878,660   |   |   |   | 2,583 |   |   |   | 1.18 |   |   |   | 909,148 |   |   |   | 3,629 |   |   |   | 1.60 |   |
| Non-interest bearing deposits                                                                                                                                                                                                                                                                                            |   |                        | 88,914    |   |   |   |   |   |   |   |   |   |   |   | 64,509 |   |   |   |   |   |   |   |   |   |
| Non-interest bearing other liabilities                                                                                                                                                                                                                                                                                        |   |                        | 10,446    |   |   |   |   |   |   |   |   |   |   |   | 14,520 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                   |   |                        | 978,020   |   |   |   |   |   |   |   |   |   |   |   | 988,177 |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                                                                                                                                                                                                                                                                                                          |   |                        | 111,844   |   |   |   |   |   |   |   |   |   |   |   | 111,573 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders' equity                                                                                                                                                                                                                                                                                    |   | $                           | 1,089,864 |   |   |   |   |   |   |   |   |   |   | $ | 1,099,750 |   |   |   |   |   |   |   |   |   |
| Net interest-earning assets                                                                                                                                                                                                                                                                                              |   | $                           | 109,141   |   |   |   |   |   |   |   |   |   |   | $ | 105,428 |   |   |   |   |   |   |   |   |   |
| Net interest income / interest rate spread                                                                                                                                                                                                                                                                                    |   |                        |      |   |   | $ | 9,329 |   |   |   | 3.66 | % |   |   |   |   |   | $ | 9,335 |   |   |   | 3.53 | % |
| Net interest margin                                                                                                                                                                                                                                                                                                           |   |                        |      |   |   |   |   |   |   |   | 3.79 | % |   |   |   |   |   |   |   |   |   |   | 3.69 | % |
| Ratio of average interest-earning assetsto average interest-bearing liabilities                                                                                                                                                                                                                                               |   |                        |      |   |   |   |   |   |   |   | 112.42 | % |   |   |   |   |   |   |   |   |   |   | 111.48 | % |

| (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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|                                                                                                                                                                                                                                                                                                                          |   |    Six Months Ended June 30, |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                          |   |  2010                                  |      |   | 2009 |   |
|                                                                                                                                                                                                                                                                                                                          |   | AverageBalance                              |      |   | Interest |   |   | AverageYield/Cost |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)                      |      |
| Interest-earning assets:                                                                                                                                                                                                                                                                                                      |   |                                        |      |   |   |   |   |   |   |   |   |   |
| Loans receivable (1)                                                                                                                                                                                                                                                                                                          |   | $                                           | 759,141   |   |   | $ | 19,304 |   |   |   | 5.13 | % |   | $ | 752,508 |   |   | $ | 19,752 |   |   |   | 5.29 | % |
| Investment securities (2)                                                                                                                                                                                                                                                                                                     |   |                                        | 198,292   |   |   |   | 4,376 |   |   |   | 4.39 |   |   |   | 238,507 |   |   |   | 6,063 |   |   |   | 5.06 |   |
| Other interest-earning assets (3)                                                                                                                                                                                                                                                                                             |   |                                        | 27,797    |   |   |   | 247 |   |   |   | 1.79 |   |   |   | 31,619 |   |   |   | 380 |   |   |   | 2.42 |   |
| Total interest-earning assets                                                                                                                                                                                                                                                                                                 |   |                                        | 985,230   |   |   |   | 23,927 |   |   |   | 4.90 |   |   |   | 1,022,634 |   |   |   | 26,195 |   |   |   | 5.17 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                                                                                                                                                                                                                                                                                                   |   |                                        | 101,377   |   |   |   |   |   |   |   |   |   |   |   | 84,453  |   |   |   |   |   |   |   |   |   |
| Total assets                                                        |   | $                                           | 1,086,607 |   |   |   |   |   |   |   |   |   |   | $ |  1,107,087 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                          |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                                                                                                                                                                                                                                                                 |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                     |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                                                                                                                                                                                                                                                                                                             |   | $                                           | 133,787   |   |   |   | 118 |   |   |   | 0.18 |   |   | $ | 123,633 |   |   |   | 207 |   |   |   | 0.34 |   |
| Money market accounts                                                                                                                                                                                                                                                                                                         |   |                                        | 154,936   |   |   |   | 507 |   |   |   | 0.66 |   |   |   | 160,046 |   |   |   | 618 |   |   |   | 0.78 |   |
| Savings accounts                                                                                                                                                                                                                                                                                                              |   |                                        | 117,103   |   |   |   | 193 |   |   |   | 0.33 |   |   |   | 118,259 |   |   |   | 206 |   |   |   | 0.35 |   |
| Certificates of deposit                                                                                                                                                                                                                                                                                                       |   |                                        | 382,320   |   |   |   | 3,381 |   |   |   | 1.78 |   |   |   | 368,493 |   |   |   | 4,814 |   |   |   | 2.63 |   |
| Total deposits                                                                                              |   |                                        | 788,146   |   |   |   | 4,199 |   |   |   | 1.07 |   |   |   | 770,431 |   |   |   | 5,845 |   |   |   | 1.53 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Borrowed funds:                                                                                                                                                                                                                                                                                       |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other short-term borrowed funds (4)                                                                                                                                                                                                                                                 |   |                                        | 15,179    |   |   |   | 37 |   |   |   | 0.49 |   |   |   | 14,146 |   |   |   | 53 |   |   |   | 0.76 |   |
|        FHLB borrowed funds                                                                                                                                                                                                                                                                 |   |                                        | 70,079    |   |   |   | 919 |   |   |   | 2.61 |   |   |   | 132,117 |   |   |   | 1,787 |   |   |   | 2.69 |   |
|        Total borrowed funds                                                                                                                                                                                                                                                                |   |                                        | 85,258    |   |   |   | 956 |   |   |   | 2.23 |   |   |   | 146,263 |   |   |   | 1,840 |   |   |   | 2.50 |   |
|    Total interest-bearing liabilities                                                                                                                                                                                                                                                                               |   |                                        | 873,404   |   |   |   | 5,155 |   |   |   | 1.19 |   |   |   | 916,694 |   |   |   | 7,685 |   |   |   | 1.69 |   |
| Non-interest bearing deposits                                                                                                                                                                                                                                                                                                 |   |                                        | 91,254    |   |   |   |   |   |   |   |   |   |   |   | 64,180  |   |   |   |   |   |   |   |   |   |
| Non-interest bearing other liabilities                                                                                                                                                                                                                                                                                        |   |                                        | 10,435    |   |   |   |   |   |   |   |   |   |   |   |  14,205 |   |   |   |   |   |   |   |   |   |
| Total liabilities                                                   |   |                                        | 975,093   |   |   |   |   |   |   |   |   |   |   |   |  995,079 |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                                                                                                                                                                                                                                                                                                          |   |                                        | 111,514   |   |   |   |   |   |   |   |   |   |   |   |  112,008 |   |   |   |   |   |   |   |   |   |
| Total liabilities and shareholders' equity                                                                                                                                                                                                                                                                                    |   | $                                           | 1,086,607 |   |   |   |   |   |   |   |   |   |   | $ |  1,107,087 |   |   |   |   |   |   |   |   |   |
| Net interest-earning assets                                                                                                                                                                                                                                                                                                   |   | $                                           | 111,826   |   |   |   |   |   |   |   |   |   |   | $ |  105,940 |   |   |   |   |   |   |   |   |   |
| Net interest income / interest rate spread                                                                                                                                                                                                                                                                                    |   |                                        |      |   |   | $ | 18,772 |   |   |   | 3.71 | % |   |   |   |   |   | $ |  18,510 |   |   |   |  3.48 | % |
| Net interest margin                                                                                                                                                                                                                                                                                                           |   |                                        |      |   |   |   |   |   |   |   | 3.84  | % |   |   |   |   |   |   |   |   |   |   | 3.65 | %  |
| Ratio of average interest-earning assets to    average interest-bearing liabilities                                                                                                                                                                                                                  |   |                                        |      |   |   |   |   |   |   |   | 112.80  | % |   |   |   |   |   |   |   |   |   |   | 111.43 | %  |

