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| þ | 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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|                                                                                     |                                                                                            | 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 Stockholders’ 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 | 14     |
|                                                                                     |                                                                                            |   |
| Item 3.                                                                                  | Quantitative      and Qualitative Disclosures about Market Risk                                 | 37     |
|                                                                                     |                                                                                            |   |
| Item 4.                                                                                  | Controls      and Procedures                                                                    | 40     |
|                                                                                     |                                                                                            |   |
|                                                                                     |                                                                                            |   |
|                                                                                     | PART      II - OTHER INFORMATION                                                                |   |
|                                                                                     |                                                                                            |   |
| Item 1.                                                                                  | Legal      Proceedings                                                                          | 40     |
|                                                                                     |                                                                                            |   |
| Item 1A.                                                                                 | Risk      Factors                                                                               | 40     |
|                                                                                     |                                                                                            |   |
| Item 2.                                                                                  | Unregistered      Sales of Equity Securities and Use of Proceeds                                | 41     |
|                                                                                     |                                                                                            |   |
| Item 3.                                                                                  | Defaults      Upon Senior Securities                                                            | 42     |
|                                                                                     |                                                                                            |   |
| Item 4.                                                                                  | Submission      of Matters to a Vote of Security Holders                                        | 42     |
|                                                                                     |                                                                                            |   |
| Item 5.                                                                                  | Other      Information                                                                          | 43     |
|                                                                                     |                                                                                            |   |
| Item 6.                                                                                  | Exhibits                                                                                        | 44     |
|                                                                                     |                                                                                            |   |
| Signature Page                                                                           | 46                                                                                              |
|                                                                                     |                                                                                            |   |
| Certifications      for Principal Executive Officer and Principal Financial      Officer | 47                                                                                              |

Exhibit31.1

Exhibit 31.2

Exhibit 32.0

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table ofcontents

CFS BANCORP, INC.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | June 30, 2008               |      |   | December 31, 2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Unaudited)                 |      |   |              |   |
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (Dollars      in thousands) |      |
| Cash and amounts due      from depository      institutions                                                                                        |   | $                           | 15,824    |   |              | $      | 25,825 |   |
| Interest-bearing      deposits                                                                                                                     |   |                        | 4,527     |   |              |   | 9,744 |   |
| Federal      funds      sold                                                                                                                       |   |                        | 492       |   |              |   | 3,340 |   |
| Cash and cash      equivalents                                                                                                                                    |   |                        | 20,843    |   |              |   | 38,909 |   |
| Securities      available-for-sale, at fair      value                                                                                             |   |                        | 261,985   |   |              |   | 224,594 |   |
| Securities      held-to-maturity, at      cost                                                                                                     |   |                        | 3,500     |   |              |   | 3,940 |   |
| Investment      in Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                        | 23,944    |   |              |   | 23,944 |   |
| Loans      receivable                                                                                                                              |   |                        | 726,858   |   |              |   | 793,136 |   |
| Allowance for losses on      loans                                                                                                                                |   |                        | (10,403   | )      |              |   | (8,026 | ) |
| Net      loans                                                                                                                                                              |   |                        | 716,455   |   |              |   | 785,110 |   |
| Interest      receivable                                                                                                                           |   |                        | 4,660     |   |              |   | 5,505 |   |
| Other      real estate      owned                                                                                                                  |   |                        | 1,072     |   |              |   | 1,162 |   |
| Office      properties and      equipment                                                                                                          |   |                        | 19,822    |   |              |   | 19,326 |   |
| Investment      in bank-owned life      insurance                                                                                                  |   |                        | 36,090    |   |              |   | 36,475 |   |
| Other      assets                                                                                                                                  |   |                        | 13,200    |   |              |   | 10,079 |   |
| Goodwill      and intangible      assets                                                                                                           |   |                        | 1,202     |   |              |   | 1,234 |   |
| Total      assets                                                                                                                                                           |   | $                           | 1,102,773 |   |              | $      | 1,150,278 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |      |   |              |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |      |   |              |   |   |   |
| Deposits                                                                                                                                           |   | $                           | 848,439   |   |              | $      | 863,272 |   |
| Borrowed      money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | 113,129   |   |              |   | 135,459 |   |
| Advance      payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                        | 5,763     |   |              |   | 3,341 |   |
| Other      liabilities                                                                                                                             |   |                        | 10,666    |   |              |   | 17,792 |   |
| Total      liabilities                                                                                                                                                      |   |                        | 977,997   |   |              |   | 1,019,864 |   |
| Commitments      and      contingencies                                                                                                            |   |                        | –   |   |              |   | – |   |
| Stockholders’      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;      10,668,489 and 10,705,510 sharesoutstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        | 234       |   |              |   | 234 |   |
| Additional      paid-in      capital                                                                                                               |   |                        | 190,093   |   |              |   | 191,162 |   |
| Retained      earnings                                                                                                                             |   |                        | 93,994    |   |              |   | 97,029 |   |
| Treasury      stock, at cost; 12,625,785 and 12,583,856 shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | (155,843  | )      |              |   | (154,895 | ) |
| Treasury      stock held in Rabbi Trust, at cost; 129,032 and 133,940    shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        | (1,705    | )      |              |   | (1,766 | ) |
| Unallocated      common stock held by Employee Stock Ownership Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | (2,970    | )      |              |   | (3,126 | ) |
| Accumulated      other comprehensive income, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                        | 973       |   |              |   | 1,776 |   |
| Total stockholders’      equity                                                                                                                                       |   |                        | 124,776   |   |              |   | 130,414 |   |
| Total liabilities and      stockholders’      equity                                                                                                                  |   | $                           | 1,102,773 |   |              | $      | 1,150,278 |   |

