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

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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                                       | 43     |
|                                                                                  |                                                                                                  |   |
| Item 4.                                                                               | Controls      and Procedures                                                                          | 45     |
|                                                                                  |                                                                                                  |   |
|                                                                                  |                                                                                                  |   |
|                                                                                  | PART      II - OTHER INFORMATION                                                                      |   |
|                                                                                  |                                                                                                  |   |
| Item 1.                                                                               | Legal      Proceedings                                                                                | 45     |
|                                                                                  |                                                                                                  |   |
| Item 1A.                                                                              | Risk      Factors                                                                                     | 46     |
|                                                                                  |                                                                                                  |   |
| Item 2.                                                                               | Unregistered      Sales of Equity Securities and Use of Proceeds                                      | 46     |
|                                                                                  |                                                                                                  |   |
| Item 3.                                                                               | Defaults      Upon Senior Securities                                                                  | 46     |
|                                                                                  |                                                                                                  |   |
| Item 4.                                                                               | Submission      of Matters to a Vote of Security Holders                                              | 46     |
|                                                                                  |                                                                                                  |   |
| Item 5.                                                                               | Other      Information                                                                                | 47     |
|                                                                                  |                                                                                                  |   |
| Item 6.                                                                               | Exhibits                                                                                              | 48     |
|                                                                                  |                                                                                                  |   |
| Signature Page                                                                        | 50                                                                                                    |
|                                                                                  |                                                                                                  |   |
| Certifications      of Principal Executive Officer and Principal Financial    Officer | 51                                                                                                    |
|  Exhibit 31.1                                                                    |                                                                                                  |
|  Exhibit 31.2                                                                    |                                                                                                  |
|  Exhibit 32.0                                                                    |                                                                                                  |

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table of contents

CFS BANCORP, INC.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June      30, 2009          |      |   |  December 31, 2008  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Unaudited)                 |      |   |                          |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Dollars      in thousands) |      |
| Cash      and amounts due from depository      institutions                                                                                        |   | $                           | 20,553    |   |                          | $      | 15,714 |   |
| Interest-bearing      deposits                                                                                                                     |   |                        | 36        |   |                          |   | 3,133 |   |
| Federal      funds      sold                                                                                                                       |   |                        | 234       |   |                          |   | 259 |   |
| Cash and cash      equivalents                                                                                                                                    |   |                        | 20,823    |   |                          |   | 19,106 |   |
| Securities      available-for-sale, at fair      value                                                                                             |   |                        | 220,324   |   |                          |   | 251,270 |   |
| Securities      held-to-maturity, at      cost                                                                                                     |   |                        | 6,000     |   |                          |   | 6,940 |   |
| Investment      in Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                        | 23,944    |   |                          |   | 23,944 |   |
| Loans      receivable                                                                                                                              |   |                        | 750,861   |   |                          |   | 749,973 |   |
| Allowance for losses on      loans                                                                                                                                |   |                        | (14,934   | )      |                          |   | (15,558 | ) |
| Net      loans                                                                                                                                                              |   |                        | 735,927   |   |                          |   | 734,415 |   |
| Interest      receivable                                                                                                                           |   |                        | 3,902     |   |                          |   | 4,325 |   |
| Other      real estate      owned                                                                                                                  |   |                        | 7,371     |   |                          |   | 3,242 |   |
| Office      properties and      equipment                                                                                                          |   |                        | 19,703    |   |                          |   | 19,790 |   |
| Investment      in bank-owned life      insurance                                                                                                  |   |                        | 36,449    |   |                          |   | 36,606 |   |
| Other      assets                                                                                                                                  |   |                        | 20,236    |   |                          |   | 22,217 |   |
| Total      assets                                                                                                                                                           |   | $                           | 1,094,679 |   |                          | $      | 1,121,855 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |      |   |                          |   |   |   |
| LIABILITIES      AND SHAREHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |      |   |                          |   |   |   |
| Deposits                                                                                                                                           |   | $                           | 831,104   |   |                          | $      | 824,097 |   |
| Borrowed      money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | 132,302   |   |                          |   | 172,937 |   |
| Advance      payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                        | 6,121     |   |                          |   | 4,320 |   |
| Other      liabilities                                                                                                                             |   |                        | 9,702     |   |                          |   | 8,692 |   |
| Total      liabilities                                                                                                                                                      |   |                        | 979,229   |   |                          |   | 1,010,046 |   |
| 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;      10,764,458 and 10,674,511 sharesoutstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        | 234       |   |                          |   | 234 |   |
| Additional      paid-in      capital                                                                                                               |   |                        | 189,004   |   |                          |   | 189,211 |   |
| Retained      earnings                                                                                                                             |   |                        | 83,455    |   |                          |   | 81,525 |   |
| Treasury      stock, at cost; 12,566,255 and 12,616,572 shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | (156,296  | )      |                          |   | (155,740 | ) |
| Treasury      stock held in Rabbi Trust, at cost; 92,593 and 132,223    shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | (1,212    | )      |                          |   | (1,726 | ) |
| Unallocated      common stock held by Employee Stock Ownership Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | –   |   |                          |   | (832 | ) |
| Accumulated      other comprehensive income (loss), net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | 265       |   |                          |   | (863 | ) |
| Total shareholders’      equity                                                                                                                                       |   |                        | 115,450   |   |                          |   | 111,809 |   |
| Total liabilities and      shareholders’      equity                                                                                                                  |   | $                           | 1,094,679 |   |                          | $      | 1,121,855 |   |