| (1) | Loans receivable includes 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. |
|--------|-----------------------------------|

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                              |   | Three Months Ended June 30, 2010 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                              |   | compared to June 30, 2009        |   |
|                                                                                                                                                                                                                                                                                                                                                                              |   | Increase (decrease) due to       |   |
|                                                                                                                                                                                                                                                                                                                                                                              |   | Rate                             |   |   | Volume |   |   | Rate /Volume |   |   | TotalChange |   |
|                                                                                                                                                                                                                                                                                                                                                                              |   | (Dollars in thousands)           |   |
| Interest income:                                                                                                                                                                                                                                                                                                                                                                  |   |                             |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                                                                                    |   | $                                | (251   | ) |   | $ | 72 |   |   | $ | (2 | ) |   | $ | (181 | ) |
| Investment securities                                                                               |   |                             | (523   | ) |   |   | (403 | ) |   |   | 69 |   |   |   | (857 | ) |
| Other interest-earning assets                                                                       |   |                             | (9     | ) |   |   | (5 | ) |   |   | ― |   |   |   | (14 | ) |
| Total                                                                                                              |   |                             | (783   | ) |   |   | (336 | ) |   |   | 67 |   |   |   | (1,052 | ) |
|                                                                                                                                                                                                                                                                                                                                                                              |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                                                                                                                                                                                                                                                                                                                                                                 |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                         |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                                                                                                  |   |                             | (63    | ) |   |   | (2 | ) |   |   | 1 |   |   |   | (64 | ) |
| Money market accounts                                                                                              |   |                             | (22    | ) |   |   | (3 | ) |   |   | ― |   |   |   | (25 | ) |
| Savings accounts                                                                                                   |   |                             | (4     | ) |   |   | (1 | ) |   |   | ― |   |   |   | (5 | ) |
| Certificates of deposit                                                                                            |   |                             | (636   | ) |   |   | 177 |   |   |   | (50 | ) |   |   | (509 | ) |
| Total deposits                                                                                                               |   |                             | (725   | ) |   |   | 171 |   |   |   | (49 | ) |   |   | (603 | ) |
| Borrowed funds:                                                                                                                                                                                                                                                                                                                                                                   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowed funds                                                                                                                                                                                                                                                                                                                                                   |   |                             | (7     | ) |   |   | 5 |   |   |   | (2 | ) |   |   | (4 | ) |
| FHLB borrowed funds                                                                                                |   |                             | (39    | ) |   |   | (419 | ) |   |   | 19 |   |   |   | (439 | ) |
| Total borrowed funds                                                                                                         |   |                             | (46    | ) |   |   | (414 | ) |   |   | 17 |   |   |   | (443 | ) |
| Total                                                                                                              |   |                             | (771   | ) |   |   | (243 | ) |   |   | (32 | ) |   |   | (1,046 | ) |
| Net change in net interest income                                                         |   | $                                | (12    | ) |   | $ | (93 | ) |   | $ | 99 |   |   | $ | (6 | ) |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Six Months Ended June 30, 2010 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | compared to June 30, 2009      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Increase (decrease) due to     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Rate                           |   |   | Volume |   |   | Rate /Volume |   |   | TotalChange |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)         |   |
| Interest income:                                                                                                                                                                                                                                                                                                                                                                                              |   |                           |   |   |   |   |   |   |   |   |   |   |
| Loans receivable                                                                                                                |   | $                              | (617   | ) |   | $ | 174 |   |   | $ | (5 | ) |   | $ | (448 | ) |
| Investment securities                                                                                                           |   |                           | (800   | ) |   |   | (1,021 | ) |   |   | 134 |   |   |   | (1,687 | ) |
| Other interest-earning assets                                                                                                   |   |                           | (99    | ) |   |   | (46 | ) |   |   | 12 |   |   |   | (133 | ) |
| Total                                                                                                                                          |   |                           | (1,516 | ) |   |   | (893 | ) |   |   | 141 |   |   |   | (2,268 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                                                                                                                                                                                                                                                                                                                                                                                             |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                                     |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking accounts                                                                                                                              |   |                           | (98    | ) |   |   | 17 |   |   |   | (8 | ) |   |   | (89 | ) |
| Money market accounts                                                                                                                          |   |                           | (94    | ) |   |   | (20 | ) |   |   | 3 |   |   |   | (111 | ) |
| Savings accounts                                                                                                                               |   |                           | (11    | ) |   |   | (2 | ) |   |   | ― |   |   |   | (13 | ) |
| Certificates of deposit                                                                                                                        |   |                           | (1,556 | ) |   |   | 181 |   |   |   | (58 | ) |   |   | (1,433 | ) |
| Total deposits                                                                                                                                           |   |                           | (1,759 | ) |   |   | 176 |   |   |   | (63 | ) |   |   | (1,646 | ) |
|     Borrowed funds:                                                                                                                                                                                                                                                                                                                                                                       |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other short-term borrowed funds                                                                                                                                                                                                                                                                                                                                     |   |                           | (19    | ) |   |   | 4 |   |   |   | (1 | ) |   |   | (16 | ) |
|        FHLB borrowed funds                                                         |   |                           | (55    | ) |   |   | (839 | ) |   |   | 26 |   |   |   | (868 | ) |
|        Total borrowed funds                                                                  |   |                           | (74    | ) |   |   | (835 | ) |   |   | 25 |   |   |   | (884 | ) |
| Total                                                                                                                                          |   |                           | (1,833 | ) |   |   | (659 | ) |   |   | (38 | ) |   |   | (2,530 | ) |
| Net change in net interest income                                                                                     |   | $                              | 317    |   |   | $ | (234 | ) |   | $ | 179 |   |   | $ | 262 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Three Months Ended June 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010                        |   |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Dollars in thousands)      |   |
| Service charges and other fees                                                                       |   | $                           | 1,320  |   |   | $ | 1,376 |   |   | $ | (56 | ) |   |   | (4.1 | )% |
| Card-based fees                                                                                      |   |                        | 486    |   |   |   | 432 |   |   |   | 54 |   |   |   | 12.5 |   |
| Commission income                                                                                    |   |                        | 46     |   |   |   | 70 |   |   |   | (24 | ) |   |   | (34.3 | ) |
| Subtotal fee based revenues                                                                                         |   |                        | 1,852  |   |   |   | 1,878 |   |   |   | (26 | ) |   |   | (1.4 | ) |
| Income from bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                 |   |                        | 262    |   |   |   | 156 |   |   |   | 106 |   |   |   | 67.9 |   |
| Other income                                                                                         |   |                        | 125    |   |   |   | 97 |   |   |   | 28 |   |   |   | 28.9 |   |
| Subtotal                                                                                                            |   |                        | 2,239  |   |   |   | 2,131 |   |   |   | 108 |   |   |   | 5.1 |   |
| Net gain (loss) on sale of other assets                                                              |   |                        | 11     |   |   |   | (6 | ) |   |   | 17 |   |   |   | NM |   |
| Total non-interest income                                                                                           |   | $                           | 2,250  |   |   | $ | 2,125 |   |   | $ | 125 |   |   |   | 5.9 | % |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Six Months Ended June 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2010                      |   |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Dollars in thousands)    |   |
| Service charges and other fees                                                                       |   | $                         | 2,540  |   |   | $ | 2,675 |   |   | $ | (135 | ) |   |   | (5.0 | )% |
| Card-based fees                                                                                      |   |                      | 923    |   |   |   | 820 |   |   |   | 103 |   |   |   | 12.6 |   |
| Commission income                                                                                    |   |                      | 100    |   |   |   | 141 |   |   |   | (41 | ) |   |   | (29.1 | ) |
| Subtotal fee based revenues                                                                                         |   |                      | 3,563  |   |   |   | 3,636 |   |   |   | (73 | ) |   |   | (2.0 | ) |
| Income from bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                 |   |                      | 485    |   |   |   | 334 |   |   |   | 151 |   |   |   | 45.2 |   |
| Other income                                                                                         |   |                      | 280    |   |   |   | 392 |   |   |   | (112 | ) |   |   | (28.6 | ) |
| Subtotal                                                                                                            |   |                      | 4,328  |   |   |   | 4,362 |   |   |   | (34 | ) |   |   | (0.8 | ) |
| Net gain on sale of investment securities                                                                                                                                                                                                                                                                                                                                                                             |   |                      | 456    |   |   |   | 720 |   |   |   | (264 | ) |   |   | (36.7 | ) |
| Net gain (loss) on sale of other assets                                                              |   |                      | 12     |   |   |   | (6 | ) |   |   | 18 |   |   |   | NM |   |
| Total non-interest income                                                                                           |   | $                         | 4,796  |   |   | $ | 5,076 |   |   | $ | (280 | ) |   |   | (5.5 | )% |