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table of contents

|                                                         |   | Three      Months EndedJune 30,                              |       |   | Six      Months EndedJune 30, |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------|------------|--------|-------------------------------|--------|
|                                                         |   | 2008                                                         |       |   | 2007                          |   |   | 2008 |   |   | 2007 |   |
|                                                         |   | (Unaudited)                                                  |       |
|                                                         |   | (Dollars      in thousands, except share and per share data) |       |
| Interest      income:                                        |   |                                                         |       |   |                          |   |   |   |   |   |   |   |
| Loans                                                        |   | $                                                            | 11,296     |   |                          | $      | 14,404 |   |   | $ | 24,084 |   |   | $ | 28,456 |   |
| Securities                                                   |   |                                                         | 3,172      |   |                          |   | 3,475 |   |   |   | 6,251 |   |   |   | 6,998 |   |
| Other                                                        |   |                                                         | 564        |   |                          |   | 605 |   |   |   | 1,011 |   |   |   | 1,681 |   |
| Total interest income                                        |   |                                                         | 15,032     |   |                          |   | 18,484 |   |   |   | 31,346 |   |   |   | 37,135 |   |
| Interest      expense:                                       |   |                                                         |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                     |   |                                                         | 4,554      |   |                          |   | 6,619 |   |   |   | 10,242 |   |   |   | 13,313 |   |
| Borrowed money                                               |   |                                                         | 1,781      |   |                          |   | 3,227 |   |   |   | 3,842 |   |   |   | 6,660 |   |
| Total interest expense                                       |   |                                                         | 6,335      |   |                          |   | 9,846 |   |   |   | 14,084 |   |   |   | 19,973 |   |
| Net      interest income                                     |   |                                                         | 8,697      |   |                          |   | 8,638 |   |   |   | 17,262 |   |   |   | 17,162 |   |
| Provision      for losses on loans                           |   |                                                         | 7,172      |   |                          |   | 126 |   |   |   | 7,914 |   |   |   | 313 |   |
| Net      interest income after provision for losses on loans |   |                                                         | 1,525      |   |                          |   | 8,512 |   |   |   | 9,348 |   |   |   | 16,849 |   |
| Non-interest      income:                                    |   |                                                         |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and other    fees                            |   |                                                         | 1,465      |   |                          |   | 1,670 |   |   |   | 2,904 |   |   |   | 3,239 |   |
| Card-based fees                                              |   |                                                         | 415        |   |                          |   | 380 |   |   |   | 795 |   |   |   | 722 |   |
| Commission income                                            |   |                                                         | 135        |   |                          |   | 36 |   |   |   | 193 |   |   |   | 67 |   |
| Security gains (losses),net                                  |   |                                                         | (582       | )      |                          |   | (1 | ) |   |   | (513 | ) |   |   | 10 |   |
| Other asset gains (losses),    net                           |   |                                                         | (3         | )      |                          |   | (1 | ) |   |   | (3 | ) |   |   | 10 |   |
| Income from bank-owned life      insurance                   |   |                                                         | 371        |   |                          |   | 403 |   |   |   | 780 |   |   |   | 808 |   |
| Other income                                                 |   |                                                         | 149        |   |                          |   | 206 |   |   |   | 321 |   |   |   | 446 |   |
| Total non-interest income                                    |   |                                                         | 1,950      |   |                          |   | 2,693 |   |   |   | 4,477 |   |   |   | 5,302 |   |
| Non-interest      expense:                                   |   |                                                         |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee      benefits                      |   |                                                         | 4,179      |   |                          |   | 4,407 |   |   |   | 8,515 |   |   |   | 9,662 |   |
| Net occupancy expense                                        |   |                                                         | 708        |   |                          |   | 694 |   |   |   | 1,541 |   |   |   | 1,447 |   |
| Furniture and equipment    expense                           |   |                                                         | 543        |   |                          |   | 566 |   |   |   | 1,094 |   |   |   | 1,100 |   |
| Data processing                                              |   |                                                         | 484        |   |                          |   | 566 |   |   |   | 942 |   |   |   | 1,129 |   |
| Professional fees                                            |   |                                                         | 212        |   |                          |   | 390 |   |   |   | 486 |   |   |   | 960 |   |
| Marketing                                                    |   |                                                         | 178        |   |                          |   | 190 |   |   |   | 386 |   |   |   | 401 |   |
| Amortization of core deposit      intangibles                |   |                                                         | 17         |   |                          |   | 17 |   |   |   | 33 |   |   |   | 33 |   |
| Other general and administrative      expenses               |   |                                                         | 1,363      |   |                          |   | 1,239 |   |   |   | 2,732 |   |   |   | 2,604 |   |
| Total non-interest expense                                   |   |                                                         | 7,684      |   |                          |   | 8,069 |   |   |   | 15,729 |   |   |   | 17,336 |   |
| Income      (loss) before income taxes                       |   |                                                         | (4,209     | )      |                          |   | 3,136 |   |   |   | (1,904 | ) |   |   | 4,815 |   |
| Income      tax expense (benefit)                            |   |                                                         | (1,914     | )      |                          |   | 855 |   |   |   | (1,388 | ) |   |   | 1,221 |   |
| Net income (loss)                                            |   | $                                                            | (2,295     | )      |                          | $      | 2,281 |   |   | $ | (516 | ) |   | $ | 3,594 |   |
|                                                         |   |                                                         |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Per      share data:                                         |   |                                                         |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per    share                           |   | $                                                            | (0.22      | )      |                          | $      | 0.22 |   |   | $ | (0.05 | ) |   | $ | 0.34 |   |
| Diluted earnings (loss) per      share                       |   |                                                         | (0.22      | )      |                          |   | 0.21 |   |   |   | (0.05 | ) |   |   | 0.33 |   |
| Cash dividends declared per      share                       |   |                                                         | 0.12       |   |                          |   | 0.12 |   |   |   | 0.24 |   |   |   | 0.24 |   |
| Weighted-average      shares outstanding                     |   |                                                         | 10,290,965 |   |                          |   | 10,591,194 |   |   |   | 10,339,129 |   |   |   | 10,658,477 |   |
| Weighted-average      diluted shares outstanding             |   |                                                         | 10,553,634 |   |                          |   | 10,903,740 |   |   |   | 10,605,830 |   |   |   | 10,969,991 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                      |   |           Common      Stock          |    |   | Additional      Paid-In Capital |   |     | Retained      Earnings |   |   | Treasury      Stock |    |   | Unallocated      CommonStock      HeldBy ESOP |          |    | Accumulated      Other Comprehensive Income (Loss) |   |    | Total  |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|--------|---------------------------------|--------|----------|------------------------|--------|--------|---------------------|---------|--------|-----------------------------------------------|---------------|---------|----------------------------------------------------|--------|---------|--------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                      |   |  (Unaudited)                                        |
|                                                                                                                                                                                                                                                                                                                                                                      |   |  (Dollars      in thousands, except per share data) |
| Balance      at January 1,      2007                                                                                                                                                                                                                             |   | $                                                        | 234     |   |                            | $      | 190,825  |                   |   | $      | 94,344              |    |   | $                                             | (149,735      | )       |                                               | $      | (3,564  | )      |   | $      | (298 | ) |   | $ | 131,806 |   |   |
| Net      income                                                                                  |   |                                                     | – |   |                            |   | –  |                   |   |   | 3,594               |    |   |                                          | –       |    |                                               |   | – |   |   |   | – |   |   |   | 3,594 |   |   |
| Comprehensive      income:Change      in unrealized appreciation on available-for sale securities, net of      reclassification and tax                                                                                                                                                                                                                                   |   |                                                     |    |   |                            |   |     |                   |   |   |                |    |   |                                          |          |    |                                               |   |    |   |   |   | (610 | ) |   |   |     (610 | )  |   |
| Total      comprehensive      income                                                                                                                                             |   |                                                     |    |   |                            |   |     |                   |   |   |                |    |   |                                          |          |    |                                               |   |    |   |   |   |   |   |   |   | 2,984 |   |   |
| Purchase      of treasury      stock                                                                                                               |   |                                                     | – |   |                            |   | –  |                   |   |   | –             |    |   |                                          | (6,493        | )       |                                               |   | – |   |   |   | – |   |   |   | (6,493 | ) |   |
| Net      purchases of Rabbi Trust shares                                                                                                                                                                                                                                                                                                                                  |   |                                                     | – |   |                            |   | –  |                   |   |   | –             |    |   |                                          | (45           | )       |                                               |   | – |   |   |   | – |   |   |   | (45 | ) |   |
| Shares earned      under ESOP                                                                                                                                                                                                                                                                                                                         |   |                                                     | – |   |                            |   | 135      |                   |   |   | –             |    |   |                                          | –       |    |                                               |   | 282     |   |   |   | – |   |   |   | 417 |   |   |