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table of contents

|                                                         |   | Three      Months Ended June 30,                        |       |   | Six      Months Ended  June 30, |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------|------------|--------|-------------------------------------------|--------|
|                                                         |   | 2009                                                         |       |   | 2008                                      |   |   | 2009 |   |   | 2008 |   |
|                                                         |   | (Unaudited)                                                  |       |
|                                                         |   | (Dollars      in thousands, except share and per share data) |       |
| Interest      income:                                        |   |                                                         |       |   |                                      |   |   |   |   |   |   |   |
| Loans                                                        |   | $                                                            | 9,807      |   |                                      | $      | 11,296 |   |   | $ | 19,752 |   |   | $ | 24,084 |   |
| Securities                                                   |   |                                                         | 3,020      |   |                                      |   | 3,172 |   |   |   | 6,063 |   |   |   | 6,251 |   |
| Other                                                        |   |                                                         | 137        |   |                                      |   | 564 |   |   |   | 380 |   |   |   | 1,011 |   |
| Total interest      income                                   |   |                                                         | 12,964     |   |                                      |   | 15,032 |   |   |   | 26,195 |   |   |   | 31,346 |   |
| Interest      expense:                                       |   |                                                         |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                     |   |                                                         | 2,749      |   |                                      |   | 4,554 |   |   |   | 5,845 |   |   |   | 10,242 |   |
| Borrowed money                                               |   |                                                         | 880        |   |                                      |   | 1,781 |   |   |   | 1,840 |   |   |   | 3,842 |   |
| Total interest      expense                                  |   |                                                         | 3,629      |   |                                      |   | 6,335 |   |   |   | 7,685 |   |   |   | 14,084 |   |
| Net      interest income                                     |   |                                                         | 9,335      |   |                                      |   | 8,697 |   |   |   | 18,510 |   |   |   | 17,262 |   |
| Provision      for losses on loans                           |   |                                                         | 713        |   |                                      |   | 7,172 |   |   |   | 1,337 |   |   |   | 7,914 |   |
| Net      interest income after provision for losses on loans |   |                                                         | 8,622      |   |                                      |   | 1,525 |   |   |   | 17,173 |   |   |   | 9,348 |   |
| Non-interest      income:                                    |   |                                                         |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and other      fees                          |   |                                                         | 1,376      |   |                                      |   | 1,465 |   |   |   | 2,675 |   |   |   | 2,904 |   |
| Card-based fees                                              |   |                                                         | 432        |   |                                      |   | 415 |   |   |   | 820 |   |   |   | 795 |   |
| Commission    income                                         |   |                                                         | 70         |   |                                      |   | 135 |   |   |   | 141 |   |   |   | 193 |   |
| Security gains (losses),      net                            |   |                                                         | –    |   |                                      |   | (582 | ) |   |   | 720 |   |   |   | (513 | ) |
| Other asset losses,      net                                 |   |                                                         | (6         | )      |                                      |   | (3 | ) |   |   | (6 | ) |   |   | (3 | ) |
| Income from bank-owned life      insurance                   |   |                                                         | 156        |   |                                      |   | 371 |   |   |   | 334 |   |   |   | 780 |   |
| Other income                                                 |   |                                                         | 97         |   |                                      |   | 149 |   |   |   | 392 |   |   |   | 321 |   |
| Total non-interest      income                               |   |                                                         | 2,125      |   |                                      |   | 1,950 |   |   |   | 5,076 |   |   |   | 4,477 |   |
| Non-interest      expense:                                   |   |                                                         |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee      benefits                      |   |                                                         | 5,078      |   |                                      |   | 4,179 |   |   |   | 10,253 |   |   |   | 8,515 |   |
| Net occupancy      expense                                   |   |                                                         | 750        |   |                                      |   | 708 |   |   |   | 1,647 |   |   |   | 1,541 |   |
| FDIC insurance      premiums                                 |   |                                                         | 963        |   |                                      |   | 40 |   |   |   | 1,267 |   |   |   | 80 |   |
| Furniture and equipment      expense                         |   |                                                         | 520        |   |                                      |   | 543 |   |   |   | 1,055 |   |   |   | 1,094 |   |
| Professional    fees                                         |   |                                                         | 604        |   |                                      |   | 212 |   |   |   | 954 |   |   |   | 486 |   |
| Data processing                                              |   |                                                         | 420        |   |                                      |   | 484 |   |   |   | 839 |   |   |   | 942 |   |
| Marketing                                                    |   |                                                         | 218        |   |                                      |   | 178 |   |   |   | 416 |   |   |   | 386 |   |
| Other general and      administrative expenses               |   |                                                         | 1,390      |   |                                      |   | 1,340 |   |   |   | 2,940 |   |   |   | 2,685 |   |
| Total non-interest      expense                              |   |                                                         | 9,943      |   |                                      |   | 7,684 |   |   |   | 19,371 |   |   |   | 15,729 |   |
| Income      (loss) before income taxes                       |   |                                                         | 804        |   |                                      |   | (4,209 | ) |   |   | 2,878 |   |   |   | (1,904 | ) |
| Income      tax expense (benefit)                            |   |                                                         | 134        |   |                                      |   | (1,914 | ) |   |   | 747 |   |   |   | (1,388 | ) |
| Net income    (loss)                                         |   | $                                                            | 670        |   |                                      | $      | (2,295 | ) |   | $ | 2,131 |   |   | $ | (516 | ) |
|                                                         |   |                                                         |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Per      share data:                                         |   |                                                         |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per      share                         |   | $                                                            | 0.06       |   |                                      | $      | (0.22 | ) |   | $ | 0.20 |   |   | $ | (0.05 | ) |
| Diluted earnings (loss) per      share                       |   |                                                         | 0.06       |   |                                      |   | (0.22 | ) |   |   | 0.20 |   |   |   | (0.05 | ) |
| Cash dividends declared per      share                       |   |                                                         | 0.01       |   |                                      |   | 0.12 |   |   |   | 0.02 |   |   |   | 0.24 |   |
| Weighted-average      shares outstanding                     |   |                                                         | 10,590,591 |   |                                      |   | 10,290,965 |   |   |   | 10,543,475 |   |   |   | 10,339,129 |   |
| Weighted-average      diluted shares outstanding             |   |                                                         | 10,697,387 |   |                                      |   | 10,553,634 |   |   |   | 10,663,333 |   |   |   | 10,605,830 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                      |   | Common      Stock                                  |    |   | Additional      Paid-InCapital |   |    | Retained      Earnings |   |   | TreasuryStock |   |   | Unallocated      CommonStock      HeldBy ESOP |     |   | Accum-ulated      OtherCompre-hensiveIncome      (Loss) |   |    | Total  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|---------|--------|--------------------------------|--------|---------|------------------------|--------|--------|---------------|--------|--------|-----------------------------------------------|----------|--------|---------------------------------------------------------|--------|---------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                      |   | (Unaudited)                                        |    |
|                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars      in thousands, except per share data) |    |
| Balance      at January 1,      2008                                                                                                                    |   | $                                                  | 234     |   |                           | $      | 191,162 |                   |   | $      | 97,029        |   |   | $                                             | (156,661 | )      |                                                    | $      | (3,126  | )      |   | $ | 1,776 |   |   | $ | 130,414 |   |
| Net      loss                                                                                    |   |                                               | – |   |                           |   | – |                   |   |   | (516          | )      |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | (516 | ) |
| Comprehensive      loss:Change      in unrealized appreciation on available-for-sale      securities, net of reclassification      and tax                                                                                                                                                                                                                                |   |                                               | – |   |                           |   | – |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | – |   |   |   | (803 | ) |   |   | (803 | ) |
| Total      comprehensive      loss                                                                                                            |   |                                               | – |   |                           |   | – |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | (1,319 | ) |
| Purchase      of treasury      stock                                                                                                                    |   |                                               | – |   |                           |   | – |                   |   |   | –       |   |   |                                          | (2,997   | )      |                                                    |   | – |   |   |   | – |   |   |   | (2,997 | ) |
| Net      distributions of Rabbi Trust shares                                                                                                                                                                                                                                                                                                                              |   |                                               | – |   |                           |   | – |                   |   |   | –       |   |   |                                          | 61       |   |                                                    |   | – |   |   |   | – |   |   |   | 61 |   |
| Shares      earned under      ESOP                                                                                                                      |   |                                               | – |   |                           |   | 65      |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | 156     |   |   |   | – |   |   |   | 221 |   |
| Amortization      of award under      RRP                                                                                                                                                            |   |                                               | – |   |                           |   | 38      |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | 38 |   |
| Forfeiture      of RRP      award                                                                                                   |   |                                               | – |   |                           |   | 10      |                   |   |   | –       |   |   |                                          | (10      | )      |                                                    |   | – |   |   |   | – |   |   |   | – |   |
| Unearned      compensation restricted stock awards                                                                                                                                                                                                                                                                                                                        |   |                                               | – |   |                           |   | (1,429  | )                      |   |   | –       |   |   |                                          | 1,429    |   |                                                    |   | – |   |   |   | – |   |   |   | – |   |
| Exercise      of stock      options                                                                                                 |   |                                               | – |   |                           |   | 201     |                   |   |   | –       |   |   |                                          | 630      |   |                                                    |   | – |   |   |   | – |   |   |   | 831 |   |
| Tax      benefit related to stock-based benefit plans                                                                                                                                                                                                                                                                                                                     |   |                                               | – |   |                           |   | 46      |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | 46 |   |
| Dividends      declared on common stock ($0.24per      share)                                                   |   |                                               | – |   |                           |   | – |                   |   |   | (2,519        | )      |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | (2,519 | ) |
| Balance      at June 30,      2008                                                                                                  |   | $                                                  | 234     |   |                           | $      | 190,093 |                   |   | $      | 93,994        |   |   | $                                             | (157,548 | )      |                                                    | $      | (2,970  | )      |   | $ | 973 |   |   | $ | 124,776 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                                               |    |   |                           |   |    |                   |   |   |          |   |   |                                          |     |   |                                                    |   |    |   |   |   |   |   |   |   |   |   |
| Balance      at January 1,      2009                                                                                                |   | $                                                  | 234     |   |                           | $      | 189,211 |                   |   | $      | 81,525        |   |   | $                                             | (157,466 | )      |                                                    | $      | (832    | )      |   | $ | (863 | ) |   | $ | 111,809 |   |
| Net      income                                                                                  |   |                                               | – |   |                           |   | – |                   |   |   | 2,131         |   |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | 2,131 |   |
| Comprehensive      income:Change      in unrealized depreciation on available-for-sale      securities, net of reclassification      and tax                                                                                                                                                                                                                              |   |                                               | – |   |                           |   | – |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | – |   |   |   |     1,128 |   |   |   |     1,128 |   |
| Total      comprehensive      income                                                                                                               |   |                                               | – |   |                           |   | – |                   |   |   | –       |   |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | 3,259 |   |
| Net      distributions 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     |                   |   |   | –       |   |   |                                          | (906     | )      |                                                    |   | – |   |   |   | – |   |   |   | – |   |
| Unearned      compensation restricted stock awards                                                                                                                                                                                                                                                                                                                        |   |                                               | – |   |                           |   | (349    | )                      |   |   | –       |   |   |                                          | 349      |   |                                                    |   | – |   |   |   | – |   |   |   | – |   |
| Dividends      declared on common stock ($0.02per      share)                                                   |   |                                               | – |   |                           |   | – |                   |   |   | (201          | )      |   |                                          | –  |   |                                                    |   | – |   |   |   | – |   |   |   | (201 | ) |
| Balance      at June 30,      2009                                                                                   |   | $                                                  | 234     |   |                           | $      | 189,004 |                   |   | $      | 83,455        |   |   | $                                             | (157,508 | )      |                                                    | $      | – |   |   | $ | 265 |   |   | $ | 115,450 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | Six      Months EndedJune 30, |     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2009                          |     |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Unaudited)                   |     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars      in thousands)   |     |
| OPERATING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          |     |   |   |   |
| Net income      (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $                             | 2,131    |   |   | $ | (516 | ) |
| Adjustments to reconcile net      income to net cash provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                          |     |   |   |   |   |   |
| Provision for losses on      loans                                                                                                                                           |   |                          | 1,337    |   |   |   | 7,914 |   |
| Depreciation and      amortization                                                                                                                                           |   |                          | 781      |   |   |   | 852 |   |
| Premium amortization on the      early extinguishment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                          | 133      |   |   |   | 976 |   |
| Net      discount accretion on securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                          | (786     | ) |   |   | (575 | ) |
| Impairment of securities      available-for-sale                                                                                                                             |   |                          | –  |   |   |   | 582 |   |
| Deferred income tax expense      (benefit)                                                                                                                                   |   |                          | 149      |   |   |   | (1,567 | ) |
| Tax benefit from stock-based      benefits                                                                                                                                   |   |                          | –  |   |   |   | (46 | ) |
| Amortization of cost of      stock-based benefit      plans                                                                                                                  |   |                          | 432      |   |   |   | 259 |   |
| Proceeds from sale of loans      held-for-sale                                                                                                                               |   |                          | –  |   |   |   | 45 |   |
| Securities gains,      net                                                                                                                                                   |   |                          | (720     | ) |   |   | (69 | ) |
| Other      asset losses,      net                                                                                                                                            |   |                          | 6        |   |   |   | 3 |   |
| Increase in cash surrender      value of bank-owned life insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          | (334     | ) |   |   | (780 | ) |
| Decrease (increase) in other      assets                                                                                                                                     |   |                          | 1,732    |   |   |   | (446 | ) |
| Increase (decrease) in other      liabilities                                                                                                                                |   |                          | 1,431    |   |   |   | (6,836 | ) |
| Net cash provided by (used      for) operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          | 6,292    |   |   |   | (204 | ) |
| INVESTING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          |     |   |   |   |   |   |
| Securities,      available-for-sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          |     |   |   |   |   |   |
| Proceeds from      sales                                                                                                                                      |   |                          | 9,914    |   |   |   | 1,992 |   |
| Proceeds from maturities and      paydowns                                                                                                                    |   |                          | 45,573   |   |   |   | 43,770 |   |
| Purchases                                                                                                                                                     |   |                          | (21,285  | ) |   |   | (84,311 | ) |
| Securities,      held-to-maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          |     |   |   |   |   |   |
| Proceeds from maturities and      paydowns                                                                                                                    |   |                          | 940      |   |   |   | 440 |   |
| Net loan fundings and principal      payments      received                                                                                         |   |                          | (7,410   | ) |   |   | 60,766 |   |
| Proceeds from sale of real      estate      owned                                                                                                   |   |                          | 296      |   |   |   | 74 |   |
| Proceeds from bank-owned life      insurance                                                                                                        |   |                          | 491      |   |   |   | 1,165 |   |
| Purchases of property and      equipment                                                                                                            |   |                          | (694     | ) |   |   | (1,316 | ) |
| Net cash provided by investing      activities                                                                                                                               |   |                          | 27,825   |   |   |   | 22,580 |   |
| FINANCING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                          |     |   |   |   |   |   |
| Proceeds from exercise of stock      options                                                                                                        |   |                          | –  |   |   |   | 831 |   |
| Tax benefit from stock-based      benefits                                                                                                          |   |                          | –  |   |   |   | 46 |   |
| Dividends paid on common      stock                                                                                                                 |   |                          | (541     | ) |   |   | (2,600 | ) |
| Purchase of treasury      stock                                                                                                                     |   |                          | –  |   |   |   | (2,997 | ) |
| Net disposition of Rabbi Trust      shares                                                                                                          |   |                          | 151      |   |   |   | 61 |   |
| Net increase (decrease) in      deposit      accounts                                                                                               |   |                          | 6,957    |   |   |   | (14,899 | ) |
| Net increase in advance      payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                          | 1,801    |   |   |   | 2,422 |   |
| (Decrease) increase in      short-term borrowed      money                                                                                          |   |                          | (17,687  | ) |   |   | 1,770 |   |
| Proceeds from Federal Home Loan      Bank borrowed money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | 114,000  |   |   |   | 60,000 |   |
| Repayments of Federal Home Loan      Bank borrowed money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | (137,081 | ) |   |   | (85,076 | ) |
| Net cash used for financing      activities                                                                                                                        |   |                          | (32,400  | ) |   |   | (40,442 | ) |
| Increase (decrease) in cash and      cash      equivalents                                                                                          |   |                          | 1,717    |   |   |   | (18,066 | ) |
| Cash and cash equivalents at      beginning of      period                                                                                          |   |                          | 19,106   |   |   |   | 38,909 |   |
| Cash and cash equivalents at      end of      period                                                                                                |   | $                             | 20,823   |   |   | $ | 20,843 |   |

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table of contents

| Supplemental      disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Loans transferred to real      estate      owned                                                                                           |   | $      | 4,578  |   |   | $      | 121 |   |
| Cash paid for interest on      deposits                                                                                                    |   |   | 5,953  |   |   |   | 10,224 |   |
| Cash paid for interest on      borrowed      money                                                                                         |   |   | 1,738  |   |   |   | 2,922 |   |
| Cash paid for      taxes                                                                                                                   |   |   | 402    |   |   |   | 800 |   |

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table of contents

| 1. | Basis      of Financial StatementsPresentation |
|----|------------------------------------------------|

| 2. | Securities |
|----|------------|

----

table of contents

|                                              |   | ParValue                    |    |   | Amortized      Cost |   |    | Gross      Unrealized      Gains |   |   | GrossUnrealizedLosses |   |   | FairValue |    |
|---------------------------------------------------|--------|-----------------------------|---------|--------|---------------------|--------|---------|----------------------------------|--------|--------|-----------------------|--------|--------|-----------|---------|
|                                              |   | (Dollars      in thousands) |    |
| At      June 30, 2009:                            |   |                        |    |   |                |   |    |                             |   |   |                  |   |   |      |    |
| Government sponsored entity (GSE)      securities |   | $                           | 66,150  |   |                | $      | 65,964  |                             |   | $      | 2,204                 |   |   | $         | – |   |   | $ | 68,168 |   |
| Mortgage-backed      securities                   |   |                        | 10,223  |   |                |   | 10,118  |                             |   |   | 360                   |   |   |      | – |   |   |   | 10,478 |   |
| Collateralized mortgage      obligations          |   |                        | 68,938  |   |                |   | 68,915  |                             |   |   | 1,323                 |   |   |      | (1,741  | ) |   |   | 68,497 |   |
| Commercial mortgage-backed      securities        |   |                        | 48,461  |   |                |   | 47,595  |                             |   |   | 568                   |   |   |      | (981    | ) |   |   | 47,182 |   |
| Pooled trust preferred      securities            |   |                        | 30,530  |   |                |   | 27,318  |                             |   |   | 279                   |   |   |      | (1,765  | ) |   |   | 25,832 |   |
| Equity securities                                 |   |                        | 5,837   |   |                |   | – |                             |   |   | 167                   |   |   |      | – |   |   |   | 167 |   |
|                                              |   | $                           | 230,139 |   |                | $      | 219,910 |                             |   | $      | 4,901                 |   |   | $         | (4,487  | ) |   | $ | 220,324 |   |
|                                              |   |                        |    |   |                |   |    |                             |   |   |                  |   |   |      |    |   |   |   |   |   |

|                                       |   | June 30, 2009               |   |
|--------------------------------------------|--------|-----------------------------|--------|
|                                       |   | Less than 12 Months         |   |   | 12 Months or More |   |   | Total |   |
|                                       |   | Fair Value                  |   |   | UnrealizedLosses |   |   | Fair Value |   |   | UnrealizedLosses |   |   | Fair Value |   |   | UnrealizedLosses |   |
|                                       |   | (Dollars      in thousands) |   |
| Collateralized      mortgage obligations   |   | $                           | 13,148 |   |   | $ | (465 | ) |   | $ | 20,178 |   |   | $ | (1,276 | ) |   | $ | 33,326 |   |   | $ | (1,741 | ) |
| Commercial      mortgage-backed securities |   |                        | 24,240 |   |   |   | (583 | ) |   |   | 2,454 |   |   |   | (398 | ) |   |   | 26,694 |   |   |   | (981 | ) |
| Trust      preferred securities            |   |                        | 1,655  |   |   |   | (468 | ) |   |   | 12,577 |   |   |   | (1,297 | ) |   |   | 14,232 |   |   |   | (1,765 | ) |
|                                       |   | $                           | 39,043 |   |   | $ | (1,516 | ) |   | $ | 35,209 |   |   | $ | (2,971 | ) |   | $ | 74,252 |   |   | $ | (4,487 | ) |