|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Three Months Ended June 30, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010                        |    |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)      |    |
| Compensation and mandatory benefits                                                                                                                                                                                                                                                                                                                                                                           |   | $                           | 4,095   |   |   | $ | 4,382 |   |   | $ | (287 | ) |   |   | (6.5 | )% |
| Retirement and stock related compensation                                                                                                                                                                                                                                                                                                                                                                     |   |                        | 194     |   |   |   | 391 |   |   |   | (197 | ) |   |   | (50.4 | ) |
| Medical and life benefits                                                                    |   |                        | 250     |   |   |   | 290 |   |   |   | (40 | ) |   |   | (13.8 | ) |
| Other employee benefits                                                                      |   |                        | 11      |   |   |   | 15 |   |   |   | (4 | ) |   |   | (26.7 | ) |
| Subtotal compensation and employee benefits                                                                                                                                                                                                                                                                                                                                                                   |   |                        | 4,550   |   |   |   | 5,078 |   |   |   | (528 | ) |   |   | (10.4 | ) |
| Professional fees                                                                            |   |                        | 835     |   |   |   | 604 |   |   |   | 231 |   |   |   | 38.2 |   |
| Net occupancy expense                                                                        |   |                        | 651     |   |   |   | 750 |   |   |   | (99 | ) |   |   | (13.2 | ) |
| FDIC insurance premiums                                                                      |   |                        | 567     |   |   |   | 468 |   |   |   | 99 |   |   |   | 21.2 |   |
| Furniture and equipment expense                                                              |   |                        | 526     |   |   |   | 520 |   |   |   | 6 |   |   |   | 1.2 |   |
| Data processing                                                                              |   |                        | 443     |   |   |   | 420 |   |   |   | 23 |   |   |   | 5.5 |   |
| Marketing                                                                                    |   |                        | 216     |   |   |   | 218 |   |   |   | (2 | ) |   |   | (0.9 | ) |
| OREO related expense                                                                         |   |                        | 262     |   |   |   | 212 |   |   |   | 50 |   |   |   | 23.6 |   |
| Loan collection expense                                                                      |   |                        | 153     |   |   |   | 230 |   |   |   | (77 | ) |   |   | (33.5 | ) |
| Severance and early retirement expense                                                                                                                                                                                                                                                                                                                                                                        |   |                        | 437     |   |   |   | ― |   |   |   | 437 |   |   |   | N/A |   |
| FDIC special assessment                                                                      |   |                        | — |   |   |   | 495 |   |   |   | (495 | ) |   |   | N/A |   |
| Other general and administrative expense                                                                                                                                                                                                                                                                                                                                                                      |   |                        | 963     |   |   |   | 948 |   |   |   | 15 |   |   |   | 1.6 |   |
| Total non-interest expense                                                                                  |   | $                           | 9,603   |   |   | $ | 9,943 |   |   | $ | (340 | ) |   |   | (3.4 | )% |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                          |   | Six Months Ended June 30, |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2010                      |    |   | 2009 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars in thousands)    |    |
| Compensation and mandatory benefits                                                                                                                                                                                                                                                                                                                                                                           |   | $                         | 8,175   |   |   | $ | 8,638 |   |   | $ | (463 | ) |   |   | (5.4 | )% |
| Retirement and stock related compensation                                                                                                                                                                                                                                                                                                                                                                     |   |                      | 389     |   |   |   | 1,001 |   |   |   | (612 | ) |   |   | (61.1 | ) |
| Medical and life benefits                                                                    |   |                      | 625     |   |   |   | 580 |   |   |   | 45 |   |   |   | 7.8 |   |
| Other employee benefits                                                                      |   |                      | 30      |   |   |   | 34 |   |   |   | (4 | ) |   |   | (11.8 | ) |
| Subtotal compensation and employee benefits                                                                                                                                                                                                                                                                                                                                                                   |   |                      | 9,219   |   |   |   | 10,253 |   |   |   | (1,034 | ) |   |   | (10.1 | ) |
| Professional fees                                                                            |   |                      | 1,519   |   |   |   | 954 |   |   |   | 565 |   |   |   | 59.2 |   |
| Net occupancy expense                                                                        |   |                      | 1,406   |   |   |   | 1,647 |   |   |   | (241 | ) |   |   | (14.6 | ) |
| FDIC insurance premiums                                                                      |   |                      | 1,065   |   |   |   | 772 |   |   |   | 293 |   |   |   | 38.0 |   |
| Furniture and equipment expense                                                              |   |                      | 1,059   |   |   |   | 1,055 |   |   |   | 4 |   |   |   | 0.4 |   |
| Data processing                                                                              |   |                      | 873     |   |   |   | 839 |   |   |   | 34 |   |   |   | 4.1 |   |
| Marketing                                                                                    |   |                      | 330     |   |   |   | 416 |   |   |   | (86 | ) |   |   | (20.7 | ) |
| OREO related expense                                                                         |   |                      | 898     |   |   |   | 411 |   |   |   | 487 |   |   |   | 118.5 |   |
| Loan collection expense                                                                      |   |                      | 322     |   |   |   | 528 |   |   |   | (206 | ) |   |   | (39.0 | ) |
| Severance and early retirement expense                                                                                                                                                                                                                                                                                                                                                                        |   |                      | 440     |   |   |   | ― |   |   |   | 440 |   |   |   | N/A |   |
| FDIC special assessment                                                                      |   |                      | — |   |   |   | 495 |   |   |   | (495 | ) |   |   | N/A |   |
| Other general and administrative expense                                                                                                                                                                                                                                                                                                                                                                      |   |                      | 1,944   |   |   |   | 2,001 |   |   |   | (57 | ) |   |   | (2.8 | ) |
| Total non-interest expense                                                                                  |   | $                         | 19,075  |   |   | $ | 19,371 |   |   | $ | (296 | ) |   |   | (1.5 | )% |