| Amortization      of restricted stock awards                                                                                                                                                                                                                                                                                                                              |   |                                                     | – |   |                            |   | 48  |                   |   |   | –             |    |   |                                          |  – |    |                                               |   | – |   |   |   |  – |   |   |   | 48 |   |   |
| Cumulative      effect of change in accunting principle upon the adoption of FIN      48                                                                                                                                                                                                                                                                             |   |                                                     | – |   |                            |   | –  |                   |   |   | 240                 |    |   |                                          | –       |    |                                               |   | – |   |   |   | – |   |   |   | 240 |   |   |
| Exercise      of stock options                                                                                                                                                                                                                                                                                                                                            |   |                                                     | – |   |                            |   | (157     | )                      |   |   | –             |    |   |                                          | 1,849         |    |                                               |   | – |   |   |   | – |   |   |   | 1,692 |   |   |
| Tax      benefit related to stock options exercised                                                                                                                                                                                                                                                                                                                       |   |                                                     | – |   |                            |   | 203      |                   |   |   | –             |    |   |                                          | –       |    |                                               |   | – |   |   |   | – |   |   |   | 203 |   |   |
| Dividends      declared on common stock ($0.24per      share)                                                   |   |                                                     | – |   |                            |   | –  |                   |   |   | (2,562              | )       |   |                                          | –       |    |                                               |   | – |   |   |   | – |   |   |   | (2,562 | ) |   |
| Balance      at June 30,      2007                                                                                                                      |   | $                                                        | 234     |   |                            | $      | 191,054  |                   |   | $      | 95,616              |    |   | $                                             | (154,424      | )       |                                               | $      | (3,282  | )      |   | $      | (908 | ) |   | $ | 128,290 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                                                     |    |   |                            |   |     |                   |   |   |                |    |   |                                          |          |    |                                               |   |    |   |   |   |   |   |   |   |   |   |   |
| Balance      at January 1,      2008                                                                                                                                             |   | $                                                        | 234     |   |                            | $      | 191,162  |                   |   | $      | 97,029              |    |   | $                                             | (156,661      | )       |                                               | $      | (3,126  | )      |   | $      | 1,776 |   |   | $ | 130,414 |   |   |
| Net loss                                                                                    |   |                                                     | – |   |                            |   | –  |                   |   |   | (516                | )  |   |                                          | –       |    |                                               |   | – |   |   |   | – |   |   |   | 1,779 |   |   |
| 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      purchases 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 options exercised                                                                                                                                                                                                                                                                                                                       |   |                                                     | – |   |                            |   | 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 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                                                     |    |   |                            |   |     |                   |   |   |                |    |   |                                          |          |    |                                               |   |    |   |   |   |   |   |   |   |   |   |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Six      Months EndedJune 30, |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2008                          |    |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Unaudited)                   |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars      in thousands)   |    |
| OPERATING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          |    |   |   |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                             | (516    | ) |   | $ | 3,594 |   |
| Adjustments to reconcile net income (loss) to net      cash provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                          |    |   |   |   |   |   |
| Provision for losses on      loans                                                                                                                                         |   |                          | 7,914   |   |   |   | 313 |   |
| Depreciation and      amortization                                                                                                                                         |   |                          | 852     |   |   |   | 834 |   |
| Premium amortization on the early extinguishment      of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                          | 976     |   |   |   | 2,628 |   |
| Net premium amortization on securities      available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | (575    | ) |   |   | (327 | ) |
| Deferred income tax (benefit)      expense                                                                                                                                 |   |                          | (1,567  | ) |   |   | 1,307 |   |
| Tax benefit from exercises of non-qualified stock      options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | (46     | ) |   |   | (203 | ) |
| Amortization of cost of stock benefit      plans                                                                                                                           |   |                          | 259     |   |   |   | 465 |   |
| Proceeds from sale of loans      held-for-sale                                                                                                                             |   |                          | 45      |   |   |   | 4,309 |   |
| Origination of loans      held-for-sale                                                                                                                                    |   |                          | – |   |   |   | (5,849 | ) |
| Securities (gains) losses,      net                                                                                                                                        |   |                          | 513     |   |   |   | (10 | ) |
| Other asset (gains) losses,      net                                                                                                                                       |   |                          | 3       |   |   |   | (10 | ) |
| Net increase in cash surrender value of bank-owned      life insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                          | (780    | ) |   |   | (808 | ) |
| Increase in other      assets                                                                                                                                              |   |                          | (446    | ) |   |   | (1,190 | ) |
| (Decrease) increase in other      liabilities                                                                                                                              |   |                          | (6,836  | ) |   |   | 1,476 |   |
| Net cash (used for) provided by operating      activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          | (204    | ) |   |   | 6,529 |   |
| INVESTING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          |    |   |   |   |   |   |
| Securities,    available-for-sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                          |    |   |   |   |   |   |
| Proceeds from      sales                                                                                                                                    |   |                          | 1,992   |   |   |   | 20,341 |   |
| Proceeds from maturities and      paydowns                                                                                                                  |   |                          | 43,770  |   |   |   | 48,438 |   |
| Purchases                                                                                                                                                   |   |                          | (84,311 | ) |   |   | (40,919 | ) |
| Securities,    held-to-maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                          |    |   |   |   |   |   |
| Proceeds from maturities and      paydowns                                                                                                                  |   |                          | 440     |   |   |   | – |   |
| Net loan fundings and principal payments      received                                                                                            |   |                          | 60,766  |   |   |   | (6,185 | ) |
| Proceeds from sales of loans and loan      participations                                                                                         |   |                          | – |   |   |   | 414 |   |
| Proceeds from sale of real estate      owned                                                                                                      |   |                          | 74      |   |   |   | 442 |   |
| Proceeds      from bank-owned life      insurance                                                                                                 |   |                          | 1,165   |   |   |   | 1,032 |   |
| Purchases of property and      equipment                                                                                                          |   |                          | (1,316  | ) |   |   | (2,013 | ) |
| Net cash provided by investing      activities                                                                                                                             |   |                          | 22,580  |   |   |   | 21,550 |   |
| FINANCING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                          |    |   |   |   |   |   |
| Proceeds from exercise of stock      options                                                                                                      |   |                          | 831     |   |   |   | 1,692 |   |
| Tax benefit from exercises of non-qualified stock      options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                          | 46      |   |   |   | 203 |   |
| Dividends paid on common      stock                                                                                                               |   |                          | (2,600  | ) |   |   | (2,689 | ) |
| Purchase of treasury      stock                                                                                                                   |   |                          | (2,997  | ) |   |   | (6,493 | ) |
| Net disposition (purchase) of Rabbi Trust      shares                                                                                             |   |                          | 61      |   |   |   | (45 | ) |
| Net decrease in deposit      accounts                                                                                                             |   |                          | (14,899 | ) |   |   | (19,361 | ) |
| Net increase in advance payments by borrowers for      taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                          | 2,422   |   |   |   | 2,425 |   |
| Increase in short-term      borrowings                                                                                                            |   |                          | 1,770   |   |   |   | 1,120 |   |
| Proceeds from Federal Home Loan Bank      debt                                                                                                    |   |                          | 60,000  |   |   |   | 7,000 |   |
| Repayments of Federal Home Loan Bank      debt                                                                                                    |   |                          | (85,076 | ) |   |   | (42,071 | ) |
| Net      cash flows used for financing      activities                                                                                                           |   |                          | (40,442 | ) |   |   | (58,219 | ) |
| Decrease in cash and cash      equivalents                                                                                                        |   |                          | (18,066 | ) |   |   | (30,140 | ) |
| Cash and cash equivalents at beginning of      period                                                                                             |   |                          | 38,909  |   |   |   | 67,167 |   |
| Cash and cash equivalents at end of      period                                                                                                   |   | $                             | 20,843  |   |   | $ | 37,027 |   |