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table of contents

|                                        |   | Available-for-Sale          |           |
|---------------------------------------------|--------|-----------------------------|----------------|
|                                        |   | AmortizedCost               |           |   | FairValue |   |
|                                        |   | (Dollars      in thousands) |           |
| GSE      and callable GSE securities:  |   |                        |           |
| Due in one year or      less                |   | $                           | 47,725         |   |   | $ | 48,943 |   |
| Due after one year through five      years  |   |                        | 18,239         |   |   |   | 19,225 |   |
| Mortgage-backed      securities             |   |                        | 10,118         |   |   |   | 10,478 |   |
| Collateralized      mortgage obligations    |   |                        | 68,915         |   |   |   | 68,497 |   |
| Commercial      mortgage-backed securities  |   |                        | 47,595         |   |   |   | 47,182 |   |
| Trust      preferred securities             |   |                        | 27,318         |   |   |   | 25,832 |   |
| Equity      securities                      |   |                        | –– |   |   |   | 167 |   |
|                                        |   | $                           | 219,910        |   |   | $ | 220,324 |   |

|                                       |   | Held-to-Maturity            |   |
|--------------------------------------------|--------|-----------------------------|--------|
|                                       |   | AmortizedCost               |   |   | FairValue |   |
|                                       |   | (Dollars      in thousands) |   |
| State      and municipal securities:  |   |                        |   |   |   |   |
| Due in one year or      less               |   | $                           | 2,000  |   |   | $ | 2,030 |   |
| Due after one year through five      years |   |                        | 4,000  |   |   |   | 4,148 |   |
|                                       |   | $                           | 6,000  |   |   | $ | 6,178 |   |

| 3. | Fair      Value Measurements |
|----|------------------------------|

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table of contents

|                                                                                                                                                                                                                                                                                                                          |   | Fair Value Measurements at June 30,      2009 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                          |   | Fair Value                                    |   |   | Quoted      Prices inActive Markets      forIdentical      Assets(Level      1) |   |   | Significant      OtherObservable      Inputs(Level      2) |   |   | SignificantUnobservable      Inputs(Level      3) |   |
|                                                                                                                                                                                                                                                                                                                          |   | (Dollars      in thousands)                   |   |
| Securities      available-for-sale:                                                                                                                                                                                                                                                                                           |   |                                          |   |   |   |   |   |   |   |   |   |   |
| Government sponsored      entity(GSE)      securities                                             |   | $                                             | 68,168 |   |   | $ | ― |   |   | $ | 68,168 |   |   | $ | ― |   |
| Mortgage-backed      securities                                                    |   |                                          | 10,478 |   |   |   | ― |   |   |   | 10,478 |   |   |   | ― |   |
| Collateralized mortgage      obligations                                                                                                                                                                                                                                                                                      |   |                                          | 68,497 |   |   |   | ― |   |   |   | 68,497 |   |   |   | ― |   |
| Commercial      mortgage-backedsecurities                                                         |   |                                          | 47,182 |   |   |   | ― |   |   |   | 47,182 |   |   |   | ― |   |
| Pooled trust preferred      securities                                                                                                                                                                                                                                                                                        |   |                                          | 25,832 |   |   |   | ― |   |   |   | ― |   |   |   | 25,832 |   |
| Equity      securities                                                             |   |                                          | 167    |   |   |   | 167 |   |   |   | ― |   |   |   | ― |   |

|                                                                                                                                                                                                                                                                                                              |   | Fair Value Measurements at June 30,      2008 |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                              |   | Fair Value                                    |    |   | Quoted      Prices inActive Markets      forIdentical      Assets(Level      1) |   |   | Significant      OtherObservable      Inputs(Level      2) |   |   | SignificantUnobservable      Inputs(Level      3) |   |
|                                                                                                                                                                                                                                                                                                              |   | (Dollars      in thousands)                   |    |
| Securities      available-for-sale:                                                                                                                                                                                                                                                                               |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Government sponsored      entity(GSE)      securities                                           |   | $                                             | 112,704 |   |   | $ | ― |   |   | $ | 112,704 |   |   | $ | ― |   |
| Mortgage-backed      securities                                                                                                                                                                                                                                                                                   |   |                                          | 12,910  |   |   |   | ― |   |   |   | 12,910 |   |   |   | ― |   |
| Collateralized mortgage      obligations                                                                                                                                                                                                                                                                          |   |                                          | 76,184  |   |   |   | ― |   |   |   | 76,184 |   |   |   | ― |   |
| Commercial      mortgage-backedsecurities                                                       |   |                                          | 29,486  |   |   |   | ― |   |   |   | 29,486 |   |   |   | ― |   |
| Pooled trust preferred      securities                                                                                                                                                                                                                                                                            |   |                                          | 26,964  |   |   |   | ― |   |   |   | 26,964 |   |   |   | ― |   |
| Equity      securities                                                                |   |                                          | 3,737   |   |   |   | ― |   |   |   | 3,737 |   |   |   | ― |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                 |   |   Available-for-sale Securities |          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------------|
|                                                                                                                                                                                                                                                                                                                                                 |   | 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 andlosses:                                                                                                                                                                                                                                                                                                  |   |                                      |          |   |   |   |   |   |
| Included in net      income                                                                                              |   |                                      |  – |   |   |   | – |   |
| Included in accumulated      othercomprehensive      income                                                                        |   |                                      |  5,076   |   |   |   | 2,049 |   |
| Purchases, issuances and      settlements                                                                                                                                                                                                                                                                                                            |   |                                      |  (204    | )  |   |   | (350 | ) |
| Transfers in and/or out of Level      3                                                                                                                                                                                                                                                                                                              |   |                                      |  – |   |   |   | – |   |
| Balance      at end of      period                                                    |   | $                                         |  25,832  |   |   | $ | 25,832 |   |

----

table of contents

|                                                                                                                                                                                                                                                    |   | Fair Value Measurements at June 30,      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                                       |   | $                                             | 18,902 |   |   | $ | – |   |   | $ | – |   |   | $ | 18,902 |   |
| Other real estate      owned                                                                                                                                                                                                                            |   |                                          | 99     |   |   |   | – |   |   |   | – |   |   |   | 99 |   |

|                                                                                                                                                                                                                                                    |   | Fair Value Measurements at June 30,      2008 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                                                                                                                                                    |   | 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                                       |   | $                                             | 18,032 |   |   | $ | – |   |   |  $ | – |   |   | $ | 18,032 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June 30,                    |      |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2009                        |      |   | 2008         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Carrying                    |      |   | Fair         |   |   | Carrying |   |   | Fair |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Amount                      |      |   | Value        |   |   | Amount |   |   | Value |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands) |      |
| Financial      Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                        |      |   |         |   |   |   |   |   |   |   |
| Cash      and cash      equivalents                                                                               |   | $                           | 20,823    |   |         | $      | 20,823 |   |   | $ | 19,106 |   |   | $ | 19,106 |   |
| Securities,      available-for-sale                                                                               |   |                        | 220,324   |   |         |   | 220,324 |   |   |   | 251,270 |   |   |   | 251,270 |   |
| Securities,      held-to-maturity                                                                                 |   |                        | 6,000     |   |         |   | 6,178 |   |   |   | 6,940 |   |   |   | 7,101 |   |
| Federal      Home Loan Bank      stock                                                                            |   |                        | 23,944    |   |         |   | 23,944 |   |   |   | 23,944 |   |   |   | 23,944 |   |
| Loans      receivable, net of allowance for losses on loans                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                        | 735,927   |   |         |   | 739,946 |   |   |   | 734,415 |   |   |   | 741,440 |   |
| Interest      receivable                                                                                          |   |                        | 3,902     |   |         |   | 3,902 |   |   |   | 4,325 |   |   |   | 4,325 |   |
| Total      financial      assets                                                                                  |   | $                           | 1,010,920 |   |         | $      | 1,015,117 |   |   | $ | 1,040,000 |   |   | $ | 1,047,186 |   |
| Financial      Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                        |      |   |         |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                          |   | $                           | 831,104   |   |         | $      | 832,048 |   |   | $ | 824,097 |   |   | $ | 827,389 |   |
| Borrowed      money                                                                                               |   |                        | 132,302   |   |         |   | 134,639 |   |   |   | 172,937 |   |   |   | 177,087 |   |
| Interest      payable                                                                                             |   |                        | 231       |   |         |   | 231 |   |   |   | 370 |   |   |   | 370 |   |
| Total      financial      liabilities                                                                             |   | $                           | 963,637   |   |         | $      | 966,918 |   |   | $ | 997,404 |   |   | $ | 1,004,846 |   |

| 4. | Earnings      Per Share |
|----|-------------------------|

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Three      Months EndedJune 30,                    |       |   | Six      Months EndedJune 30, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2009                                               |       |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars      in thousands, except per share data) |       |
| Net      income      (loss)                                                                                                          |   | $                                                  | 670        |   |                          | $      | (2,295 | ) |   | $ | 2,131 |   |   | $ | (516 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                               | 10,590,591 |   |                          |   | 10,290,965 |   |   |   | 10,543,475 |   |   |   | 10,339,129 |   |
| Weighted-average      common share equivalents                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                               | 106,796    |   |                          |   | 262,669 |   |   |   | 119,858 |   |   |   | 266,701 |   |
| Weighted-average      common shares and commonshare equivalents      outstanding                                                               |   |                                               | 10,697,387 |   |                          |   | 10,553,634 |   |   |   | 10,663,333 |   |   |   | 10,605,830 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per      share                                                                                            |   | $                                                  | 0.06       |   |                          | $      | (0.22 | ) |   | $ | 0.20 |   |   | $ | (0.05 | ) |
| Diluted      earnings (loss) per      share                                                                                          |   |                                               | 0.06       |   |                          |   | (0.22 | ) |   |   | 0.20 |   |   |   | (0.05 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Number      of anti-dilutive stock options excluded fromthe      diluted earnings per share calculation                                                                                                                                                                                                                                                                                                                                                              |   |                                               | 791,295    |   |                          |   | 205,950 |   |   |   | 791,295 |   |   |   | 205,950 |   |
| Weighted-average      exercise price of anti-dilutiveoption      shares                                                                                                                                                                                                                                                                                                                                                                                              |   | $                                                  | 13.07      |   |                          | $      | 14.59 |   |   | $ | 13.07 |   |   | $ | 14.59 |   |

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

----

table of contents

|                               |   |  Number      ofShares |    |    | Weighted-AverageGrant-Date      Fair Value |   |
|------------------------------------|--------|----------------------------|---------|---------|--------------------------------------------|--------|
| Unvested      at December 31, 2008 |   |                       | 109,452 |    |                                       | $      | 14.02 |   |
| Granted                            |   |                       | 113,772 |    |                                       |   | 3.07 |   |
| Vested                             |   |                       | (105    | )  |                                       |   | 14.64 |   |
| Forfeited                          |   |                       | (63,455 | )       |                                       |   | 14.27 |   |
| Unvested      as of June 30, 2009  |   |                       | 159,664 |    |                                       | $      | 6.12 |   |

|                                        |   | Number      ofShares |      |   | Weighted-AverageExercise Price |   |
|---------------------------------------------|--------|----------------------|-----------|--------|--------------------------------|--------|
| Options      outstanding at January 1, 2009 |   |                 | 1,130,245 |   |                           | $      | 12.15 |   |
| Granted                                     |   |                 | –   |   |                           |   | – |   |
| Exercised                                   |   |                 | –   |   |                           |   | – |   |
| Forfeited                                   |   |                 | –   |   |                           |   | – |   |
| Expired      unexercised                    |   |                 | (338,950  | )      |                           |   | 10.01 |   |
| Options      outstanding at June 30, 2009   |   |                 | 791,295   |   |                           | $      | 13.07 |   |
| Options      exercisable at June 30, 2009   |   |                 | 791,295   |   |                           | $      | 13.07 |   |

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

|                                                                                                                                                                                                                                                                                                                                                                                                 |   | Six      Months EndedJune 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2009                          |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars      in thousands)   |   |
| Unrealized      holding gains (losses) arising during the period:                                                                                                                                                                                                                                                                                                                                    |   |                          |   |   |   |   |
| Unrealized net gains      (losses)                                                            |   | $                             | 2,468  |   |   | $ | (1,735 | ) |
| Related tax (expense)      benefit                                                            |   |                          | (885   | ) |   |   | 611 |   |
| Net                                                                                           |   |                          | 1,583  |   |   |   | (1,124 | ) |
| Less:  reclassification      adjustment for net gains (losses) realized      during the period:                                                                                                                                                                                                                                                                                       |   |                          |   |   |   |   |   |   |
| Realized net gains      (losses)                                                                        |   |                          | 720    |   |   |   | (513 | ) |
| Related tax (expense)      benefit                                                                      |   |                          | (265   | ) |   |   | 192 |   |
| Net                                                                                                     |   |                          | 455    |   |   |   | (321 | ) |
| Total      other comprehensive income (loss)                                                                                                                                                                                                                                                                                                                                                         |   | $                             | 1,128  |   |   | $ | (803 | ) |

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

|   | • | FSP      FAS 157-4, Determining      Fair Value When Volume and Level of Activity for the Asset or Liability      Have Significantly Decreased and Identifying Transactions that are Not      Orderly (FSP FAS      157-4).  This FSP provides additional guidance for      estimating fair value in accordance with SFAS No. 157 when the volume and      level of activity for the asset or liability have significantly      decreased.  The FSP also includes guidance when there is      evidence that the transaction for the asset or liability is not      orderly.  In such case, the entity will place little, if any,      weight on that transaction price as an indicator of fair      value.  The Company adopted this FSP as of June 30, 2009 with no      significant change to the Company’s financial condition or results of      operations. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | • | FSP      FAS 115-2 and FAS 124-2, and Emerging Issues Task Force (EITF) 99-20-2, Recognition and Presentation      of Other-Than-Temporary Impairments (FSP FAS 115-2/124-2 and EITF      99-20-2).  The FSP and EITF apply to debt securities and      require entities to separate an other-than-temporary impairment of a debt      security into two components when there are credit related losses      associated with the impaired debt security for which management asserts      that it does not have the intent to sell the security, and it is more      likely than not that management will not be required to sell the security      before recovery of its cost basis.  The amount of the      other-than-temporary impairment related to a credit loss is recognized in      earnings, and the amount of the other-than-temporary impairment related to      other factors is recorded in other comprehensive loss.  This FSP      is to be applied prospectively with a cumulative effect transition      adjustment, if applicable, as of the beginning of the period in which it      is adopted.  The Company adopted this FSP as of June 30, 2009      with no significant change to the Company’s financial condition or results      of operations. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | FSP      Financial Accounting Standards (FAS) 107-1 and      Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair      Value of Financial Instruments (FSP FAS 107-1 and APB      28-1):  This FSP amends SFAS No. 107, Disclosures about Fair Value      of Financial Instruments, to require disclosures about fair value      of financial instruments in interim financial statements as well as in      annual financial statements.  This FSP also requires disclosures      of the method(s) and significant assumptions used to estimate the fair      value of financial instruments and changes in method(s) and significant      assumptions, if any, during the period.  This FSP also amends      APB Opinion No. 28, Interim Financial      Reporting, to require the related disclosures in all interim      financial statements.  The Company adopted this FSP during the      second quarter of 2009 resulting in additional financial disclosures in      Note 2. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Item2.