----

table of contents

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                 |   | June 30,2010           |      |   | December 31,2009 |   |      | $ Change |   |   | % Change |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|--------|------------------|--------|-----------|----------|--------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars in thousands) |      |
| Assets:                                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |      |   |             |   |      |     |   |   |     |   |
| Cash and cash equivalents                                                                           |   | $                      | 31,643    |   |             | $      | 24,428    |     |   | $      | 7,215    |   |   |   | 29.5 | % |
| Investment securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                             |   |                   | 190,893   |   |             |   | 188,781   |     |   |   | 2,112    |   |   |   | 1.1 |   |
| Investment securities held-to-maturity                                                              |   |                   | 12,206    |   |             |   | 5,000     |     |   |   | 7,206    |   |   |   | 144.1 |   |
| Investment in FHLB stock                                                                            |   |                   | 23,944    |   |             |   | 23,944    |     |   |   | —  |   |   |   | — |   |
| Loans receivable, net                                                                               |   |                   | 738,444   |   |             |   | 742,925   |     |   |   | (4,481   | )      |   |   | (0.6 | ) |
| Bank-owned life insurance                                                                           |   |                   | 35,060    |   |             |   | 34,575    |     |   |   | 485      |   |   |   | 1.4 |   |
| Other                                                                                               |   |                   | 63,090    |   |             |   | 61,862    |     |   |   | 1,228    |   |   |   | 2.0 |   |
| Total assets                                                                                                       |   | $                      | 1,095,280 |   |             | $      | 1,081,515 |     |   | $      | 13,765   |   |   |   | 1.3 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                   |      |   |             |   |      |     |   |   |     |   |   |   |   |   |
| Liabilities and Equity:                                                                                                                                                                                                                                                                                                                                                                                              |   |                   |      |   |             |   |      |     |   |   |     |   |   |   |   |   |
| Deposits                                                                                            |   | $                      | 899,482   |   |             | $      | 849,758   |     |   | $      | 49,724   |   |   |   | 5.9 | % |
| Borrowed funds                                                                                      |   |                   | 73,106    |   |             |   | 111,808   |     |   |   | (38,702  | )      |   |   | (34.6 | ) |
| Other liabilities                                                                                   |   |                   | 9,919     |   |             |   | 9,576     |     |   |   | 343      |   |   |   | 3.6 |   |
| Total liabilities                                                                                                  |   |                   | 982,507   |   |             |   | 971,142   |     |   |   | 11,365   |   |   |   | 1.2 |   |
| Shareholders’ equity                                                                          |   |                   | 112,773   |   |             |   | 110,373   |     |   |   | 2,400    |   |   |   | 2.2 |   |
| Total liabilities and equity                                                                                       |   | $                      | 1,095,280 |   |             | $      | 1,081,515 |     |   | $      | 13,765   |   |   |   | 1.3 | % |