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| Supplemental      disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Loans transferred to      real estate      owned                                                                                         |   | $      | 121    |   |   | $      | 741 |   |
| Cash paid for      interest on      deposits                                                                                             |   |   | 10,224 |   |   |   | 13,304 |   |
| Cash paid for      interest on      borrowings                                                                                           |   |   | 2,922  |   |   |   | 4,113 |   |
| Cash paid for      taxes                                                                                                                 |   |   | 800    |   |   |   | 300 |   |

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

| 2. | Fair      Value Measurements – Adoption of SFAS 157 and SFAS  159 |
|----|-------------------------------------------------------------------------|

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|                             |   | Fair Value Measurements      Using |    |
|----------------------------------|--------|------------------------------------|---------|
|                             |   | 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)        |    |
| Securities    available-for-sale |   | $                                  | 261,985 |   |   | $ | – |   |   | $ | 261,985 |   |   | $ | – |   |

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|                                                                                                                                                                                                                                                    |   | Fair Value Measurements      Using |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                                                                                                                                                                    |   | 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 |   |

| 3. | Earnings      Per Share |
|----|-------------------------|

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Three      Months EndedJune 30,                    |       |   | Six      Months EndedJune 30, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2008                                               |       |   | 2007                          |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars      in thousands, except per share data) |       |
| Net      income      (loss)                                                                                                          |   | $                                                  | (2,295     | )      |                          | $      | 2,281 |   |   | $ | (516 | ) |   | $ | 3,594 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                               | 10,290,965 |   |                          |   | 10,591,194 |   |   |   | 10,339,129 |   |   |   | 10,658,477 |   |
| Weighted-average      common share equivalents                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                               | 262,669    |   |                          |   | 312,546 |   |   |   | 266,701 |   |   |   | 311,514 |   |
| Weighted-average      common shares and commonshare equivalents      outstanding                                                               |   |                                               | 10,553,634 |   |                          |   | 10,903,740 |   |   |   | 10,605,830 |   |   |   | 10,969,991 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per      share                                                                                            |   | $                                                  | (0.22      | )      |                          | $      | 0.22 |   |   | $ | (0.05 | ) |   | $ | 0.34 |   |
| Diluted      earnings (loss) per      share                                                                                          |   |                                               | (0.22      | )      |                          |   | 0.21 |   |   |   | (0.05 | ) |   |   | 0.33 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Number      of anti-dilutive stock options excluded fromthe diluted earnings per share      calculation                                                                                                                                                                                                                                                                                                                                                              |   |                                               | 205,950    |   |                          |   | – |   |   |   | 205,950 |   |   |   | 10,000 |   |
| Weighted-average      exercise price of anti-dilutiveoption shares                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                                  | 14.59      |   |                          |   | – |   |   | $ | 14.59 |   |   | $ | 14.76 |   |

| 4. | Share-Based      Compensation |
|----|-------------------------------|

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|                               |   |  Number      of Shares |    |   | Weighted-AverageGrant-Date Fair      Value |   |
|------------------------------------|--------|-----------------------------|---------|--------|--------------------------------------------|--------|
| Unvested      at December 31, 2007 |   |                        | 2,610   |   |                                       | $      | 13.87 |   |
| Granted                            |   |                        | 100,134 |   |                                       |   | 14.27 |   |
| Vested                             |   |                        | (2,505  | )      |                                       |   | 13.84 |   |
| Forfeited                          |   |                        | – |   |                                       |   | – |   |
| Unvested      as of June 30, 2008  |   |                        | 100,239 |   |                                       | $      | 14.27 |   |

|                                        |   | Number      ofShares |    |   | Weighted-AverageExercise    Price |   |
|---------------------------------------------|--------|----------------------|---------|--------|-----------------------------------|--------|
| Options      outstanding at January 1, 2008 |   |                 | 1,253   |   |                              | $      | 12.23 |   |
| Granted                                     |   |                 | – |   |                              |   | – |   |
| Exercised                                   |   |                 | (67     | )      |                              |   | 12.39 |   |
| Forfeited                                   |   |                 | (23     | )      |                              |   | 14.13 |   |
| Options      outstanding at June 30, 2008   |   |                 | 1,163   |   |                              | $      | 12.18 |   |
| Options      exercisable at June 30, 2008   |   |                 | 1,163   |   |                              |   |   |   |

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| 5. | Other      Comprehensive Income (Loss) |
|----|----------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Six      Months EndedJune 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2008                          |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Dollars      in thousands)   |   |
| Unrealized      holding losses arising during the period:                                                                                                                                                                                                                                                                                                                                                                    |   |                          |   |   |   |   |
| Unrealized net      losses                                                                                            |   | $                             | (1,735 | ) |   | $ | (989 | ) |
| Related tax      benefit                                                                                              |   |                          | 611    |   |   |   | 386 |   |
| Net                                                                                                                   |   |                          | (1,124 | ) |   |   | (603 | ) |
| Less:  reclassification      adjustment for net gains (losses) realized during the      period:                                                                                                                                                                                                                                                                                                               |   |                          |   |   |   |   |   |   |
| Realized net gains      (losses)                                                                                      |   |                          | (513   | ) |   |   | 10 |   |
| Related tax (expense)      benefit                                                                                    |   |                          | 192    |   |   |   | (3 | ) |
| Net                                                                                                                   |   |                          | (321   | ) |   |   | 7 |   |
| Total      other comprehensive      loss                                                               |   | $                             | (803   | ) |   | $ | (610 | ) |

| 6. | Recent      Accounting Pronouncements |
|----|---------------------------------------|

Item2.           Management'sDiscussion and Analysis of Financial Condition and Results of Operations