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|                                                                                                                                                                                                                                                                                                                                                |   | Three Months Ended June 30, |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                |   | 2009                        |      |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                |   | Average      Balance        |      |   | Interest |   |   | AverageYield/Cost |   |   | Average      Balance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                                |   | (Dollars      in thousands) |      |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                       |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable      (1)                                                                                |   | $                           | 750,861   |   |   | $ | 9,807 |   |   |   | 5.24 | % |   | $ | 743,097 |   |   | $ | 11,296 |   |   |   | 6.11 | % |
| Securities      (2)                                                                                      |   |                        | 232,853   |   |   |   | 3,020 |   |   |   | 5.13 |   |   |   | 254,197 |   |   |   | 3,172 |   |   |   | 4.94 |   |
| Other interest-earning assets      (3)                                                                                                                                                                                                                                                                                                              |   |                        | 29,766    |   |   |   | 137 |   |   |   | 1.85 |   |   |   | 74,090 |   |   |   | 564 |   |   |   | 3.06 |   |
| Total interest-earning      assets                                                                                                                                                                                                                                                                                                                  |   |                        | 1,013,480 |   |   |   | 12,964 |   |   |   | 5.13 |   |   |   | 1,071,384 |   |   |   | 15,032 |   |   |   | 5.64 |   |
|                                                                                                                                                                                                                                                                                                                                                |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      earning      assets                                                     |   |                        | 86,270    |   |   |   |   |   |   |   |   |   |   |   | 83,272 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                         |   | $                           | 1,099,750 |   |   |   |   |   |   |   |   |   |   | $ | 1,154,656 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                  |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                           |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                             |   | $                           | 135,470   |   |   |   | 115 |   |   |   | 0.34 |   |   | $ | 109,548 |   |   |   | 169 |   |   |   | 0.62 |   |
| Money market      accounts                                                                                         |   |                        | 158,341   |   |   |   | 286 |   |   |   | 0.72 |   |   |   | 198,687 |   |   |   | 1,012 |   |   |   | 2.05 |   |
| Savings      accounts                                                                                              |   |                        | 119,879   |   |   |   | 104 |   |   |   | 0.35 |   |   |   | 124,430 |   |   |   | 145 |   |   |   | 0.47 |   |
| Certificates of      deposit                                                                                       |   |                        | 367,418   |   |   |   | 2,244 |   |   |   | 2.45 |   |   |   | 369,584 |   |   |   | 3,228 |   |   |   | 3.51 |   |
| Total      deposits                                                                                                               |   |                        | 781,108   |   |   |   | 2,749 |   |   |   | 1.41 |   |   |   | 802,249 |   |   |   | 4,554 |   |   |   | 2.28 |   |
|                                                                                                                                                                                                                                                                                                                                                |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowedmoney:                                                                                                                                                                                                                                                                                                                                      |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowed      money (4)                                                                                                                                                                                                                                                                                                            |   |                        | 10,870    |   |   |   | 20 |   |   |   | 0.74 |   |   |   | 29,311 |   |   |   | 124 |   |   |   | 1.70 |   |
| FHLB borrowed money      (5)(6)                                                                                                                                                                                                                                                                                                                     |   |                        | 117,170   |   |   |   | 860 |   |   |   | 2.90 |   |   |   | 115,152 |   |   |   | 1,657 |   |   |   | 5.69 |   |
| Total borrowed      money                                                                                                         |   |                        | 128,040   |   |   |   | 880 |   |   |   | 2.72 |   |   |   | 144,463 |   |   |   | 1,781 |   |   |   | 4.88 |   |
| Total interest-bearing      liabilities                                                                                                                                                                                                                                                                                                             |   |                        | 909,148   |   |   |   | 3,629 |   |   |   | 1.60 |   |   |   | 946,712 |   |   |   | 6,335 |   |   |   | 2.69 |   |
| Non-interest      bearing      deposits                                                   |   |                        | 64,509    |   |   |   |   |   |   |   |   |   |   |   | 61,616 |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing liabilities                                                                                                                                                                                                                                                                                                               |   |                        | 14,520    |   |   |   |   |   |   |   |   |   |   |   | 15,910 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                    |   |                        | 988,177   |   |   |   |   |   |   |   |   |   |   |   | 1,024,238 |   |   |   |   |   |   |   |   |   |
| Shareholders’      equity                                                           |   |                        | 111,573   |   |   |   |   |   |   |   |   |   |   |   | 130,418 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                               |   | $                           | 1,099,750 |   |   |   |   |   |   |   |   |   |   | $ | 1,154,656 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning      assets                                                     |   | $                           | 104,332   |   |   |   |   |   |   |   |   |   |   | $ | 124,672 |   |   |   |   |   |   |   |   |   |
| Net      interest income / interest rate spread                                                                                                                                                                                                                                                                                                     |   |                        |      |   |   | $ | 9,335 |   |   |   | 3.53 | % |   |   |   |   |   | $ | 8,697 |   |   |   | 2.95 | % |
| Net      interest      margin                                                             |   |                        |      |   |   |   |   |   |   |   | 3.69 | % |   |   |   |   |   |   |   |   |   |   | 3.26 | % |
| Ratio      of average interest-earning assetsto average interest-bearing      liabilities                                                                                                                                                                                                                                                           |   |                        |      |   |   |   |   |   |   |   | 111.48 | % |   |   |   |   |   |   |   |   |   |   | 113.17 | % |

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

| (1) | The      average balance of loans receivable includes non-performing loans,      interest on which is recognized on a cashbasis. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|

| (2) | Average      balances of securities are based on amortized  cost. |
|-----|-------------------------------------------------------------------|

| (3) | Includes      Federal Home Loan Bank (FHLB) stock, money      market accounts, federal funds sold and interest-earning bank |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

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|   | deposits. |
|--------|-----------|

| (4) | Includes      federal funds purchased, overnight borrowings from the Federal Reserve      Board discount window and repurchase agreements (Repo      Sweeps). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | The      2009 period includes an average of $117.2 million of contractual FHLB      borrowed money reduced by an average of $71,000 of unamortized deferred      premium on the early extinguishment of debt.  Interest expense      on borrowed money includes $61,000 of amortization of the deferred premium      on the early extinguishment of debt.  The amortization of the      deferred premium increased the average cost of borrowed money as reported      to 2.72% compared to an average contractual rate of  2.53%. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      2008 period includes an average of $116.0 million of contractual FHLB      borrowed money reduced by an average of $870,000 of unamortized deferred      premium on the early extinguishment of debt.  Interest expense      on borrowed money includes $449,000 of amortization of the deferred      premium on the early extinguishment of debt.  The amortization      of the deferred premium increased the average cost of borrowed money as      reported to 4.88% compared to an average contractual rate of      3.63%. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                               |   | Six Months Ended June 30,   |      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                               |   | 2009                        |      |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                               |   | AverageBalance              |      |   | Interest |   |   | AverageYield/Cost |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                                               |   | (Dollars      in thousands) |      |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                      |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable      (1)                                                                                               |   | $                           | 751,383   |   |   | $ | 19,752 |   |   |   | 5.30 | % |   | $ | 764,986 |   |   | $ | 24,084 |   |   |   | 6.33 | % |
| Securities      (2)                                                                                                     |   |                        | 238,507   |   |   |   | 6,063 |   |   |   | 5.06 |   |   |   | 246,569 |   |   |   | 6,251 |   |   |   | 5.01 |   |
| Other interest-earning assets      (3)                                                                                                                                                                                                                                                                                                                             |   |                        | 31,619    |   |   |   | 380 |   |   |   | 2.42 |   |   |   | 60,272 |   |   |   | 1,011 |   |   |   | 3.37 |   |
| Total interest-earning      assets                                                                                                                                                                                                                                                                                                                                 |   |                        | 1,021,509 |   |   |   | 26,195 |   |   |   | 5.17 |   |   |   | 1,071,827 |   |   |   | 31,346 |   |   |   | 5.88 |   |
|                                                                                                                                                                                                                                                                                                                                                               |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      earning      assets                                                                    |   |                        | 85,578    |   |   |   |   |   |   |   |   |   |   |   | 86,188 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                        |   | $                           | 1,107,087 |   |   |   |   |   |   |   |   |   |   | $ | 1,158,015 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                               |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                 |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                          |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                            |   | $                           | 123,633   |   |   |   | 207 |   |   |   | 0.34 |   |   | $ | 106,617 |   |   |   | 357 |   |   |   | 0.67 |   |
| Money market      accounts                                                                                                        |   |                        | 160,046   |   |   |   | 618 |   |   |   | 0.78 |   |   |   | 190,190 |   |   |   | 2,265 |   |   |   | 2.39 |   |
| Savings      accounts                                                                                                             |   |                        | 118,259   |   |   |   | 206 |   |   |   | 0.35 |   |   |   | 124,725 |   |   |   | 325 |   |   |   | 0.52 |   |
| Certificates of      deposit                                                                                                      |   |                        | 368,493   |   |   |   | 4,814 |   |   |   | 2.63 |   |   |   | 377,811 |   |   |   | 7,295 |   |   |   | 3.88 |   |
| Total      deposits                                                                                                                              |   |                        | 770,431   |   |   |   | 5,845 |   |   |   | 1.53 |   |   |   | 799,343 |   |   |   | 10,242 |   |   |   | 2.58 |   |
|                                                                                                                                                                                                                                                                                                                                                               |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Borrowed      money:                                                                                                                                                                                                                                                                                                                       |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other      short-term borrowed money (4)                                                                                                                                                                                                                                                                                 |   |                        | 14,146    |   |   |   | 53 |   |   |   | 0.76 |   |   |   | 23,394 |   |   |   | 238 |   |   |   | 2.04 |   |
|        FHLB      borrowed money (5)(6)                                                                                                                                                                                                                                                                                          |   |                        | 132,117   |   |   |   | 1,787 |   |   |   | 2.69 |   |   |   | 126,421 |   |   |   | 3,604 |   |   |   | 5.64 |   |
|        Total      borrowed      money                                                |   |                        | 146,263   |   |   |   | 1,840 |   |   |   | 2.50 |   |   |   | 149,815 |   |   |   | 3,842 |   |   |   | 5.07 |   |
| Total interest-bearing      liabilities                                                                                                                                                                                                                                                                                                                            |   |                        | 916,694   |   |   |   | 7,685 |   |   |   | 1.69 |   |   |   | 949,158 |   |   |   | 14,084 |   |   |   | 2.98 |   |
| Non-interest      bearing      deposits                                                                  |   |                        | 64,180    |   |   |   |   |   |   |   |   |   |   |   | 61,820 |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing liabilities                                                                                                                                                                                                                                                                                                                              |   |                        | 14,205    |   |   |   |   |   |   |   |   |   |   |   | 15,705 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                                   |   |                        | 995,079   |   |   |   |   |   |   |   |   |   |   |   | 1,026,683 |   |   |   |   |   |   |   |   |   |
| Shareholders'      equity                                                                                |   |                        | 112,008   |   |   |   |   |   |   |   |   |   |   |   | 131,332 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and shareholders' equity                                                                                                                                                                                                                                                                                                                    |   | $                           | 1,107,087 |   |   |   |   |   |   |   |   |   |   | $ | 1,158,015 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning      assets                                                                    |   | $                           | 104,815   |   |   |   |   |   |   |   |   |   |   | $ | 122,669 |   |   |   |   |   |   |   |   |   |
| Net      interest income / interest rate spread                                                                                                                                                                                                                                                                                                                    |   |                        |      |   |   | $ | 18,510 |   |   |   | 3.48 | % |   |   |   |   |   | $ | 17,262 |   |   |   | 2.90 | % |
| Net      interest      margin                                                                            |   |                        |      |   |   |   |   |   |   |   | 3.65 | % |   |   |   |   |   |   |   |   |   |   | 3.24 | % |
| Ratio      of average interest-earning assets to    average      interest-bearing liabilities                                                                                                                                                                                                                                             |   |                        |      |   |   |   |   |   |   |   | 111.43 | % |   |   |   |   |   |   |   |   |   |   | 112.92 | % |

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

| (1) | The      average balance of loans receivable includes non-performing loans,      interest on which is recognized on a cashbasis. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|

| (2) | Average      balances of securities are based on amortized  cost. |
|-----|-------------------------------------------------------------------|

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

| (4) | Includes      federal funds purchased, overnight borrowings from the Federal Reserve      Board discount window and repurchase agreements (Repo      Sweeps). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | The      2009 period includes an average of $132.2 million of contractual FHLB      borrowed money reduced by an average of |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