|                                                                                  |   | June 30, 2010          |    |   | December 31, 2009 |   |   |   |   |
|---------------------------------------------------------------------------------------|--------|------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                                                                                  |   | Amount                 |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                                                                  |   | (Dollars in thousands) |    |
| Commercial loans:                                                                     |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |
| Commercial and industrial                                                             |   | $                      | 70,208  |   |              |   | 9.3    | %      |   | $ | 78,600 |   |   |   | 10.3 | % |   |   | (10.7 | )% |
| Commercial real estate – owner occupied                                         |   |                   | 95,989  |   |              |   | 12.7   |   |   |   | 99,559 |   |   |   | 13.1 |   |   |   | (3.6 | ) |
| Commercial real estate – non-owner occupied                                     |   |                   | 214,452 |   |              |   | 28.4   |   |   |   | 218,329 |   |   |   | 28.6 |   |   |   | (1.8 | ) |
| Commercial real estate – multifamily                                            |   |                   | 79,382  |   |              |   | 10.5   |   |   |   | 63,008 |   |   |   | 8.3 |   |   |   | 26.0 |   |
| Commercial construction and land       development |   |                   | 50,951  |   |              |   | 6.7    |   |   |   | 55,733 |   |   |   | 7.3 |   |   |   | (8.6 | ) |
|     Total commercial loans                                        |   |                   | 510,982 |   |              |   | 67.6   |   |   |   | 515,229 |   |   |   | 67.6 |   |   |   | (0.8 | ) |
|                                                                                  |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Retail loans:                                                                         |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family residential                                                        |   |                   | 183,823 |   |              |   | 24.3   |   |   |   | 185,293 |   |   |   | 24.3 |   |   |   | (0.8 | ) |
| Home equity lines of credit                                                           |   |                   | 56,016  |   |              |   | 7.4    |   |   |   | 56,911 |   |   |   | 7.5 |   |   |   | (1.6 | ) |
| Retail construction and land development                                              |   |                   | 3,513   |   |              |   | 0.5    |   |   |   | 3,401 |   |   |   | 0.4 |   |   |   | 3.3 |   |
| Other                                                                                 |   |                   | 1,718   |   |              |   | 0.2    |   |   |   | 1,552 |   |   |   | 0.2 |   |   |   | 10.7 |   |
| Total retail loans                                                                    |   |                   | 245,070 |   |              |   | 32.4   |   |   |   | 247,157 |   |   |   | 32.4 |   |   |   | (0.8 | ) |
|                                                                                  |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans receivable, net of unearned fees                                          |   | $                      | 756,052 |   |              |   | 100.0  | %      |   | $ | 762,386 |   |   |   | 100.0 | % |   |   | (0.8 | )% |

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table of contents

|                                  |   | June 30, 2010          |    |   | December 31, 2009 |   |    |   |   |
|---------------------------------------|--------|------------------------|---------|--------|-------------------|--------|---------|--------|--------|
|                                  |   | Amount                 |    |   | % of Total        |   |    | Amount |   |   | % of Total |   |   | % Change |   |
|                                  |   | (Dollars in thousands) |    |
| Illinois                              |   | $                      | 18,751  |   |              |   | 40.1    | %      |   | $ | 21,964 |   |   |   | 41.9 | % |   |   | (14.6 | )% |
| Indiana                               |   |                   | 13,223  |   |              |   | 28.3    |   |   |   | 13,149 |   |   |   | 25.1 |   |   |   | 0.6 |   |
| Ohio                                  |   |                   | 9,049   |   |              |   | 19.3    |   |   |   | 9,284 |   |   |   | 17.7 |   |   |   | (2.5 | ) |
| Florida                               |   |                   | 1,897   |   |              |   | 4.1     |   |   |   | 3,303 |   |   |   | 6.4 |   |   |   | (42.6 | ) |
| Colorado                              |   |                   | 2,220   |   |              |   | 4.7     |   |   |   | 2,514 |   |   |   | 4.8 |   |   |   | (11.7 | ) |
| Texas                                 |   |                   | 1,622   |   |              |   | 3.5     |   |   |   | 1,660 |   |   |   | 3.2 |   |   |   | (2.3 | ) |
| New York                              |   |                   | ― |   |              |   | ― |   |   |   | 491 |   |   |   | 0.9 |   |   |   | (100.0 | ) |
| Total participations and syndications |   | $                      | 46,762  |   |              |   | 100.0   | %      |   | $ | 52,365 |   |   |   | 100.0 | % |   |   | (10.7 | )% |

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table of contents

|                                         |   | ParValue               |    |   | AmortizedCost |   |    | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |    |
|----------------------------------------------|--------|------------------------|---------|--------|---------------|--------|---------|----------------------|--------|--------|-----------------------|--------|--------|-----------|---------|
|                                         |   | (Dollars in thousands) |    |
| At June 30, 2010:                            |   |                   |    |   |          |   |    |                 |   |   |                  |   |   |      |    |
| Government sponsored entity (GSE) securities |   | $                      | 43,800  |   |          | $      | 44,536  |                 |   | $      | 865                   |   |   | $         | (3      | ) |   | $ | 45,398 |   |
| Collateralized mortgage obligations          |   |                   | 61,065  |   |          |   | 59,259  |                 |   |   | 2,058                 |   |   |      | (535    | ) |   |   | 60,782 |   |
| Commercial mortgage-backed securities        |   |                   | 62,759  |   |          |   | 62,779  |                 |   |   | 1,777                 |   |   |      | (53     | ) |   |   | 64,503 |   |
| Pooled trust preferred securities            |   |                   | 29,903  |   |          |   | 26,869  |                 |   |   | ―               |   |   |      | (6,745  | ) |   |   | 20,124 |   |
| Equity securities                            |   |                   | 5,837   |   |          |   | ― |                 |   |   | 86                    |   |   |      | ― |   |   |   | 86 |   |
|                                         |   | $                      | 203,364 |   |          | $      | 193,443 |                 |   | $      | 4,786                 |   |   | $         | (7,336  | ) |   | $ | 190,893 |   |

|                                         |   | ParValue               |    |   | AmortizedCost |   |    | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | 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 |   |
| Equity securities                            |   |                   | 5,837   |   |          |   | ― |                 |   |   | 187                   |   |   |      | ― |   |   |   | 187 |   |
|                                         |   | $                      | 203,066 |   |          | $      | 192,516 |                 |   | $      | 4,362                 |   |   | $         | (8,097  | ) |   | $ | 188,781 |   |