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|                                                                                                                                                                                                                                                                                                                                                |   | Three Months Ended June      30, |      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                |   | 2008                             |      |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                |   | Average Balance                  |      |   | Interest |   |   | AverageYield/Cost |   |   | Average Balance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                                |   | (Dollars      in thousands)      |      |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                       |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable      (1)                                                                                |   | $                                | 743,097   |   |   | $ | 11,296 |   |   |   | 6.11 | % |   | $ | 808,331 |   |   | $ | 14,404 |   |   |   | 7.15 | % |
| Securities      (2)                                                                                      |   |                             | 254,197   |   |   |   | 3,172 |   |   |   | 4.94 |   |   |   | 293,424 |   |   |   | 3,475 |   |   |   | 4.69 |   |
| Other interest-earning assets      (3)                                                                                                                                                                                                                                                                                                              |   |                             | 74,090    |   |   |   | 564 |   |   |   | 3.06 |   |   |   | 49,971 |   |   |   | 605 |   |   |   | 4.86 |   |
| Total interest-earning    assets                                                                                                                                                                                                                                                                                                                    |   |                             | 1,071,384 |   |   |   | 15,032 |   |   |   | 5.64 |   |   |   | 1,151,726 |   |   |   | 18,484 |   |   |   | 6.44 |   |
|                                                                                                                                                                                                                                                                                                                                                |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      earning      assets                                                     |   |                             | 83,272    |   |   |   |   |   |   |   |   |   |   |   | 78,389 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                         |   | $                                | 1,154,656 |   |   |   |   |   |   |   |   |   |   | $ | 1,230,115 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                  |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                           |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                             |   | $                                | 109,548   |   |   |   | 169 |   |   |   | 0.62 |   |   | $ | 102,351 |   |   |   | 262 |   |   |   | 1.03 |   |
| Money market      accounts                                                                                         |   |                             | 198,687   |   |   |   | 1,012 |   |   |   | 2.05 |   |   |   | 176,660 |   |   |   | 1,489 |   |   |   | 3.38 |   |
| Savings      accounts                                                                                              |   |                             | 124,430   |   |   |   | 145 |   |   |   | 0.47 |   |   |   | 148,469 |   |   |   | 243 |   |   |   | 0.66 |   |
| Certificates of      deposit                                                                                       |   |                             | 369,584   |   |   |   | 3,228 |   |   |   | 3.51 |   |   |   | 401,987 |   |   |   | 4,625 |   |   |   | 4.61 |   |
| Total      deposits                                                                                                               |   |                             | 802,249   |   |   |   | 4,554 |   |   |   | 2.28 |   |   |   | 829,467 |   |   |   | 6,619 |   |   |   | 3.20 |   |
|                                                                                                                                                                                                                                                                                                                                                |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed money:                                                                                                                                                                                                                                                                                                                                     |   |                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowings    (4)                                                                                                                                                                                                                                                                                                                  |   |                             | 29,311    |   |   |   | 124 |   |   |   | 1.70 |   |   |   | 18,343 |   |   |   | 197 |   |   |   | 4.31 |   |
| FHLB debt      (5)(6)                                                                                                   |   |                             | 115,152   |   |   |   | 1,657 |   |   |   | 5.69 |   |   |   | 171,302 |   |   |   | 3,030 |   |   |   | 7.00 |   |
| Total borrowed      money                                                                                                         |   |                             | 144,463   |   |   |   | 1,781 |   |   |   | 4.88 |   |   |   | 189,645 |   |   |   | 3,227 |   |   |   | 6.73 |   |
| Total interest-bearing      liabilities                                                                                                                                                                                                                                                                                                             |   |                             | 946,712   |   |   |   | 6,335 |   |   |   | 2.69 |   |   |   | 1,019,112 |   |   |   | 9,846 |   |   |   | 3.88 |   |
| Non-interest      bearing      deposits                                                   |   |                             | 61,616    |   |   |   |   |   |   |   |   |   |   |   | 64,717 |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing liabilities                                                                                                                                                                                                                                                                                                               |   |                             | 15,910    |   |   |   |   |   |   |   |   |   |   |   | 16,423 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                    |   |                             | 1,024,238 |   |   |   |   |   |   |   |   |   |   |   | 1,100,252 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                                                                 |   |                             | 130,418   |   |   |   |   |   |   |   |   |   |   |   | 129,863 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                                                                                                                                                                                     |   | $                                | 1,154,656 |   |   |   |   |   |   |   |   |   |   | $ | 1,230,115 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning      assets                                                     |   | $                                | 124,672   |   |   |   |   |   |   |   |   |   |   | $ | 132,614 |   |   |   |   |   |   |   |   |   |
| Net      interest income/interest rate spread                                                                                                                                                                                                                                                                                                       |   |                             |      |   |   | $ | 8,697 |   |   |   | 2.95 | % |   |   |   |   |   | $ | 8,638 |   |   |   | 2.56 | % |
| Net      interest      margin                                                             |   |                             |      |   |   |   |   |   |   |   | 3.26 | % |   |   |   |   |   |   |   |   |   |   | 3.01 | % |
| Ratio      of average interest-earning assetsto average interest-bearing      liabilities                                                                                                                                                                                                                                                           |   |                             |      |   |   |   |   |   |   |   | 113.17 | % |   |   |   |   |   |   |   |   |   |   | 113.01 | % |

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

| (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 and repurchase agreements (Repo      Sweeps). |
|-----|-------------------------------------------------------------------------------------|

| (5) | The      2008 period includes an average of $116.0 million of contractual FHLB      borrowings 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%. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      2007 period includes an average of $175.5 million of contractual FHLB      borrowings reduced by an average of $4.2 |
|-----|------------------------------------------------------------------------------------------------------------------------------|

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|   |  million of      unamortized deferred premium on the early extinguishment of debt.       Interest expense on borrowed money includes $1.3 million 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 6.73% compared to an average contractual      rate of 4.06%. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                             |   | Six Months Ended June      30, |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                             |   | 2008                           |      |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   | AverageBalance                 |      |   | Interest |   |   | AverageYield/Cost |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   | (Dollars      in thousands)    |      |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                                    |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable      (1)                                                                                                             |   | $                              | 764,986   |   |   | $ | 24,084 |   |   |   | 6.33 | % |   | $ | 801,132 |   |   | $ | 28,456 |   |   |   | 7.16 | % |
| Securities      (2)                                                                                                                   |   |                           | 246,569   |   |   |   | 6,251 |   |   |   | 5.01 |   |   |   | 297,890 |   |   |   | 6,998 |   |   |   | 4.67 |   |
| Other interest-earning assets      (3)                                                                                                                                                                                                                                                                                                                                           |   |                           | 60,272    |   |   |   | 1,011 |   |   |   | 3.37 |   |   |   | 66,453 |   |   |   | 1,681 |   |   |   | 5.10 |   |
| Total interest-earning    assets                                                                                                                                                                                                                                                                                                                                                 |   |                           | 1,071,827 |   |   |   | 31,346 |   |   |   | 5.88 |   |   |   | 1,165,475 |   |   |   | 37,135 |   |   |   | 6.43 |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      earning      assets                                                                                  |   |                           | 86,188    |   |   |   |   |   |   |   |   |   |   |   | 77,685 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                      |   | $                              | 1,158,015 |   |   |   |   |   |   |   |   |   |   | $ | 1,243,160 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                               |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                        |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                                          |   | $                              | 106,617   |   |   |   | 357 |   |   |   | 0.67 |   |   | $ | 101,684 |   |   |   | 511 |   |   |   | 1.01 |   |
| Money market      accounts                                                                                                                      |   |                           | 190,190   |   |   |   | 2,265 |   |   |   | 2.39 |   |   |   | 183,937 |   |   |   | 3,159 |   |   |   | 3.46 |   |
| Savings      accounts                                                                                                                           |   |                           | 124,725   |   |   |   | 325 |   |   |   | 0.52 |   |   |   | 149,089 |   |   |   | 476 |   |   |   | 0.64 |   |
| Certificates of      deposit                                                                                                                    |   |                           | 377,811   |   |   |   | 7,295 |   |   |   | 3.88 |   |   |   | 402,748 |   |   |   | 9,167 |   |   |   | 4.59 |   |
| Total      deposits                                                                                                                                            |   |                           | 799,343   |   |   |   | 10,242 |   |   |   | 2.58 |   |   |   | 837,458 |   |   |   | 13,313 |   |   |   | 3.21 |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Borrowed      money:                                                                                                                                                                                                                                                                                                                                     |   |                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other      short-term borrowings (4)                                                                                                                                                                                                                                                                                                   |   |                           | 23,394    |   |   |   | 238 |   |   |   | 2.04 |   |   |   | 21,602 |   |   |   | 455 |   |   |   | 4.25 |   |
|        FHLB      debt      (5)(6)                                                   |   |                           | 126,421   |   |   |   | 3,604 |   |   |   | 5.64 |   |   |   | 175,489 |   |   |   | 6,205 |   |   |   | 7.03 |   |
|        Total      borrowed      money                                                              |   |                           | 149,815   |   |   |   | 3,842 |   |   |   | 5.07 |   |   |   | 197,091 |   |   |   | 6,660 |   |   |   | 6.72 |   |
| Total interest-bearing      liabilities                                                                                                                                                                                                                                                                                                                                          |   |                           | 949,158   |   |   |   | 14,084 |   |   |   | 2.98 |   |   |   | 1,034,549 |   |   |   | 19,973 |   |   |   | 3.89 |   |
| Non-interest      bearing      deposits                                                                                |   |                           | 61,820    |   |   |   |   |   |   |   |   |   |   |   | 62,114 |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing liabilities                                                                                                                                                                                                                                                                                                                                            |   |                           | 15,705    |   |   |   |   |   |   |   |   |   |   |   | 16,018 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                                                 |   |                           | 1,026,683 |   |   |   |   |   |   |   |   |   |   |   | 1,112,681 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                                                                                              |   |                           | 131,332   |   |   |   |   |   |   |   |   |   |   |   | 130,479 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                                                                                                                                                                                                                  |   | $                              | 1,158,015 |   |   |   |   |   |   |   |   |   |   | $ | 1,243,160 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning      assets                                                                                  |   | $                              | 122,669   |   |   |   |   |   |   |   |   |   |   | $ | 130,926 |   |   |   |   |   |   |   |   |   |
| Net      interest income / interest rate spread                                                                                                                                                                                                                                                                                                                                  |   |                           |      |   |   | $ | 17,262 |   |   |   | 2.90 | % |   |   |   |   |   | $ | 17,162 |   |   |   | 2.54 | % |
| Net      interest      margin                                                                                          |   |                           |      |   |   |   |   |   |   |   | 3.24 | % |   |   |   |   |   |   |   |   |   |   | 2.97 | % |
| Ratio      of average interest-earning assets to    average      interest-bearing liabilities                                                                                                                                                                                                                                                           |   |                           |      |   |   |   |   |   |   |   | 112.92 | % |   |   |   |   |   |   |   |   |   |   | 112.66 | % |