----

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|   | $107,000      of unamortized deferred premium on the early extinguishment of      debt.  Interest expense on borrowed money includes $133,000 of      amortization of the deferred premium on the early extinguishment of      debt.  The amortization of the deferred premium increased the      average cost of borrowed money to 2.50% compared to an average contractual      rate of 2.32%. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      2008 period includes an average of $127.6 million of contractual FHLB      borrowed money reduced by an average of $1.1 million of unamortized      premium on the early extinguishment of debt.  Interest expense      on borrowed money includes $976,000 of amortization of the deferred      premium on the early extinguishment of debt.  The amortization      of the deferred premium increased the average cost of borrowed money as      reported to 5.07% compared to an average contractual rate of      3.76%. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Rate      / Volume Analysis |
|--------|-----------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                        |   | Three      Months Ended June 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                        |   | 2009 compared to 2008            |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   | Increase (decrease) due to       |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   | Rate                             |   |   | Volume |   |   | Rate      /Volume |   |   | Total      Net Increase / (Decrease) |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars      in thousands)      |   |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                                               |   |                             |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable                                                                                         |   | $                                | (1,590 | ) |   | $ | 118 |   |   | $ | (17 | ) |   | $ | (1,489 | ) |
| Securities                                                                                                    |   |                             | 124    |   |   |   | (266 | ) |   |   | (10 | ) |   |   | (152 | ) |
| Other interest-earning      assets                                                                            |   |                             | (223   | ) |   |   | (337 | ) |   |   | 133 |   |   |   | (427 | ) |
| Total net change in income on      interest-earning      assets                                                                             |   |                             | (1,689 | ) |   |   | (485 | ) |   |   | 106 |   |   |   | (2,068 | ) |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                                          |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                       |   |                             | (76    | ) |   |   | 40 |   |   |   | (18 | ) |   |   | (54 | ) |
| Money market      accounts                                                                                                   |   |                             | (653   | ) |   |   | (206 | ) |   |   | 133 |   |   |   | (726 | ) |
| Savings      accounts                                                                                                        |   |                             | (37    | ) |   |   | (5 | ) |   |   | 1 |   |   |   | (41 | ) |
| Certificates of      deposit                                                                                                 |   |                             | (969   | ) |   |   | (20 | ) |   |   | 5 |   |   |   | (984 | ) |
| Total      deposits                                                                                                                    |   |                             | (1,735 | ) |   |   | (191 | ) |   |   | 121 |   |   |   | (1,805 | ) |
| Borrowed money:                                                                                                                                                                                                                                                                                                                                                                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term      borrowings                                                                                             |   |                             | (70    | ) |   |   | (78 | ) |   |   | 44 |   |   |   | (104 | ) |
| FHLB      borrowings                                                                                                         |   |                             | (812   | ) |   |   | 29 |   |   |   | (14 | ) |   |   | (797 | ) |
| Total borrowed      money                                                                                                              |   |                             | (882   | ) |   |   | (49 | ) |   |   | 30 |   |   |   | (901 | ) |
| Total net change in expense on      interest-bearing      liabilities                                                                       |   |                             | (2,617 | ) |   |   | (240 | ) |   |   | 151 |   |   |   | (2,706 | ) |
| Net      change in net interest      income                                                         |   | $                                | 928    |   |   | $ | (245 | ) |   | $ | (45 | ) |   | $ | 638 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Six      Months Ended June 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2009 compared to 2008          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Increase (decrease) due to     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Rate                           |   |   | Volume |   |   | Rate      /Volume |   |   | Total      Net Increase / (Decrease) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Dollars      in thousands)    |   |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                                                                                   |   |                           |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable                                                                                                                             |   | $                              | (3,973 | ) |   | $ | (430 | ) |   | $ | 71 |   |   | $ | (4,332 | ) |
| Securities                                                                                                                                        |   |                           | 20     |   |   |   | (207 | ) |   |   | (1 | ) |   |   | (188 | ) |
| Other interest-earning      assets                                                                                                                |   |                           | (287   | ) |   |   | (480 | ) |   |   | 136 |   |   |   | (631 | ) |
| Total net change in income on      interest-earning      assets                                                                                                                 |   |                           | (4,240 | ) |   |   | (1,117 | ) |   |   | 206 |   |   |   | (5,151 | ) |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                                                                              |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                                                           |   |                           | (179   | ) |   |   | 57 |   |   |   | (28 | ) |   |   | (150 | ) |
| Money market      accounts                                                                                                                                       |   |                           | (1,527 | ) |   |   | (362 | ) |   |   | 242 |   |   |   | (1,647 | ) |
| Savings      accounts                                                                                                                                            |   |                           | (107   | ) |   |   | (17 | ) |   |   | 5 |   |   |   | (119 | ) |
| Certificates of      deposit                                                                                                                                     |   |                           | (2,354 | ) |   |   | (182 | ) |   |   | 55 |   |   |   | (2,481 | ) |
| Total      deposits                                                                                                                                                        |   |                           | (4,167 | ) |   |   | (504 | ) |   |   | 274 |   |   |   | (4,397 | ) |
|     Borrowed      money:                                                                                                                                                                                                                                                                                                                                                                                    |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other      short-term      borrowings                                                         |   |                           | (150   | ) |   |   | (94 | ) |   |   | 59 |   |   |   | (185 | ) |
|        FHLB      debt                                                                                |   |                           | (1,894 | ) |   |   | 162 |   |   |   | (85 | ) |   |   | (1,817 | ) |
|        Total      borrowed      money                                                                          |   |                           | (2,044 | ) |   |   | 68 |   |   |   | (26 | ) |   |   | (2,002 | ) |
| Total net change in expense on      interest-bearing      liabilities                                                                                                           |   |                           | (6,211 | ) |   |   | (436 | ) |   |   | 248 |   |   |   | (6,399 | ) |
| Net      change in net interest      income                                                                                             |   | $                              | 1,971  |   |   | $ | (681 | ) |   | $ | (42 | ) |   | $ | 1,248 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Three Months Ended June 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 2009                        |   |   | 2008 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | (Dollars      in thousands) |   |
| Interest      expense on short-termborrowed money at contractual      rates                                                                                                                                                                                                                                                                                                                                                       |   | $                           | 20     |   |   | $ | 124 |   |   | $ | (104 | ) |   |   | (83.9 | )% |
| Interest      expense on FHLB borrowedmoney at contractual      rates                                                           |   |                        | 799    |   |   |   | 1,208 |   |   |   | (409 | ) |   |   | (33.9 | ) |
| Amortization      of deferred      premium                                                                       |   |                        | 61     |   |   |   | 449 |   |   |   | (388 | ) |   |   | (86.4 | ) |
| Total      interest expense on borrowings                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | 880    |   |   | $ | 1,781 |   |   | $ | (901 | ) |   |   | (50.6 | ) |

|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Six Months Ended June 30,   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 2009                        |   |   | 2008 |   |   | $ Change |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                              |   | (Dollars      in thousands) |   |
| Interest      expense on short-termborrowed money at contractual      rates                                                                                                                                                                                                                                                                                                                                                       |   | $                           | 53     |   |   | $ | 238 |   |   | $ | (185 | ) |   |   | (77.7 | )% |
| Interest      expense on FHLB borrowedmoney at contractual      rates                                                           |   |                        | 1,654  |   |   |   | 2,628 |   |   |   | (974 | ) |   |   | (37.1 | ) |
| Amortization      of deferred      premium                                                                       |   |                        | 133    |   |   |   | 976 |   |   |   | (843 | ) |   |   | (86.4 | ) |
| Total      interest expense on borrowings                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | 1,840  |   |   | $ | 3,842 |   |   | $ | (2,002 | ) |   |   | (52.1 | ) |

----

table of contents

|                                       |   | Three Months Ended June 30, |    |
|--------------------------------------------|--------|-----------------------------|---------|
|                                       |   | 2009                        |    |   | 2008 |   |   | $ Change |   |   | % Change |   |
|                                       |   | (Dollars      in thousands) |    |
| Service      charges and other fees        |   | $                           | 1,376   |   |   | $ | 1,465 |   |   | $ | (89 | ) |   |   | (6.1 | )% |
| Card-based      fees                       |   |                        | 432     |   |   |   | 415 |   |   |   | 17 |   |   |   | 4.1 |   |
| Commission      income                     |   |                        | 70      |   |   |   | 135 |   |   |   | (65 | ) |   |   | (48.1 | ) |
| Subtotal fee based      revenues           |   |                        | 1,878   |   |   |   | 2,015 |   |   |   | (137 | ) |   |   | (6.8 | ) |
| Income      from bank-owned life insurance |   |                        | 156     |   |   |   | 371 |   |   |   | (215 | ) |   |   | (58.0 | ) |
| Other      income                          |   |                        | 97      |   |   |   | 149 |   |   |   | (52 | ) |   |   | (34.9 | ) |
| Subtotal                                   |   |                        | 2,131   |   |   |   | 2,535 |   |   |   | (404 | ) |   |   | (15.9 | ) |
| Security      losses, net                  |   |                        | – |   |   |   | (582 | ) |   |   | 582 |   |   | NM |   |
| Other      asset gains (losses), net       |   |                        | (6      | ) |   |   | (3 | ) |   |   | (3 | ) |   | NM |   |
| Total non-interest      income             |   | $                           | 2,125   |   |   | $ | 1,950 |   |   | $ | 175 |   |   |   | 9.0 | % |

|                                       |   | Six Months Ended June 30,   |   |
|--------------------------------------------|--------|-----------------------------|--------|
|                                       |   | 2009                        |   |   | 2008 |   |   | $ Change |   |   | % Change |   |
|                                       |   | (Dollars      in thousands) |   |
| Service      charges and other fees        |   | $                           | 2,675  |   |   | $ | 2,904 |   |   | $ | (229 | ) |   |   | (7.9 | )% |
| Card-based      fees                       |   |                        | 820    |   |   |   | 795 |   |   |   | 25 |   |   |   | 3.1 |   |
| Commission      income                     |   |                        | 141    |   |   |   | 193 |   |   |   | (52 | ) |   |   | (26.9 | ) |
| Subtotal fee based      revenues           |   |                        | 3,636  |   |   |   | 3,892 |   |   |   | (256 | ) |   |   | (6.6 | ) |
| Income      from bank-owned life insurance |   |                        | 334    |   |   |   | 780 |   |   |   | (446 | ) |   |   | (57.2 | ) |
| Other      income                          |   |                        | 392    |   |   |   | 321 |   |   |   | 71 |   |   |   | 22.1 |   |
| Subtotal                                   |   |                        | 4,362  |   |   |   | 4,993 |   |   |   | (631 | ) |   |   | (12.6 | ) |
| Security      gains (losses), net          |   |                        | 720    |   |   |   | (513 | ) |   |   | 1,233 |   |   | NM |   |
| Other      asset gains (losses), net       |   |                        | (6     | ) |   |   | (3 | ) |   |   | (3 | ) |   | NM |   |
| Total non-interest      income             |   | $                           | 5,076  |   |   | $ | 4,477 |   |   | $ | 599 |   |   |   | 13.4 | % |

----

table of contents

|                                             |   | Three Months Ended June 30, |   |
|--------------------------------------------------|--------|-----------------------------|--------|
|                                             |   | 2009                        |   |   | 2008 |   |   | $ Change |   |   | % Change |   |
|                                             |   | (Dollars      in thousands) |   |
| Compensation      and mandatory benefits         |   | $                           | 4,382  |   |   | $ | 3,758 |   |   | $ | 624 |   |   |   | 16.6 | % |
| Retirement      and stock related compensation   |   |                        | 391    |   |   |   | 3 |   |   |   | 388 |   |   | NM |   |
| Medical      and life benefits                   |   |                        | 290    |   |   |   | 375 |   |   |   | (85 | ) |   |   | (22.7 | ) |
| Other      employee benefits                     |   |                        | 15     |   |   |   | 43 |   |   |   | (28 | ) |   |   | (65.1 | ) |
| Subtotal compensation and employee      benefits |   |                        | 5,078  |   |   |   | 4,179 |   |   |   | 899 |   |   |   | 21.5 |   |
| Net      occupancy expense                       |   |                        | 750    |   |   |   | 708 |   |   |   | 42 |   |   |   | 5.9 |   |
| FDIC      insurance premiums                     |   |                        | 963    |   |   |   | 40 |   |   |   | 923 |   |   | NM |   |
| Furniture      and equipment expense             |   |                        | 520    |   |   |   | 543 |   |   |   | (23 | ) |   |   | (4.2 | ) |
| Professional      fees                           |   |                        | 604    |   |   |   | 212 |   |   |   | 392 |   |   |   | 184.9 |   |
| Data      processing                             |   |                        | 420    |   |   |   | 484 |   |   |   | (64 | ) |   |   | (13.2 | ) |
| Marketing                                        |   |                        | 218    |   |   |   | 178 |   |   |   | 40 |   |   |   | 22.5 |   |
| Other      general and administrative expense    |   |                        | 1,390  |   |   |   | 1,340 |   |   |   | 50 |   |   |   | 3.7 |   |
| Total non-interest      expense                  |   | $                           | 9,943  |   |   | $ | 7,684 |   |   | $ | 2,259 |   |   |   | 29.4 | % |