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table of contents

|                                   |   | June 30, 2010          |    |   | December 31, 2009 |   |   |   |   |
|----------------------------------------|--------|------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                                   |   | Amount                 |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                   |   | (Dollars in thousands) |    |
| Core deposits:                         |   |                   |    |   |              |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing checking accounts |   | $                      | 84,136  |   |              |   | 9.4    | %      |   | $ | 89,261 |   |   |   | 10.5 | % |   |   | (5.7 | )% |
| Interest bearing checking accounts     |   |                   | 105,107 |   |              |   | 11.7   |   |   |   | 106,013 |   |   |   | 12.5 |   |   |   | (0.9 | ) |
| Money market accounts                  |   |                   | 145,533 |   |              |   | 16.2   |   |   |   | 136,411 |   |   |   | 16.0 |   |   |   | 6.7 |   |
| Savings accounts                       |   |                   | 119,030 |   |              |   | 13.2   |   |   |   | 113,865 |   |   |   | 13.4 |   |   |   | 4.5 |   |
| Subtotal core deposits                 |   |                   | 453,806 |   |              |   | 50.5   |   |   |   | 445,550 |   |   |   | 52.4 |   |   |   | 1.9 |   |
| Certificates of deposit                |   |                   | 392,639 |   |              |   | 43.6   |   |   |   | 354,401 |   |   |   | 41.7 |   |   |   | 10.8 |   |
| Non-municipal deposits                 |   |                   | 846,445 |   |              |   | 94.1   |   |   |   | 799,951 |   |   |   | 94.1 |   |   |   | 5.8 |   |
| Municipal core deposits                |   |                   | 40,206  |   |              |   | 4.5    |   |   |   | 38,993 |   |   |   | 4.6 |   |   |   | 3.1 |   |
| Municipal certificates of deposit      |   |                   | 12,831  |   |              |   | 1.4    |   |   |   | 10,814 |   |   |   | 1.3 |   |   |   | 18.7 |   |
| Municipal deposits                     |   |                   | 53,037  |   |              |   | 5.9    |   |   |   | 49,807 |   |   |   | 5.9 |   |   |   | 6.5 |   |
| Total deposits                         |   | $                      | 899,482 |   |              |   | 100.0  | %      |   | $ | 849,758 |   |   |   | 100.0 | % |   |   | 5.9 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                        |   | June 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    | %      |              | $      | 13,684 |   |   |   | 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                                                                   |   |                             | 0.63    |   |              |   | 19,000 |   |   |   | 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    |   |              |   | 1,122 |   |   |   | 6.71 |   |   |   | 1,122 |   |
| Maturing in 2018 – fixed-rate (1)                                                               |   |                             | 5.54    |   |              |   | 2,582 |   |   |   | 5.54 |   |   |   | 2,582 |   |
| Maturing in 2019 – fixed-rate (1)                                                               |   |                             | 6.31    |   |              |   | 6,718 |   |   |   | 6.30 |   |   |   | 6,805 |   |
| Subtotal FHLB – Indianapolis borrowed funds                                                                                                                                                                                                                                                                                                                                                                           |   |                             |    |   |              |   | 59,422 |   |   |   |   |   |   |   | 87,509 |   |
| Total borrowed funds                                                                        |   |                             |    |   |              | $      | 73,106 |   |   |   |   |   |   | $ | 111,808 |   |
| Weighted-average contractual interest rate                                                                                                                                                                                                                                                                                                                                                                                  |   |                             | 2.36    | %      |              |   |   |   |   |   | 2.09 | % |   |   |   |   |

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

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June 30,2010           |   |   | March 31,2010 |   |   | December 31,2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|---------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars in thousands) |   |
| Non-accrual loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   |   |   |          |   |   |             |   |
| Commercial loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   |   |   |          |   |   |             |   |
| Commercial and industrial                                                                                                                             |   | $                      | 883    |   |          | $      | 946    |             |   | $ | 1,399 |   |
| Commercial real estate – owner occupied                                                                                                         |   |                   | 4,940  |   |          |   | 3,562  |             |   |   | 3,627 |   |
| Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                   | 19,826 |   |          |   | 22,103 |             |   |   | 22,103 |   |
| Commercial real estate – multifamily                                                                                                            |   |                   | 1,477  |   |          |   | 1,300  |             |   |   | 623 |   |
| Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                   | 25,745 |   |          |   | 25,259 |             |   |   | 26,059 |   |
| Total commercial loans                                                                                                                                |   |                   | 52,871 |   |          |   | 53,170 |             |   |   | 53,811 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                   |   |   |          |   |   |             |   |   |   |   |
| Retail loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                   |   |   |          |   |   |             |   |   |   |   |
| One-to-four family residential                                                                                                                        |   |                   | 2,937  |   |          |   | 3,908  |             |   |   | 4,519 |   |
| Home equity lines of credit                                                                                                                           |   |                   | 365    |   |          |   | 433    |             |   |   | 393 |   |
| Retail construction and land development                                                                                                              |   |                   | 298    |   |          |   | 298    |             |   |   | 279 |   |
| Other                                                                                                                                                 |   |                   | 11     |   |          |   | 7      |             |   |   | 7 |   |
| Total retail loans                                                                                                                                    |   |                   | 3,611  |   |          |   | 4,646  |             |   |   | 5,198 |   |
| Total non-accrual loans                                                                                                                               |   |                   | 56,482 |   |          |   | 57,816 |             |   |   | 59,009 |   |
| Other real estate owned, net                                                                                                 |   |                   | 11,825 |   |          |   | 10,616 |             |   |   | 9,242 |   |
| Total non-performing assets                                                                                                            |   |                   | 68,307 |   |          |   | 68,432 |             |   |   | 68,251 |   |
| 90 days past due and still accruing interest                                                                                 |   |                   | 3,272  |   |          |   | 1,334  |             |   |   | 640 |   |
| Total non-performing assets plus 90 days past dueloans still accruing interest                                                                        |   | $                      | 71,579 |   |          | $      | 69,766 |             |   | $ | 68,891 |   |
| Non-performing assets to total assets                                                                                        |   |                   | 6.24   | %      |          |   | 6.27   | %                |   |   | 6.31 | % |
| Non-performing loans to total loans                                                                                          |   |                   | 7.47   | %      |          |   | 7.57   | %                |   |   | 7.74 | % |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June 30,2010           |   |   | March 31,2010 |   |   | December 31,2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|---------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands) |   |
| Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                         |   | $                      | 7,856  |   |          | $      | 10,158 |             |   | $ | 10,158 |   |
| Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                              |   |                   | 17,059 |   |          |   | 16,571 |             |   |   | 16,571 |   |
| Total non-performing syndications andpurchased participations                                                           |   | $                      | 24,915 |   |          | $      | 26,729 |             |   | $ | 26,729 |   |
| Percentage of total non-performing loans                                                                                                                                                                                                                                                                                                                                                                                  |   |                   | 44.1   | %      |          |   | 46.2   | %                |   |   | 45.3 | % |
| Percentage of total syndications and purchased    participations                                                                                                                                                                                                                                                                                                                                      |   |                   | 53.3   |   |          |   | 51.3   |             |   |   | 51.0 |   |