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

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

| (4) | Includes      federal funds purchased and repurchase agreements (Repo      Sweeps). |
|-----|-------------------------------------------------------------------------------------|

| (5) | The      2008 period includes an average of $127.6 million of contractual FHLB      borrowings reduced by an average of $1.1 million of unamortized deferred      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      3.63%. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      2007 period includes an average of $180.4 million of contractual FHLB      borrowings reduced by an average of $4.9 million of unamortized premium on      the early extinguishment of debt.  Interest expense on borrowed      money includes $2.6 million 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 6.72%      compared to an average contractual rate of  4.06%. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

table of contents

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

|                                                                                                                                                                                                                                                                                                                                                                                        |   | Three      Months Ended June 30, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                        |   | 2008 compared to      2007       |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   | Increase (decrease) due      to  |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   | Rate                             |   |   | Volume |   |   | Rate      /Volume |   |   | Total Net Increase / (Decrease) |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars      in thousands)      |   |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                                               |   |                             |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable                                                                                         |   | $                                | (2,117 | ) |   | $ | (1,162 | ) |   | $ | 171 |   |   | $ | (3,108 | ) |
| Securities                                                                                                    |   |                             | 187    |   |   |   | (465 | ) |   |   | (25 | ) |   |   | (303 | ) |
| Other interest-earning      assets                                                                            |   |                             | (225   | ) |   |   | 292 |   |   |   | (108 | ) |   |   | (41 | ) |
| Total net change in income on      interest-earning      assets                                                                             |   |                             | (2,155 | ) |   |   | (1,335 | ) |   |   | 38 |   |   |   | (3,452 | ) |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                                          |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                       |   |                             | (104   | ) |   |   | 18 |   |   |   | (7 | ) |   |   | (93 | ) |
| Money market      accounts                                                                                                   |   |                             | (590   | ) |   |   | 186 |   |   |   | (73 | ) |   |   | (477 | ) |
| Savings      accounts                                                                                                        |   |                             | (70    | ) |   |   | (39 | ) |   |   | 11 |   |   |   | (98 | ) |
| Certificates of      deposit                                                                                                 |   |                             | (1,114 | ) |   |   | (373 | ) |   |   | 90 |   |   |   | (1,397 | ) |
| Total      deposits                                                                                                                    |   |                             | (1,878 | ) |   |   | (208 | ) |   |   | 21 |   |   |   | (2,065 | ) |
| Borrowed money:                                                                                                                                                                                                                                                                                                                                                                             |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term      borrowings                                                                                             |   |                             | (120   | ) |   |   | 118 |   |   |   | (71 | ) |   |   | (73 | ) |
| FHLB      debt                                                                                                               |   |                             | (565   | ) |   |   | (993 | ) |   |   | 185 |   |   |   | (1,373 | ) |
| Total borrowed      money                                                                                                              |   |                             | (685   | ) |   |   | (875 | ) |   |   | 114 |   |   |   | (1,446 | ) |
| Total net change in expense on      interest-bearing      liabilities                                                                       |   |                             | (2,563 | ) |   |   | (1,083 | ) |   |   | 135 |   |   |   | (3,511 | ) |
| Net      change in net interest      income                                                         |   | $                                | 408    |   |   | $ | (252 | ) |   | $ | (97 | ) |   | $ | 59 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Six      Months Ended June 30,  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2008 compared to      2007      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Increase (decrease) due      to |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Rate                            |   |   | Volume |   |   | Rate      /Volume |   |   | Total Net Increase / (Decrease) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Dollars      in thousands)     |   |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            |   |   |   |   |   |   |   |   |   |   |
| Loans      receivable                                                                                                                             |   | $                               | (3,234 | ) |   | $ | (1,284 | ) |   | $ | 146 |   |   | $ | (4,372 | ) |
| Securities                                                                                                                                        |   |                            | 554    |   |   |   | (1,206 | ) |   |   | (95 | ) |   |   | (747 | ) |
| Other interest-earning      assets                                                                                                                |   |                            | (567   | ) |   |   | (156 | ) |   |   | 53 |   |   |   | (670 | ) |
| Total net change in income on      interest-earning      assets                                                                                                                 |   |                            | (3,247 | ) |   |   | (2,646 | ) |   |   | 104 |   |   |   | (5,789 | ) |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                                                                              |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                                                           |   |                            | (171   | ) |   |   | 25 |   |   |   | (8 | ) |   |   | (154 | ) |
| Money market      accounts                                                                                                                                       |   |                            | (968   | ) |   |   | 107 |   |   |   | (33 | ) |   |   | (894 | ) |
| Savings      accounts                                                                                                                                            |   |                            | (87    | ) |   |   | (78 | ) |   |   | 14 |   |   |   | (151 | ) |
| Certificates of      deposit                                                                                                                                     |   |                            | (1,390 | ) |   |   | (568 | ) |   |   | 86 |   |   |   | (1,872 | ) |
| Total      deposits                                                                                                                                                        |   |                            | (2,616 | ) |   |   | (514 | ) |   |   | 59 |   |   |   | (3,071 | ) |
|     Borrowed      money:                                                                                                                                                                                                                                                                                                                                                                                    |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other      short-term      borrowings                                                         |   |                            | (235   | ) |   |   | 38 |   |   |   | (20 | ) |   |   | (217 | ) |
|        FHLB      debt                                                                                |   |                            | (1,202 | ) |   |   | (1,735 | ) |   |   | 336 |   |   |   | (2,601 | ) |
|        Total      borrowed      money                                                                          |   |                            | (1,437 | ) |   |   | (1,697 | ) |   |   | 316 |   |   |   | (2,818 | ) |
| Total net change in expense on      interest-bearing      liabilities                                                                                                           |   |                            | (4,053 | ) |   |   | (2,211 | ) |   |   | 375 |   |   |   | (5,889 | ) |
| Net      change in net interest      income                                                                                             |   | $                               | 806    |   |   | $ | (435 | ) |   | $ | (271 | ) |   | $ | 100 |   |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                    |   | Three Months Ended June      30, |   |   | Six Months Ended June      30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                    |   | 2008                             |   |   | 2007                           |   |   | % Change |   |   | 2008 |   |   | 2007 |   |   | % Change |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   | (Dollars      in thousands)      |   |
| Interest      expense on short-termborrowings at contractual    rates                                                                                                                                                                                                                                                                                                   |   | $                                | 124    |   |                           | $      | 197 |   |   |   | (37.1 | )% |   | $ | 238 |   |   | $ | 455 |   |   |   | (47.7 | )% |
| Interest      expense on FHLB borrowings atcontractual      rates                                                  |   |                             | 1,208  |   |                           |   | 1,754 |   |   |   | (31.1 | ) |   |   | 2,628 |   |   |   | 3,578 |   |   |   | (26.6 | ) |
| Amortization      of deferred premium                                                                                                                                                                                                                                                                                                                                   |   |                             | 449    |   |                           |   | 1,276 |   |   |   | (64.8 | ) |   |   | 976 |   |   |   | 2,627 |   |   |   | (62.8 | ) |
| Total      interest expense on borrowings                                                                                                                                                                                                                                                                                                                               |   | $                                | 1,781  |   |                           | $      | 3,227 |   |   |   | (44.8 | ) |   | $ | 3,842 |   |   | $ | 6,660 |   |   |   | (42.3 | ) |