|                                             |   | Six Months Ended June 30,   |   |
|--------------------------------------------------|--------|-----------------------------|--------|
|                                             |   | 2009                        |   |   | 2008 |   |   | $ Change |   |   | % Change |   |
|                                             |   | (Dollars      in thousands) |   |
| Compensation      and mandatory benefits         |   | $                           | 8,638  |   |   | $ | 7,477 |   |   | $ | 1,161 |   |   |   | 15.5 | % |
| Retirement      and stock related compensation   |   |                        | 1,001  |   |   |   | 289 |   |   |   | 712 |   |   |   | 246.4 |   |
| Medical      and life benefits                   |   |                        | 580    |   |   |   | 675 |   |   |   | (95 | ) |   |   | (14.1 | ) |
| Other      employee benefits                     |   |                        | 34     |   |   |   | 74 |   |   |   | (40 | ) |   |   | (54.1 | ) |
| Subtotal compensation and employee      benefits |   |                        | 10,253 |   |   |   | 8,515 |   |   |   | 1,738 |   |   |   | 20.4 |   |
| Net      occupancy expense                       |   |                        | 1,647  |   |   |   | 1,541 |   |   |   | 106 |   |   |   | 6.9 |   |
| FDIC      insurance premiums                     |   |                        | 1,267  |   |   |   | 80 |   |   |   | 1,187 |   |   | NM |   |
| Furniture      and equipment expense             |   |                        | 1,055  |   |   |   | 1,094 |   |   |   | (39 | ) |   |   | (3.6 | ) |
| Professional      fees                           |   |                        | 954    |   |   |   | 486 |   |   |   | 468 |   |   |   | 96.3 |   |
| Data      processing                             |   |                        | 839    |   |   |   | 942 |   |   |   | (103 | ) |   |   | (10.9 | ) |
| Marketing                                        |   |                        | 416    |   |   |   | 386 |   |   |   | 30 |   |   |   | 7.8 |   |
| Other      general and administrative expense    |   |                        | 2,940  |   |   |   | 2,685 |   |   |   | 255 |   |   |   | 9.5 |   |
| Total non-interest      expense                  |   | $                           | 19,371 |   |   | $ | 15,729 |   |   | $ | 3,642 |   |   |   | 23.2 | % |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Three      Months EndedJune 30, |    |   | Six      Months EndedJune 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | 2009                            |    |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (Dollars      in thousands)     |    |
| Efficiency      ratio:                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                            |    |   |                          |   |   |   |   |   |   |   |
| Non-interest      expense                                                                                           |   | $                               | 9,943   |   |                          | $      | 7,684 |   |   | $ | 19,371 |   |   | $ | 15,729 |   |
| Net      interest income plus non-interest income                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                               | 11,460  |   |                          | $      | 10,647 |   |   | $ | 23,586 |   |   | $ | 21,739 |   |
| Efficiency      ratio                                                                                               |   |                            | 86.8    | %      |                          |   | 72.2 | % |   |   | 82.1 | % |   |   | 72.4 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                            |    |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Core      efficiency ratio:                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                            |    |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      expense                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                               | 9,943   |   |                          | $      | 7,684 |   |   | $ | 19,371 |   |   | $ | 15,729 |   |
| Special      assessment – FDIC      insurance                                                                 |   |                            | (495    | )      |                          |   | – |   |   |   | (495 | ) |   |   | – |   |
| Non-interest expense – as      adjusted                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            | 9,448   |   |                          |   | 7,684 |   |   |   | 18,876 |   |   |   | 15,729 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                            |    |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Net      interest income plus non-interest income                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                               | 11,460  |   |                          | $      | 10,647 |   |   | $ | 23,586 |   |   | $ | 21,739 |   |
| Adjustments:                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                            |    |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Security (gains) losses,      net                                                                                                  |   |                            | – |   |                          |   | 582 |   |   |   | (720 | ) |   |   | 513 |   |
| Other asset losses,      net                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            | 6       |   |                          |   | 3 |   |   |   | 6 |   |   |   | 3 |   |
| Amortization of deferred      premium on the earlyextinguishment of      debt                                                                |   |                            | 61      |   |                          |   | 449 |   |   |   | 133 |   |   |   | 976 |   |
| Net interest income plus      non-interest income –as      adjusted                                                                    |   | $                               | 11,527  |   |                          | $      | 11,681 |   |   | $ | 23,005 |   |   | $ | 23,231 |   |
| Core      efficiency      ratio                                                                                     |   |                            | 82.0    | %      |                          |   | 65.8 | % |   |   | 82.1 | % |   |   | 67.7 | % |

----

table of contents

|                                              |   | ParValue                    |    |   | Amortized      Cost |   |    | Gross      Unrealized      Gains |   |   | GrossUnrealizedLosses |   |   | FairValue |    |
|---------------------------------------------------|--------|-----------------------------|---------|--------|---------------------|--------|---------|----------------------------------|--------|--------|-----------------------|--------|--------|-----------|---------|
|                                              |   | (Dollars      in thousands) |    |
| At      June 30, 2009:                            |   |                        |    |   |                |   |    |                             |   |   |                  |   |   |      |    |
| Government sponsored entity (GSE)      securities |   | $                           | 66,150  |   |                | $      | 65,964  |                             |   | $      | 2,204                 |   |   | $         | – |   |   | $ | 68,168 |   |
| Mortgage-backed      securities                   |   |                        | 10,223  |   |                |   | 10,118  |                             |   |   | 360                   |   |   |      | – |   |   |   | 10,478 |   |
| Collateralized mortgage      obligations          |   |                        | 68,938  |   |                |   | 68,915  |                             |   |   | 1,323                 |   |   |      | (1,741  | ) |   |   | 68,497 |   |
| Commercial mortgage-backed      securities        |   |                        | 48,461  |   |                |   | 47,595  |                             |   |   | 568                   |   |   |      | (981    | ) |   |   | 47,182 |   |
| Pooled trust preferred      securities            |   |                        | 30,530  |   |                |   | 27,318  |                             |   |   | 279                   |   |   |      | (1,765  | ) |   |   | 25,832 |   |
| Equity securities                                 |   |                        | 5,837   |   |                |   | – |                             |   |   | 167                   |   |   |      | – |   |   |   | 167 |   |
|                                              |   | $                           | 230,139 |   |                | $      | 219,910 |                             |   | $      | 4,901                 |   |   | $         | (4,487  | ) |   | $ | 220,324 |   |
|                                              |   |                        |    |   |                |   |    |                             |   |   |                  |   |   |      |    |   |   |   |   |   |

----

table of contents

|                                              |   | ParValue                    |    |   | Amortized      Cost |   |    | Gross      Unrealized      Gains |   |   | GrossUnrealizedLosses |   |   | FairValue |    |
|---------------------------------------------------|--------|-----------------------------|---------|--------|---------------------|--------|---------|----------------------------------|--------|--------|-----------------------|--------|--------|-----------|---------|
|                                              |   | (Dollars      in thousands) |    |
| At      December 31, 2008:                        |   |                        |    |   |                |   |    |                             |   |   |                  |   |   |      |    |
| Government sponsored entity (GSE)      securities |   | $                           | 98,400  |   |                | $      | 97,987  |                             |   | $      | 4,358                 |   |   | $         | – |   |   | $ | 102,345 |   |
| Mortgage-backed      securities                   |   |                        | 10,881  |   |                |   | 10,774  |                             |   |   | 83                    |   |   |      | (1      | ) |   |   | 10,856 |   |
| Collateralized mortgage      obligations          |   |                        | 78,276  |   |                |   | 76,506  |                             |   |   | 919                   |   |   |      | (1,882  | ) |   |   | 75,543 |   |
| Commercial mortgage-backed      securities        |   |                        | 40,511  |   |                |   | 39,669  |                             |   |   | 203                   |   |   |      | (1,479  | ) |   |   | 38,393 |   |
| Pooled trust preferred      securities            |   |                        | 30,966  |   |                |   | 27,668  |                             |   |   | –               |   |   |      | (3,535  | ) |   |   | 24,133 |   |
| Equity securities                                 |   |                        | 5,837   |   |                |   | – |                             |   |   | –               |   |   |      | – |   |   |   | – |   |
|                                              |   | $                           | 264,871 |   |                | $      | 252,604 |                             |   | $      | 5,563                 |   |   | $         | (6,897  | ) |   | $ | 251,270 |   |

----

table of contents

|                                                   |   | June 30, 2009               |          |   | December 31, 2008 |   |       |   |   |
|--------------------------------------------------------|--------|-----------------------------|---------------|--------|-------------------|--------|------------|--------|--------|
|                                                   |   | Amount                      |          |   | % of Total        |   |       | Amount |   |   | % of Total |   |   | % Change |   |
|                                                   |   | (Dollars      in thousands) |          |
| Commercial      loans:                                 |   |                        |          |   |              |   |       |   |   |   |   |   |   |   |   |
| Commercial and      industrial                         |   | $                           | 69,604        |   |              |   | 9.3        | %      |   | $ | 64,021 |   |   |   | 8.5 | % |   |   | 8.7 | % |
| Commercial      real estate – owner occupied     |   |                        | 89,124        |   |              |   | 11.9       |   |   |   | 85,565 |   |   |   |  11.4 |   |   |   | 4.2 |   |
| Commercial      real estate – non-owner occupied |   |                        | 220,409       |   |              |   | 29.3       |   |   |   | 222,048 |   |   |   | 29.6 |   |   |   | (0.7 | ) |
| Commercial real      estate –      multifamily   |   |                        | 50,696        |   |              |   | 6.7        |   |   |   | 40,503 |   |   |   | 5.4 |   |   |   | 25.2 |   |
| Commercial      construction and landdevelopment       |   |                        | 63,460        |   |              |   | 8.5        |   |   |   | 70,848 |   |   |   | 9.5 |   |   |   | (10.4 | ) |
|     Total      commercial loans    |   |                        | 493,293       |   |              |   | 65.7       |   |   |   | 482,985 |   |   |   | 64.4 |   |   |   | 2.1 |   |
|                                                   |   |                        |          |   |              |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Retail      loans:                                     |   |                        |          |   |              |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family      residential                    |   |                        | 193,204       |   |              |   | 25.8       |   |   |   | 203,797 |   |   |   | 27.2 |   |   |   | (5.2 | ) |
| Home equity lines of      credit                       |   |                        | 59,255        |   |              |   | 7.9        |   |   |   | 58,918 |   |   |   | 7.8 |   |   |   | 0.6 |   |
| Retail construction and land      development          |   |                        | 3,303         |   |              |   | 0.4        |   |   |   | 2,650 |   |   |   | 0.4 |   |   |   | 24.6 |   |
| Other                                                  |   |                        | 1,806         |   |              |   | 0.2        |   |   |   | 1,623 |   |   |   | 0.2 |   |   |   | 11.3 |   |
| Total      retail loans                                |   |                        | 257,568  |   |              |   | 34.3  |   |   |   | 266,988  |   |   |   | 35.6  |   |   |   | (3.5  | ) |
|                                                   |   |                        |          |   |              |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans receivable, net of unearned fees      |   | $                           | 750,861       |   |              |   | 100.0      | %      |   | $ | 749,973 |   |   |   | 100.0 | % |   |   | 0.1 | % |

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table of contents

|                                       |   | June 30, 2009               |   |   | December 31, 2008 |   |   |   |   |
|--------------------------------------------|--------|-----------------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                                       |   | Amount                      |   |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                       |   | (Dollars      in thousands) |   |
| Illinois                                   |   | $                           | 23,152 |   |              |   | 40.6   | %      |   | $ | 25,012 |   |   |   | 41.3 | % |   |   | (7.4 | )% |
| Indiana                                    |   |                        | 13,397 |   |              |   | 23.5   |   |   |   | 13,474 |   |   |   | 22.3 |   |   |   | (0.6 | ) |
| Ohio                                       |   |                        | 9,511  |   |              |   | 16.7   |   |   |   | 9,734 |   |   |   | 16.1 |   |   |   | (2.3 | ) |
| Florida                                    |   |                        | 6,045  |   |              |   | 10.6   |   |   |   | 6,590 |   |   |   | 10.9 |   |   |   | (8.3 | ) |
| Colorado                                   |   |                        | 2,780  |   |              |   | 4.9    |   |   |   | 3,103 |   |   |   | 5.1 |   |   |   | (10.4 | ) |
| Texas                                      |   |                        | 1,455  |   |              |   | 2.5    |   |   |   | 1,473 |   |   |   | 2.4 |   |   |   | (1.2 | ) |
| New      York                              |   |                        | 701    |   |              |   | 1.2    |   |   |   | 1,150 |   |   |   | 1.9 |   |   |   | (39.0 | ) |
| Total participations and      syndications |   | $                           | 57,041 |   |              |   | 100.0  | %      |   | $ | 60,536 |   |   |   | 100.0 | % |   |   | (5.8 | )% |

Allowance for Losses onLoans.  The Company maintains the allowance for losses on loansat a level that management believes is sufficient to absorb credit lossesinherent in the loan portfolio.  The allowance for losses on loansrepresents management’s estimate of inherent losses existing in the loanportfolio that are both probable and reasonable to estimate at each balancesheet date and is based on its review of available and relevantinformation.  While management believes that at June 30, 2009 theallowance for losses on loans was adequate, it is possible that furtherdeterioration in the economy, devaluations of collateral held or requirementsfrom regulatory agencies may require future provisions to theallowance.