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

|                                                                                                                                                                                                                                                                                                                                                                                                                           |   | June 30,2010           |   |   | March 31,2010 |   |   | December 31,2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|---------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (Dollars in thousands) |   |
| Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                              |   | $                      | 2,781  |   |          | $      | 2,403  |             |   | $ | 2,819 |   |
| Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                                   |   |                   | 8,200  |   |          |   | 7,659  |             |   |   | 5,940 |   |
| One-to-four family residential                                                                 |   |                   | 844    |   |          |   | 554    |             |   |   | 483 |   |
| Total other real estate owned                                                                            |   | $                      | 11,825 |   |          | $      | 10,616 |             |   | $ | 9,242 |   |

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table of contents

|                                            |   | Three Months EndedJune 30, |   |   | Six Months EndedJune 30, |   |
|-------------------------------------------------|--------|----------------------------|--------|--------|--------------------------|--------|
|                                            |   | 2010                       |   |   | 2009                     |   |   | 2010 |   |   | 2009 |   |
|                                            |   | (Dollars in thousands)     |   |
| Balance at beginning of period                  |   | $                          | 20,402 |   |                     | $      | 15,472 |   |   | $ | 19,461 |   |   | $ | 15,558 |   |
|       Loan charge-offs |   |                       | (3,633 | )      |                     |   | (1,331 | ) |   |   | (4,515 | ) |   |   | (2,054 | ) |
| Recoveries of loans previously charged-off      |   |                       | 22     |   |                     |   | 80 |   |   |   | 135 |   |   |   | 93 |   |
| Net loan charge-offs                            |   |                       | (3,611 | )      |                     |   | (1,251 | ) |   |   | (4,380 | ) |   |   | (1,961 | ) |
| Provision for loan losses                       |   |                       | 817    |   |                     |   | 713 |   |   |   | 2,527 |   |   |   | 1,337 |   |
| Balance at end of period                        |   | $                          | 17,608 |   |                     | $      | 14,934 |   |   | $ | 17,608 |   |   | $ | 14,934 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June 30, 2010     |    |   | December 31,2009 |   |    | June 30,2009 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------|------------------|--------|---------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars in thousands) |    |
| Allowance for loan losses                                                                                                             |   | $                      | 17,608  |   |             | $      | 19,461  |         |   | $ | 14,934 |   |
| Total loans receivable, net of unearned fees                                                                                          |   |                   | 756,052 |   |             |   | 762,386 |         |   |   | 750,861 |   |
| Allowance for loan losses to total loans                                                                                              |   |                   | 2.33    | %      |             |   | 2.55    | %            |   |   | 1.99 | % |
| Allowance for loan losses to non-performing loans                                                                                     |   |                   | 31.17   |   |             |   | 32.98   |         |   |   | 28.23 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June 30,2010           |   |   | December 31,2009 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars in thousands) |   |
| Impaired loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                   |   |   |             |   |
| With a valuation reserve                                                                                                                          |   | $                      | 12,928 |   |             | $      | 17,200 |   |
| With no valuation reserve required*                                                                                                               |   |                   | 46,234 |   |             |   | 42,021 |   |
| Total impaired loans                                                                                                                              |   | $                      | 59,162 |   |             | $      | 59,221 |   |
| Valuation reserve relating to impaired loans                                                                                       |   | $                      | 7,539  |   |             | $      | 9,181 |   |
| Average outstanding impaired loans                                                                                                 |   |                   | 59,163 |   |             |   | 48,547 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                   |   |   |             |   |   |   |
| *Net of partial charge-offs on impaired loans with no valuationreserve                                                                            |   | $                      | 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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|   | • | increases in deposit accounts totaling $49.7 million; |
|--------|---------|-------------------------------------------------------|

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

|   | securities aggregating $55.6 million; and |
|--------|-------------------------------------------|

|   | • | proceeds from FHLB advances totaling $18.0 million. |
|--------|---------|-----------------------------------------------------|

|   | • | purchases of investment securities totaling $63.1 million; |
|--------|---------|------------------------------------------------------------|

|   | • | repayment of short-term borrowed funds totaling $10.6 million; and |
|--------|---------|--------------------------------------------------------------------|

|   | • | repayment of FHLB advances totaling $46.1 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                                               |   | $                      | 314,753 |   |   | $ | 68,614 |   |   | $ | 21,142 |   |   | $ | 961 |   |   | $ | 405,470 |   |
| FHLB borrowed funds (1)                                               |   |                   | 34,317  |   |   |   | 702 |   |   |   | 16,777 |   |   |   | 7,626 |   |   |   | 59,422 |   |
| Short-term borrowed funds (2)                                                                                                                                                                                                                                                                               |   |                   | 13,684  |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 13,684 |   |
| Service bureau contract                                               |   |                   | 1,548   |   |   |   | 3,096 |   |   |   | 3,096 |   |   |   | ― |   |   |   | 7,740 |   |
| Operating leases                                                      |   |                   | 407     |   |   |   | 559 |   |   |   | 271 |   |   |   | 2,064 |   |   |   | 3,301 |   |
| Dividends payable on common stock                                                                                                                                                                                                                                                                           |   |                   | 109     |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 109 |   |
|                                                                                                                                                                                                                                                                                                        |   | $                      | 364,818 |   |   | $ | 72,971 |   |   | $ | 41,286 |   |   | $ | 10,651 |   |   | $ | 489,726 |   |

| (1) | Does not include interest expense at the weighted-average contractual rate of 2.79% 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                                                                          |   | $                      | 10,731  |   |   | $      | 49      |   |   | $      | ― |   |   | $      | 256     |   |   | $ | 11,036 |   |
|        Commercial real estate – owner occupied                                                                                                                                                                                                                                                                                                                                                                                                               |   |                   | 5,347   |   |   |   | ― |   |   |   | 135     |   |   |   | 50      |   |   |   | 5,532 |   |
|        Commercial real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                                                           |   |                   | 2,659   |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 2,659 |   |
|        Commercial real estate – multifamily                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                   | 5,846   |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 5,846 |   |
|        Commercial construction and land development                                                                                                                                                                                                                                                                                                                                                                                                                |   |                   | 4,318   |   |   |   | 159     |   |   |   | ― |   |   |   | ― |   |   |   | 4,777 |   |
|        Retail                                                                              |   |                   | 4,195   |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 4,195 |   |
| Commitments to fund unused construction loans                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                   | 4,204   |   |   |   | 382     |   |   |   | ― |   |   |   | 357     |   |   |   | 4,943 |   |
| Commitments to fund unused line of credit                                                                                                                                                                                                        |   |                   | 43,826  |   |   |   | 3,458   |   |   |   | 171     |   |   |   | 42,838  |   |   |   | 90,293 |   |
| Letters of credit                                                                                                             |   |                   | 4,967   |   |   |   | 186     |   |   |   | ― |   |   |   | ― |   |   |   | 5,153 |   |
| Credit enhancements                                                                                                           |   |                   | 14,396  |   |   |   | ― |   |   |   | ― |   |   |   | 14,034  |   |   |   | 28,430 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                      | 100,489 |   |   | $      | 4,234   |   |   | $      | 306     |   |   | $      | 57,535  |   |   | $ | 162,564 |   |