----

table of contents

|                                       |   | Three Months Ended June      30, |   |   | Six Months Ended June      30, |   |
|--------------------------------------------|--------|----------------------------------|--------|--------|--------------------------------|--------|
|                                       |   | 2008                             |   |   | 2007                           |   |   | % Change |   |   | 2008 |   |   | 2007 |   |   | % Change |   |
|                                       |   | (Dollars      in thousands)      |   |
| Service      charges and other fees        |   | $                                | 1,465  |   |                           | $      | 1,670 |   |   |   | (12.3 | )% |   | $ | 2,904 |   |   | $ | 3,239 |   |   |   | (10.3 | )% |
| Card-based      fees                       |   |                             | 415    |   |                           |   | 380 |   |   |   | 9.2 |   |   |   | 795 |   |   |   | 722 |   |   |   | 10.1 |   |
| Commission      income                     |   |                             | 135    |   |                           |   | 36 |   |   |   | 275.0 |   |   |   | 193 |   |   |   | 67 |   |   |   | 188.1 |   |
| Subtotal fee based revenues                |   |                             | 2,015  |   |                           |   | 2,086 |   |   |   | (3.4 | ) |   |   | 3,892 |   |   |   | 4,028 |   |   |   | (3.4 | ) |
| Income      from bank-owned life insurance |   |                             | 371    |   |                           |   | 403 |   |   |   | (7.9 | ) |   |   | 780 |   |   |   | 808 |   |   |   | (3.5 | ) |
| Other      income                          |   |                             | 149    |   |                           |   | 206 |   |   |   | (27.7 | ) |   |   | 321 |   |   |   | 446 |   |   |   | (28.0 | ) |
| Subtotal                                   |   |                             | 2,535  |   |                           |   | 2,695 |   |   |   | (5.9 | ) |   |   | 4,993 |   |   |   | 5,282 |   |   |   | (5.5 | ) |
| Security      gains (losses), net          |   |                             | (582   | )      |                           |   | (1 | ) |   | NM |   |   |   | (513 | ) |   |   | 10 |   |   | NM |   |
| Other      asset gains (losses), net       |   |                             | (3     | )      |                           |   | (1 | ) |   | NM |   |   |   | (3 | ) |   |   | 10 |   |   | NM |   |
| Total non-interest income                  |   | $                                | 1,950  |   |                           | $      | 2,693 |   |   |   | (27.6 | )% |   | $ | 4,477 |   |   | $ | 5,302 |   |   |   | (15.6 | )% |

|                                             |   | Three Months Ended June      30, |   |   | Six Months Ended June      30, |   |
|--------------------------------------------------|--------|----------------------------------|--------|--------|--------------------------------|--------|
|                                             |   | 2008                             |   |   | 2007                           |   |   | % Change |   |   | 2008 |   |   | 2007 |   |   | % Change |   |
|                                             |   | (Dollars      in thousands)      |   |
| Compensation      and mandatory benefits         |   | $                                | 3,758  |   |                           | $      | 3,950 |   |   |   | (4.9 | )% |   | $ | 7,477 |   |   | $ | 8,612 |   |   |   | (13.2 | )% |
| Retirement      and stock related compensation   |   |                             | 3      |   |                           |   | 229 |   |   |   | (98.7 | ) |   |   | 289 |   |   |   | 566 |   |   |   | (48.9 | ) |
| Medical      and life benefits                   |   |                             | 375    |   |                           |   | 200 |   |   |   | 87.5 |   |   |   | 675 |   |   |   | 425 |   |   |   | 58.8 |   |
| Other      employee benefits                     |   |                             | 43     |   |                           |   | 28 |   |   |   | 53.6 |   |   |   | 74 |   |   |   | 59 |   |   |   | 25.4 |   |
| Subtotal compensation and employee      benefits |   |                             | 4,179  |   |                           |   | 4,407 |   |   |   | (5.2 | ) |   |   | 8,515 |   |   |   | 9,662 |   |   |   | (11.9 | ) |
| Net      occupancy expense                       |   |                             | 708    |   |                           |   | 694 |   |   |   | 2.0 |   |   |   | 1,541 |   |   |   | 1,447 |   |   |   | 6.5 |   |
| Furniture      and equipment expense             |   |                             | 543    |   |                           |   | 566 |   |   |   | (4.1 | ) |   |   | 1,094 |   |   |   | 1,100 |   |   |   | (0.5 | ) |
| Data      processing                             |   |                             | 484    |   |                           |   | 566 |   |   |   | (14.5 | ) |   |   | 942 |   |   |   | 1,129 |   |   |   | (16.6 | ) |
| Professional      fees                           |   |                             | 212    |   |                           |   | 390 |   |   |   | (45.6 | ) |   |   | 486 |   |   |   | 960 |   |   |   | (49.4 | ) |
| Marketing                                        |   |                             | 178    |   |                           |   | 190 |   |   |   | (6.3 | ) |   |   | 386 |   |   |   | 401 |   |   |   | (3.7 | ) |
| Other      general and administrative expense    |   |                             | 1,380  |   |                           |   | 1,256 |   |   |   | 9.9 |   |   |   | 2,765 |   |   |   | 2,637 |   |   |   | 4.9 |   |
| Total non-interest expense                       |   | $                                | 7,684  |   |                           | $      | 8,069 |   |   |   | 4.8 | % |   | $ | 15,729 |   |   | $ | 17,336 |   |   |   | (9.3 | )% |

----

table of contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | Three      Months EndedJune 30, |   |   | Six      Months EndedJune 30, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 2008                            |   |   | 2007                          |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | (Dollars      in thousands)     |   |
| Efficiency      ratio:                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                            |   |   |                          |   |   |   |   |   |   |   |
| Non-interest      expense                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                               | 7,684  |   |                          | $      | 8,069 |   |   | $ | 15,729 |   |   | $ | 17,336 |   |
| Net      interest income plus non-interest income                                                                                                                                                                                                                                                                                                                                                                                                |   | $                               | 10,647 |   |                          | $      | 11,331 |   |   | $ | 21,739 |   |   | $ | 22,464 |   |
| Efficiency      ratio                                                                                            |   |                            | 72.17  | %      |                          |   | 71.21 | % |   |   | 72.35 | % |   |   | 77.17 | % |
|                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Core      efficiency ratio:                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      expense                                                                                        |   | $                               | 7,684  |   |                          | $      | 8,069 |   |   | $ | 15,729 |   |   | $ | 17,336 |   |
| Net      interest income plus non-interest income                                                                                                                                                                                                                                                                                                                                                                                                |   | $                               | 10,647 |   |                          | $      | 11,331 |   |   | $ | 21,739 |   |   | $ | 22,464 |   |
| Adjustments:                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                            |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Security (gains) losses,      net                                                                                               |   |                            | 582    |   |                          |   | 1 |   |   |   | 513 |   |   |   | (10 | ) |
| Other asset (gains) losses,      net                                                                                                                                                                                                                                                                                                                                                                                                        |   |                            | 3      |   |                          |   | 1 |   |   |   | 3 |   |   |   | (10 | ) |
| Amortization of deferred premium on the early      extinguishment of      debt                                                            |   |                            | 449    |   |                          |   | 1,276 |   |   |   | 976 |   |   |   | 2,627 |   |
| Net interest income plus non-interest income –      as      adjusted                                                                |   | $                               | 11,681 |   |                          | $      | 12,609 |   |   | $ | 23,231 |   |   | $ | 25,071 |   |
| Core      efficiency      ratio                                                                                  |   |                            | 65.78  | %      |                          |   | 63.99 | % |   |   | 67.71 | % |   |   | 69.15 | % |