|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Three      Months EndedJune 30, |   |   | Six      Months EndedJune 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2009                            |   |   | 2008                          |   |   | 2009 |   |   | 2008 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands)     |   |
| Balance      at beginning of      period                                                                 |   | $                               | 15,472 |   |                          | $      | 8,347 |   |   | $ | 15,558 |   |   | $ | 8,026 |   |
| Provision      for losses on      loans                                                                  |   |                            | 713    |   |                          |   | 7,172 |   |   |   | 1,337 |   |   |   | 7,914 |   |
| Charge-offs                                                                                              |   |                            | (1,331 | )      |                          |   | (5,129 | ) |   |   | (2,054 | ) |   |   | (5,587 | ) |
| Recoveries                                                                                               |   |                            | 80     |   |                          |   | 13 |   |   |   | 93 |   |   |   | 50 |   |
| Balance      at end of      period                                                                       |   | $                               | 14,934 |   |                          | $      | 10,403 |   |   | $ | 14,934 |   |   | $ | 10,403 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | June      30, 2009     |    |   | December      31,2008 |   |    | June      30,2008 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|-----------------------|--------|---------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (Dollars      in thousands) |    |
| Allowance      for losses on      loans                                                                                                    |   | $                           | 14,934  |   |                  | $      | 15,558  |              |   | $ | 10,403 |   |
| Total      loans receivable, net of unearned      fees                                                                                     |   |                        | 750,861 |   |                  |   | 749,973 |              |   |   | 726,858 |   |
| Allowance      for losses on loans to total      loans                                                                                     |   |                        | 1.99    | %      |                  |   | 2.07    | %                 |   |   | 1.43 | % |
| Allowance      for losses on loans to non-performing loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                        | 28.23   |   |                  |   | 28.44   |              |   |   | 30.01 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | June      30,2009           |   |   | December      31, 2008 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (Dollars      in thousands) |   |
| Impaired      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |   |   |                   |   |
| With a valuation      reserve                                                                                                                       |   | $                           | 19,769 |   |                   | $      | 20,219 |   |
| With no valuation reserve      required                                                                                                             |   |                        | 23,802 |   |                   |   | 27,259 |   |
| Total impaired      loans                                                                                                                           |   |                        | 43,571 |   |                   |   | 47,478 |   |
| Other      non-accrual      loans                                                                                                    |   |                        | 9,326  |   |                   |   | 7,223 |   |
| Total non-accrual      loans                                                                                                                        |   | $                           | 52,897 |   |                   | $      | 54,701 |   |
| Valuation      reserve relating to impaired      loans                                                                               |   | $                           | 5,504  |   |                   | $      | 5,930 |   |
| Average      outstanding impaired      loans                                                                                         |   |                        | 47,871 |   |                   |   | 32,676 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June      30,2009           |   |   | December      31,2008 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands) |   |
| Non-accrual      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |   |
| Commercial    loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                        |   |   |                  |   |
| Commercial and      industrial                                                                                                                                           |   | $                           | 2,576  |   |                  | $      | 2,551 |   |
| Commercial real estate – owner      occupied                                                                                                                       |   |                        | 3,279  |   |                  |   | 4,141 |   |
| Commercial real estate –      non-owner      occupied                                                                                                              |   |                        | 22,211 |   |                  |   | 22,337 |   |
| Commercial real estate –      multifamily                                                                                                                          |   |                        | 641    |   |                  |   | 342 |   |
| Commercial construction and      land      development                                                                                                                   |   |                        | 17,939 |   |                  |   | 20,428 |   |
| Total commercial      loans                                                                                                                                              |   |                        | 46,646 |   |                  |   | 49,799 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                        |   |   |                  |   |   |   |
| Retail loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                        |   |   |                  |   |   |   |
| One-to-four family      residential                                                                                                                                      |   |                        | 3,279  |   |                  |   | 3,048 |   |
| Home equity lines of      credit                                                                                                                                         |   |                        | 2,689  |   |                  |   | 1,570 |   |
| Retail construction and land      development                                                                                                                            |   |                        | 279    |   |                  |   | 279 |   |
| Other                                                                                                                                                                    |   |                        | 4      |   |                  |   | 5 |   |
| Total retail      loans                                                                                                                                                  |   |                        | 6,251  |   |                  |   | 4,902 |   |
| Total non-accrual      loans                                                                                                                                             |   |                        | 52,897 |   |                  |   | 54,701 |   |
| Other      real estate owned,      net                                                                                                          |   |                        | 7,371  |   |                  |   | 3,242 |   |
| Total non-performing      assets                                                                                                                               |   |                        | 60,268 |   |                  |   | 57,943 |   |
| 90      days past due and still accruing      interest                                                                                          |   |                        | 664    |   |                  |   | 605 |   |
| Total non-performing assets      plus 90 days past due loans stillaccruing      interest                                                                                 |   | $                           | 60,932 |   |                  | $      | 58,548 |   |
| Non-performing      assets to total      assets                                                                                                 |   |                        | 5.51   | %      |                  |   | 5.16 | % |
| Non-performing      loans to total      loans                                                                                                   |   |                        | 7.04   | %      |                  |   | 7.29 | % |

|   | • | the      transfer of two commercial construction and land development loans      totaling $4.1 million to other real estate  owned; |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the      transfer of $2.7 million commercial construction and land development      loans to two borrowers to non-accrualstatus; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------|

|   | • | partial      charge-offs totaling $1.5 million on five commercial construction and land      development borrowingrelationships; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------|

|   | • | the      sale of one owner occupied commercial real estate loan totaling $887,000;      and |
|--------|---------|---------------------------------------------------------------------------------------------|

|   | • | the      transfer of 13 home equity lines of credit totaling $1.4 million to      non-accrual status. |
|--------|---------|-------------------------------------------------------------------------------------------------------|

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June      30, 2009     |   |   | December      31, 2008 |   |   | % Change |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|------------------------|--------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands) |   |
| Illinois                                                                                                |   | $                           | 10,611 |   |                   | $      | 12,261 |     |   |   | (13.5 | )% |
| Indiana                                                                                                 |   |                        | 5,302  |   |                   |   | 5,423  |     |   |   | (2.2 | ) |
| Florida                                                                                                 |   |                        | 2,815  |   |                   |   | 3,643  |     |   |   | (22.7 | ) |
| Total non-performing      syndications and purchasedparticipations                                                          |   | $                           | 18,728 |   |                   | $      | 21,327 |     |   |   | (12.2 | ) |
| Percentage to total      non-performing loans                                                                                                                                                                                                                                                                                                                                                                            |   |                        | 35.4   | %      |                   |   | 39.0   | %        |   |   |   |   |
| Percentage to total syndications      and purchasedparticipations                                                           |   |                        | 32.8   |   |                   |   | 35.2   |     |   |   |   |   |

|                                        |   | June 30, 2009               |    |   | December 31, 2008 |   |   |   |   |
|---------------------------------------------|--------|-----------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                                        |   | Amount                      |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                        |   | (Dollars      in thousands) |    |
| Core      deposits:                         |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing checking      accounts |   | $                           | 66,528  |   |              |   | 8.0    | %      |   | $ | 63,485 |   |   |   | 7.7 | % |   |   | 4.8 | % |
| Interest bearing checking      accounts     |   |                        | 102,404 |   |              |   | 12.3   |   |   |   | 96,069 |   |   |   | 11.6 |   |   |   | 6.6 |   |
| Money market      accounts                  |   |                        | 118,181 |   |              |   | 14.2   |   |   |   | 114,633 |   |   |   | 13.9 |   |   |   | 3.1 |   |
| Savingsaccounts                             |   |                        | 137,652 |   |              |   | 16.6   |   |   |   | 134,997 |   |   |   | 16.4 |   |   |   | 2.0 |   |
|  Certificates      of deposit          |   |                        | 353,085 |   |              |   | 42.5   |   |   |   | 356,227 |   |   |   | 43.3 |   |   |   | (0.9 | )  |
| Non-municipal      deposits                 |   |                        | 777,850 |   |              |   | 93.6   |   |   |   | 765,411 |   |   |   | 92.9 |   |   |   | 1.6 |   |
| Municipal      core deposits                |   |                        | 40,641  |   |              |   | 4.9    |   |   |   | 39,221 |   |   |   | 4.8 |   |   |   | 3.6 |   |
| Municipal      certificates of deposit      |   |                        | 12,613  |   |              |   | 1.5    |   |   |   | 19,465 |   |   |   | 2.3 |   |   |   | (35.2 | ) |
| Municipal    deposits                       |   |                        | 53,254  |   |              |   | 6.4    |   |   |   | 58,686 |   |   |   | 7.1 |   |   |   | (9.3 | ) |
| Total deposits                              |   | $                           | 831,104 |   |              |   | 100.0  | %      |   | $ | 824,097 |   |   |   | 100.0 | % |   |   | 0.9 |   |

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table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | June 30, 2009                         |    |   | December 31, 2008 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Weighted-AverageContractual      Rate |    |   |  Amount      |   |   | Weighted-      AverageContractual      Rate |   |   |  Amount |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Dollars      in thousands)           |    |
| Short-term      variable-rate borrowings:                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                  |    |   |              |   |   |   |   |   |   |   |
| Repo Sweep      accounts                                                                                                    |   |                                  | 0.80    | %      |              | $      | 9,705 |   |   |   | 0.82 | % |   | $ | 17,512 |   |
| Federal Reserve Board discount      window                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                  | 0.50    |   |              |   | 920 |   |   |   | ― |   |   |   | ― |   |
| Overnight federal funds      purchased                                                                                      |   |                                  | ― |   |              |   | ― |   |   |   | 0.45 |   |   |   | 10,800 |   |
| Secured      borrowings from FHLB – Indianapolis:                                                                                                                                                                                                                                                                                                                                                                                      |   |                                  |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Maturing in 2009 –      variable-rate                                                                            |   |                                  | 0.51    |   |              |   | 25,000 |   |   |   | 0.65 |   |   |   | 30,000 |   |
| Maturing in 2009 –      fixed-rate                                                                               |   |                                  | 1.89    |   |              |   | 56,000 |   |   |   | 2.14 |   |   |   | 74,000 |   |
| Maturing      in 2010 –      fixed-rate                                                                          |   |                                  | 3.22    |   |              |   | 15,000 |   |   |   | 3.22 |   |   |   | 15,000 |   |
| Maturing in 2011 –      fixed-rate                                                                               |   |                                  | 3.75    |   |              |   | 15,000 |   |   |   | 3.75 |   |   |   | 15,000 |   |
| Maturing in 2014 – fixed-rate      (1)                                                                           |   |                                  | 6.71    |   |              |   | 1,146 |   |   |   | 6.71 |   |   |   | 1,146 |   |
| Maturing in 2018 – fixed-rate      (1)                                                                           |   |                                  | 5.54    |   |              |   | 2,647 |   |   |   | 5.54 |   |   |   | 2,647 |   |
| Maturing in 2019 – fixed-rate      (1)                                                                           |   |                                  | 6.31    |   |              |   | 6,926 |   |   |   | 6.30 |   |   |   | 7,007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                  |    |   |              |   | 121,719 |   |   |   |   |   |   |   | 144,800 |   |
| Less:  deferred premium      on early extinguishmentof      debt                                                            |   |                                  |    |   |              |   | (42 | ) |   |   |   |   |   |   | (175 | ) |
| Net FHLB – Indianapolis      borrowed money                                                                                                                                                                                                                                                                                                                                                                                            |   |                                  |    |   |              |   | 121,677 |   |   |   |   |   |   |   | 144,625 |   |
| Total      borrowed      money                                                                               |   |                                  |    |   |              | $      | 132,302 |   |   |   |   |   |   | $ | 172,937 |   |
| Weighted-average      contractual interest rate                                                                                                                                                                                                                                                                                                                                                                                              |   |                                  | 2.25    | %      |              |   |   |   |   |   | 2.13 | % |   |   |   |   |

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

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table of contents

|   | • | realized      net income of $2.1 million; |
|--------|---------|-------------------------------------------|

|   | • | an      increase in accumulated other comprehensive income of $1.1 million;      and |
|--------|---------|--------------------------------------------------------------------------------------|

|   | • | a      $832,000 decrease in unallocated common stock held by the      ESOP. |
|--------|---------|-----------------------------------------------------------------------------|

|                                                |   | Actual                      |    |   | For      Capital Adequacy Purposes |   |   |         To      Be Well-Capitalized Under      Prompt Corrective      ActionProvisions |   |
|-----------------------------------------------------|--------|-----------------------------|---------|--------|------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------|--------|
|                                                |   | Amount                      |    |   | Ratio                              |   |   | Amount                                                                                           |   |   | Ratio |   |   | Amount |   |   |        Ratio |   |
|                                                |   | (Dollars      in thousands) |
| As      of June 30, 2009:                           |   |                        |    |   |                               |   |   |                                                                                             |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted      assets          |   | $                           | 114,544 |   |                               |   | 13.21  | %                                                                                                |   | $ | 69,385 |   |   | >8.00 | % |   | $ | 86,731 |   |   | >10.00 | % |
| Tier 1 (core) capital to      risk-weighted assets  |   |                        | 103,652 |   |                               |   | 11.95  |                                                                                             |   |   | 34,692 |   |   | >4.00 |   |   |   | 52,039 |   |   | >6.00 |   |
| Tier 1 (core) capital to      adjusted total assets |   |                        | 103,652 |   |                               |   | 9.53   |                                                                                             |   |   | 43,521 |   |   | >4.00 |   |   |   | 54,401 |   |   | >5.00 |   |
| Tangible capital to adjusted      total assets      |   |                        | 103,652 |   |                               |   | 9.53   |                                                                                             |   |   | 16,320 |   |   | >1.50 |   |   |   | 21,761 |   |   | >2.00 |   |
|                                                |   |                        |    |   |                               |   |   |                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As      of December 31, 2008:                       |   |                        |    |   |                               |   |   |                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted      assets          |   | $                           | 111,941 |   |                               |   | 13.21  | %                                                                                                |   | $ | 67,777 |   |   | >8.00 | % |   | $ | 84,722 |   |   | >10.00 | % |
| Tier 1 (core) capital to      risk-weighted assets  |   |                        | 101,289 |   |                               |   | 11.96  |                                                                                             |   |   | 33,889 |   |   | >4.00 |   |   |   | 50,833 |   |   | >6.00 |   |
| Tier 1 (core) capital to      adjusted total assets |   |                        | 101,289 |   |                               |   | 9.07   |                                                                                             |   |   | 44,683 |   |   | >4.00 |   |   |   | 55,854 |   |   | >5.00 |   |
| Tangible capital to adjusted      total assets      |   |                        | 101,289 |   |                               |   | 9.07   |                                                                                             |   |   | 16,756 |   |   | >1.50 |   |   |   | 22,341 |   |   | >2.00 |   |