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|                                           |   | Actual                 |    |   | For Capital AdequacyPurposes |   |   |   To Be Well CapitalizedUnder PromptCorrective ActionProvisions |   |
|------------------------------------------------|--------|------------------------|---------|--------|------------------------------|--------|--------|----------------------------------------------------------------------|--------|
|                                           |   | Amount                 |    | Ratio  |                         |   | Amount |                                                                 | Ratio  |   |   | Amount |   | Ratio |   |
|                                           |   | (Dollars in thousands) |
| As of June 30, 2010:                           |   |                   |    |   |                         |   |   |                                                                 |   |   |   |   |   |   |   |
| Total capital to risk-weighted assets          |   | $                      | 108,257 |   | 12.81                        | %      |   | $                                                                    | 67,615 |   | >8.00 % |   |   | $ | 84,518 |   | >10.00 % |   |
| Tier 1 (core) capital to risk-weighted assets  |   |                   | 98,213  |   | 11.62                        |   |   |                                                                 | 33,807 |   | >4.00 |   |   |   | 50,711 |   | >6.00 |   |
| Tier 1 (core) capital to adjusted total assets |   |                   | 98,213  |   | 9.05                         |   |   |                                                                 | 43,406 |   | >4.00 |   |   |   | 54,257 |   | >5.00 |   |
| Tangible capital to adjusted total assets      |   |                   | 98,213  |   | 9.05                         |   |   |                                                                 | 16,277 |   | >1.50 |   |   |   | 21,703 |   | >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                                                                                          |   | $                      | 110,206 |   |   | $      | 110,206 |       |   | $ | 110,206 |   |
| Disallowed deferred tax asset                                                                                                   |   |                   | (13,025 | )      |   |   | (13,025 | )          |   |   | (13,025 | ) |
| Adjustment for available-for-sale securities                                                                                    |   |                   | 1,861   |   |   |   | 1,861   |       |   |   | 1,861 |   |
| Other                                                                                                                           |   |                   | (829    | )      |   |   | (829    | )          |   |   | (829 | ) |
| General allowance for loan losses                                                                                               |   |                   | — |   |   |   | — |       |   |   | 10,044 |   |
| Regulatory capital of the Bank                                                                                                  |   | $                      | 98,213  |   |   | $      | 98,213  |       |   | $ | 108,257 |   |

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Item 3.  

|                                            |                                   |   | Net Portfolio Value    |   |
|-------------------------------------------------|----------------------------------------|--------|------------------------|--------|
|                                            |                                   |   | At June 30, 2010       |   |   | At December 31, 2009 |   |
|                                            |                                   |   | $ Amount               |   |   | $ Change |   |   | % Change |   |   | $ Amount |   |   | $ Change |   |   | % Change |   |
|                                            |                                   |   | (Dollars in thousands) |   |
| Assumed Change in Interest Rates (Basis Points) |                                   |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                            |  +300                             |   |                   | $      | 132,176 |   |   | $ | 6,734 |   |   |   | 5.4 | % |   | $ | 130,797 |   |   | $ | 2,065 |   |   |   | 1.6 | % |
|                                            |  +200                             |   |                   |   | 130,856 |   |   |   | 5,413 |   |   |   | 4.3 |   |   |   | 131,109 |   |   |   | 2,377 |   |   |   | 1.8 |   |
|                                            |  +100                             |   |                   |   | 131,826 |   |   |   | 6,384 |   |   |   | 5.1 |   |   |   | 130,917 |   |   |   | 2,185 |   |   |   | 1.7 |   |
|                                            |        0 |   |                   |   | 125,443 |   |   |   | ― |   |   |   | ― |   |   |   | 128,732 |   |   |   | ― |   |   |   | ― |   |
|                                            |   -100                            |   |                   |   | 113,533 |   |   |   | (11,909 | ) |   |   | (9.5 | ) |   |   | 117,387 |   |   |   | (11,345 | ) |   |   | (8.8 | ) |
|                                            |   -200                            |   |                   |   | 103,135 |   |   |   | (22,308 | ) |   |   | (17.8 | ) |   |   | 105,417 |   |   |   | (23,315 | ) |   |   | (18.1 | ) |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Percentage of Deposits MaturingIn First Year |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | June 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 |   |
|-------------------------------------------------------|-------------|--------|-----------------------------------------------------------------------|--------|
|                                                  |        |   | June 30, 2010                                                         |   |   | December 31, 2009 |   |
| Assumed Change in Interest Rates (Basis Points): |        |   |                                                                  |   |   |   |   |
|                                                  |  +300  |   |                                                                  |   | 1.2 | % |   |   | 0.1 | % |
|                                                  |  +200  |   |                                                                  |   | 1.0 |   |   |   | 0.2 |   |
|                                                  |  +100  |   |                                                                  |   | 0.1 |   |   |   | 0.0 |   |
|                                                  |   -100 |   |                                                                  |   | 2.6 |   |   |   | 3.3 |   |
|                                                  |   -200 |   |                                                                  |   | 1.1 |   |   |   | 1.5 |   |

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Item 4.

Item 1. 

Item 1A. 

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Item 2.

| (a)    | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (b)    | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (c)    | We did not repurchase any shares of our common stock during the quarter ended June 30, 2010 or through July 26, 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. 

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

Item 4.

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

Item 5.

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Item 6.

|   | (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)                                                     |
|   | 10.22 |   | Separation Agreement between CFS Bancorp, Inc., Citizens Financial Bank, and Charles V. Cole           |
|   | 10.23 |   | Change in Control Agreement between CFS Bancorp, Inc., Citizens Financial Bank, and Jerry A. Weberling |
|   | 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 AnnualMeeting 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 yearended December 31, 2006 filed with the SEC on March 15, 2007. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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SIGNATURES

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

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10.22

10.23

31.1

31.2

32.0

----