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

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

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

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

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

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

|   | • | borrowed      money from the FHLB and Federal ReserveBank. |
|--------|---------|------------------------------------------------------------|

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table of contents

|                                                                                                                                                                                                                                                                                                                        |   | Payments Due By Period      |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                                                                                                                                                                                                        |   | One      YearOr Less        |    |   | Over      OneThroughThree Years |   |   | Over      Three ThroughFive Years |   |   | Over      FiveYears |   |   | Total |   |
|                                                                                                                                                                                                                                                                                                                        |   | (Dollars      in thousands) |    |
| FHLB      borrowed money      (1)                                                |   | $                           | 96,297  |   |   | $ | 15,656 |   |   | $ | 752 |   |   | $ | 9,014 |   |   | $ | 121,719 |   |
| Short-term      borrowed money (2)                                                                                                                                                                                                                                                                                          |   |                        | 10,625  |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 10,625 |   |
| Operating      leases                                                            |   |                        | 568     |   |   |   | 670 |   |   |   | 353 |   |   |   | 2,193 |   |   |   | 3,784 |   |
| Dividends      payable on common stock                                                                                                                                                                                                                                                                                      |   |                        | 109     |   |   |   | ― |   |   |   | ― |   |   |   | ― |   |   |   | 109 |   |
|                                                                                                                                                                                                                                                                                                                        |   | $                           | 107,599 |   |   | $ | 16,326 |   |   | $ | 1,105 |   |   | $ | 11,207 |   |   | $ | 136,237 |   |

| (1) | Does      not include interest expense at the weighted-average contractual rate of      2.38% for the periods presented. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

| (2) | Does      not include interest expense at the weighted-average contractual rate of      0.77% for the periods presented. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                        |    |   | Over      One |   |    | Over      Three |   |   | Over    |   |   |   |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|---------------|--------|---------|-----------------|--------|--------|---------|--------|--------|--------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | One      Year               |    |   | Through       |   |    | through         |   |   | Five    |   |   |   |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | or Less                     |    |   | Three Years   |   |    | Five Years      |   |   | Years   |   |   | Total  |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | (Dollars      in thousands) |    |
| Commitments      to extend credit:                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        |    |   |          |   |    |            |   |   |    |   |   |   |    |
|             Commercial and      industrial                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                           | 9,910   |   |          | $      | ― |            |   | $      | 48      |   |   | $      | 250     |   |   | $ | 10,208 |   |
|        Commercial      real estate – owner occupied                                                                                                                                                                                                                                                                                                                                                                                                 |   |                        | 4,829   |   |          |   | ― |            |   |   | ― |   |   |   | 35      |   |   |   | 4,864 |   |
|        Commercial      real estate – non-owner occupied                                                                                                                                                                                                                                                                                                                                                                                             |   |                        | 10,538  |   |          |   | ― |            |   |   | 123     |   |   |   | 112     |   |   |   | 10,773 |   |
|        Commercial      real estate –      multifamily                                                                                                                                                                   |   |                        | 8,144   |   |          |   | ― |            |   |   | ― |   |   |   | ― |   |   |   | 8,144 |   |
|        Commercial      construction and land development                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        | 1,758   |   |          |   | ― |            |   |   | 191     |   |   |   | ― |   |   |   | 1,949 |   |
|                  Retail                                                                          |   |                        | 3,664   |   |          |   | ― |            |   |   | ― |   |   |   | ― |   |   |   | 3,664 |   |
| Commitments      to fund unused construction loans                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        | 9,862   |   |          |   | 448     |            |   |   | ― |   |   |   | ― |   |   |   | 10,310 |   |
| Commitments      to fund unused lines of credit                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                        | 44,076  |   |          |   | 4,222   |            |   |   | 21      |   |   |   | 44,162  |   |   |   | 92,481 |   |
| Letters      of      credit                                                                                          |   |                        | 6,157   |   |          |   | 119     |            |   |   | 199     |   |   |   | 3,439   |   |   |   | 9,914 |   |
| Credit      enhancements                                                                                             |   |                        | 21,066  |   |          |   | ― |            |   |   | ― |   |   |   | 5,430   |   |   |   | 26,496 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                           | 120,004 |   |          | $      | 4,789   |            |   | $      | 582     |   |   | $      | 53,428  |   |   | $ | 178,803 |   |

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Item3.

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|                                                      |   |   | Net Portfolio Value         |   |
|-----------------------------------------------------------|--------|--------|-----------------------------|--------|
|                                                      |   |   | At June 30, 2009            |   |   | At December 31, 2008 |   |
|                                                      |   |   | $ Amount                    |   |   | $ Change |   |   | % Change |   |   | $ Amount |   |   | $ Change |   |   | % Change |   |
|                                                      |   |   | (Dollars      in thousands) |   |
| Assumed      Change in Interest      Rates (Basis Points) |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      | +300   |   |                        | $      | 185,671 |   |   | $ | 9,855 |   |   |   | 5.6 | % |   | $ | 164,766 |   |   | $ | 9,082 |   |   |   | 5.8 | % |
|                                                      | +200   |   |                        |   | 184,001 |   |   |   | 8,185 |   |   |   | 4.7 |   |   |   | 163,073 |   |   |   | 7,389 |   |   |   | 4.7 |   |
|                                                      | +100   |   |                        |   | 181,228 |   |   |   | 5,412 |   |   |   | 3.1 |   |   |   | 160,467 |   |   |   | 4,783 |   |   |   | 3.1 |   |
|                                                      | 0      |   |                        |   | 175,816 |   |   |   | – |   |   |   | – |   |   |   | 155,684 |   |   |   | – |   |   |   | – |   |
|                                                      | -100   |   |                        |   | 161,175 |   |   |   | (14,641 | ) |   |   | (8.3 | ) |   |   | 142,862 |   |   |   | (12,822 | ) |   |   | (8.2 | ) |
|                                                      | -200   |   |                        |   | 139,858 |   |   |   | (35,958 | ) |   |   | (20.5 | ) |   |   | 124,618 |   |   |   | (31,006 | ) |   |   | (20.0 | ) |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Percentage      of Deposits MaturingIn First Year |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June 30, 2009                                     |   |   | December 31, 2008 |   |
| 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, 2009                                                                        |   |   | December 31, 2008 |   |
| Assumed      Change in Interest Rates (Basis      Points): |   |   |                                                                                 |   |   |   |   |
|                                                            | +300   |   |                                                                                 |   | (6.2 | )% |   |   | (3.3 | )% |
|                                                            | +200   |   |                                                                                 |   | (3.7 | ) |   |   | (1.8 | ) |
|                                                            | +100   |   |                                                                                 |   | (1.8 | ) |   |   | (0.7 | ) |
|                                                            | -100   |   |                                                                                 |   | 4.9 |   |   |   | 1.2 |   |
|                                                            | -200   |   |                                                                                 |   | 8.1 |   |   |   | 1.6 |   |

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Item4.

Item 1.

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Item 1A.

| Item      2. | Unregistered Sales of Equity      Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (a)          | Not      applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (b)          | Not      applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (c)          | The      Company did not repurchase any shares of its common stock during the      quarter ended June 30, 2009 or during July 2009.  Under its      repurchase plan publicly announced on March 20, 2008 for 530,000 shares,      the Company has 448,612 shares that may yet be purchased.  The      Company is currently prohibited from repurchasing its common stock without      prior approval pursuant to an informal regulatory agreement with the      OTS. |

| Item      3. | Defaults Upon Senior      Securities |
|--------------|--------------------------------------|
|         |                                 |
| (a)          | None.                                |
|         |                                 |
| (b)          | Not      applicable.                 |

| Item      4.    | Submission of Matters to a Vote      of Security Holders                                                     |
|--------------------------------|--------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                         |
| (a)                            | An      annual meeting of shareholders of the Company was held on April 28, 2009      (Annual      Meeting). |

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| (b)    | Not      applicable.                                                                                                                                                                                                                                                                                                                                             |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
| (c)    | There      were 10,591,680 shares of the Company’s common stock eligible to be voted      at the Annual Meeting and 8,707,131 shares were represented at the meeting      by the holders thereof or by proxy, which constituted a      quorum.  The items voted upon at the Annual Meeting and the      votes for each proposal were as follows: |
|   |
|   | (1)                                                                                                                                                                                                                                                                                                                                                              | Election      of one director for a three-year term: |
|   |
|   | Gene      Diamond                                                                                                                                                                                                                                                                                                                                                | 6,095,585    FOR | 2,611,546    WITHHELD |
|   |
|   | (2)                                                                                                                                                                                                                                                                                                                                                              | Ratify      the selection of BKD, LLP as the Company’s independent registered public      accounting firm for the year ended December 31, 2009. |
|   |
|   | 7,524,772    FOR                                                                                                                                                                                                                                                                                                                             | 1,148,037    AGAINST |      34,322    ABSTAIN |
|   |
|   | There      were no broker non-votes with respect to matters (1) and (2) considered at      the Annual Meeting.                                                                                                                                                                                                                                                   |
|   |
| (d)    | Not      applicable.                                                                                                                                                                                                                                                                                                                                             |

| Item 5. | Other    Information |
|---------|----------------------|
|    |                 |
|    | Not      applicable. |

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Item6.

|   | (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)                                                                                             |
|   | 10.1*  |   | Employment      Agreement entered into between Citizens Financial Bank and Thomas F.      Prisby (4)                                                |
|   | 10.2*  |   | Employment      Agreement entered into between CFS Bancorp, Inc. and Thomas F. Prisby      (4)                                                      |
|   | 10.3*  |   | CFS      Bancorp, Inc. Amended and Restated 1998 Stock Option Plan    (5)                                                                           |
|   | 10.4*  |   | CFS      Bancorp, Inc. Amended and Restated 1998 Recognition and Retention Plan and      Trust Agreement (5)                                        |
|   | 10.5*  |   | CFS      Bancorp, Inc. 2003 Stock Option Plan (6)                                                                                                   |
|   | 10.6*  |   | Employment      Agreement entered into between Citizens Financial Bank and Charles V. Cole      (4)                                                 |
|   | 10.7*  |   | Employment      Agreement entered into between CFS Bancorp, Inc. and Charles V. Cole      (4)                                                       |
|   | 10.8*  |   | Amended      and Restated Supplemental ESOP Benefit Plan of CFS Bancorp, Inc. and      Citizens Financial Services, FSB (7)                         |
|   | 10.9*  |   | CFS      Bancorp, Inc. Directors’ Deferred Compensation Plan (7)                                                                              |
|   | 10.10* |   | CFS      Bancorp, Inc. 2008 Omnibus Equity Incentive Plan (8)                                                                                       |
|   | 10.11* |   | Employment      Agreement entered into between Citizens Financial Bank and Daryl D.      Pomranke (4)                                               |
|   | 10.12* |   | Employment      Agreement entered into between CFS Bancorp, Inc. and Daryl D. Pomranke      (4)                                                     |
|   | 10.13* |   | CFS      Bancorp, Inc. 2009 Cash Incentive Compensation Program  (9)                                                                                |
|   | 10.14* |   | CFS      Bancorp, Inc. 2009 Service Retention Program Agreement  (9)                                                                                |
|   | 10.15  |   | Form      of Indemnification Agreement, dated June 15, 2009, by and      betweenthe      Company and each of Gene Diamond and Frank D. Lester  (10) |
|   | 10.16  |   | Indemnification      Agreement, dated June 15, 2009, by and between theCompany      and Lawrence T. Toombs (10)                                     |
|   | 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      by Reference from the Company’s Definitive Proxy Statement from the Annual      Meeting of Shareholders filed with the SEC on March 25,    2005. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated      by Reference from the Company’s Form 8-K filed on October 25,      2007. |
|-----|--------------------------------------------------------------------------------------------------|

| (3) | Incorporated      by Reference from the Company’s Annual Report on Form 10-K for the year      ended December 31, 2006. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

| (4) | Incorporated      by Reference from the Company’s Quarterly Report on Form 10-Q for the      quarter ended March 31, 2008. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|

| (5) | Incorporated      by Reference from the Company’s Definitive Proxy Statement for the Annual      Meeting of Shareholders filed with the SEC on March 23,    2001. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Incorporated      by Reference from the Company’s Definitive Proxy Statement for the Annual      Meeting of Shareholders filed with the SEC on March 31,    2003. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (7) | Incorporated      by Reference from the Company’s Annual Report on Form 10-K for the year      ended December 31, 2004. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

| (8) | Incorporated      by Reference from the Company’s Definitive Proxy Statement from the Annual      Meeting of Shareholders filed with the SEC on March 17,    2008. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | Incorporated      by Reference from the Company’s Quarterly Report on Form 10-Q for the      quarter ended March 31, 2009. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|

| (10) | Incorporated      by Reference from the Company’s Form 8-K filed on June 19,      2009. |
|------|-----------------------------------------------------------------------------------------------|

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

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SIGNATURES

| Date:  July      27, 2009 | By:    | /s/ Thomas F. Prisby                               |
|-------------------------------------|--------|----------------------------------------------------|
|                                |   | Thomas      F. Prisby, Chairman of the Board and   |
|                                |   | Chief      Executive Officer                       |
|                                |   |                                               |
| Date:  July      27, 2009 | By:    | /s/ Charles V. Cole                                |
|                                |   | Charles      V. Cole, Executive Vice President and |
|                                |   | Chief      Financial Officer                       |

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|   |  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                             |

----