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|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Amortized Cost              |    |   | Gross Unrealized Gains |   |    | Gross Unrealized Losses |   |   | FairValue |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|------------------------|--------|---------|-------------------------|--------|--------|-----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Dollars      in thousands) |    |
| At      June 30, 2008:                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |    |   |                   |   |    |                    |   |   |      |   |
| Government sponsored entity (GSE)      securities                                                                                                                                                                                                                                                                                                                                                                            |   | $                           | 109,762 |   |                   | $      | 2,942   |                    |   | $      | –   |   |   | $ | 112,704 |   |
| Mortgage-backed      securities                                                                        |   |                        | 13,136  |   |                   |   | 6       |                    |   |   | (232      | )      |   |   | 12,910 |   |
| Collateralized mortgage      obligations                                                               |   |                        | 76,590  |   |                   |   | 353     |                    |   |   | (759      | )      |   |   | 76,184 |   |
| Commercial mortgage-backed      securities                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | 29,284  |   |                   |   | 225     |                    |   |   | (23       | )      |   |   | 29,486 |   |
| Trust preferred      securities                                                                        |   |                        | 27,893  |   |                   |   | 30      |                    |   |   | (959      | )      |   |   | 26,964 |   |
| Equity      securities                                                                                 |   |                        | 3,752   |   |                   |   | – |                    |   |   | (15       | )      |   |   | 3,737 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | 260,417 |   |                   | $      | 3,556   |                    |   | $      | (1,988    | )      |   | $ | 261,985 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                        |    |   |                   |   |    |                    |   |   |      |   |   |   |   |   |
| At      December 31, 2007:                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        |    |   |                   |   |    |                    |   |   |      |   |   |   |   |   |
| Government sponsored entity (GSE)      securities                                                                                                                                                                                                                                                                                                                                                                            |   | $                           | 140,301 |   |                   | $      | 2,859   |                    |   | $      | (14       | )      |   | $ | 143,146 |   |
| Mortgage-backed      securities                                                                        |   |                        | 12,587  |   |                   |   | 15      |                    |   |   | (39       | )      |   |   | 12,563 |   |
| Collateralized mortgage      obligations                                                               |   |                        | 56,672  |   |                   |   | 525     |                    |   |   | (17       | )      |   |   | 57,180 |   |
| Trust preferred      securities                                                                        |   |                        | 8,900   |   |                   |   | – |                    |   |   | –   |   |   |   | 8,900 |   |
| Equity      securities                                                                                 |   |                        | 3,344   |   |                   |   | 5       |                    |   |   | (544      | )      |   |   | 2,805 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | 221,804 |   |                   | $      | 3,404   |                    |   | $      | (614      | )      |   | $ | 224,594 |   |

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|                                              |   | June 30,    2008            |    |   | December 31,      2007 |   |   |   |   |
|---------------------------------------------------|--------|-----------------------------|---------|--------|------------------------|--------|--------|--------|--------|
|                                              |   | Amount                      |    |   | % of Total             |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                              |   | (Dollars      in thousands) |    |
| Commercial      and construction loans:           |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |
| Commercial real estate                            |   | $                           | 304,069 |   |                   |   | 41.8   | %      |   | $ | 328,427 |   |   |   | 41.4 | % |   |   | (7.4 | )% |
| Construction and land      development            |   |                        | 101,591 |   |                   |   | 14.0   |   |   |   | 128,584 |   |   |   | 16.2 |   |   |   | (21.0 | ) |
| Commercial and industrial                         |   |                        | 53,437  |   |                   |   | 7.4    |   |   |   | 60,398 |   |   |   | 7.6 |   |   |   | (11.5 | ) |
| Total commercial and construction      loans      |   |                        | 459,097 |   |                   |   | 63.2   |   |   |   | 517,409 |   |   |   | 65.2 |   |   |   | (11.3 | ) |
|                                              |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Retail      loans:                                |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family    residential                 |   |                        | 206,751 |   |                   |   | 28.4   |   |   |   | 212,598 |   |   |   | 26.8 |   |   |   | (2.8 | ) |
| Home equity lines of credit                       |   |                        | 58,807  |   |                   |   | 8.1    |   |   |   | 60,326 |   |   |   | 7.6 |   |   |   | (2.5 | ) |
| Other                                             |   |                        | 2,203   |   |                   |   | 0.3    |   |   |   | 2,803 |   |   |   | 0.4 |   |   |   | (21.4 | ) |
| Total retail loans                                |   |                        | 267,761 |   |                   |   | 36.8   |   |   |   | 275,727 |   |   |   | 34.8 |   |   |   | (2.9 | ) |
|                                              |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans receivable, net of unearned fees |   | $                           | 726,858 |   |                   |   | 100.0  | %      |   | $ | 793,136 |   |   |   | 100.0 | % |   |   | (8.4 | )% |

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|                                       |   | June 30,    2008            |   |   | December 31,      2007 |   |   |   |   |
|--------------------------------------------|--------|-----------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                                       |   | Amount                      |   |   | % of Total             |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                       |   | (Dollars      in thousands) |   |
| Illinois                                   |   | $                           | 37,819 |   |                   |   | 46.0   | %      |   | $ | 39,459 |   |   |   | 47.8 | % |   |   | (4.2 | )% |
| Ohio                                       |   |                        | 14,218 |   |                   |   | 17.3   |   |   |   | 15,759 |   |   |   | 19.1 |   |   |   | (9.8 | ) |
| Indiana                                    |   |                        | 13,585 |   |                   |   | 16.5   |   |   |   | 11,361 |   |   |   | 13.8 |   |   |   | 19.6 |   |
| Florida                                    |   |                        | 5,975  |   |                   |   | 7.3    |   |   |   | 7,375 |   |   |   | 8.9 |   |   |   | (19.0 | ) |
| Colorado                                   |   |                        | 4,146  |   |                   |   | 5.1    |   |   |   | 2,834 |   |   |   | 3.4 |   |   |   | 46.3 |   |
| Texas                                      |   |                        | 3,849  |   |                   |   | 4.7    |   |   |   | 3,808 |   |   |   | 4.6 |   |   |   | 1.1 |   |
| New      York                              |   |                        | 2,552  |   |                   |   | 3.1    |   |   |   | 1,957 |   |   |   | 2.4 |   |   |   | 30.4 |   |
| Total participations and      syndications |   | $                           | 82,144 |   |                   |   | 100.0  | %      |   | $ | 82,553 |   |   |   | 100.0 | % |   |   | (0.5 | )% |

Alt-A” loans and has never originated optionadjustable-rate mortgages or negative amortization loans.  As a result, theCompany’s $206.8 million one-to-four family residential loanportfolio has experienced net losses of 0.11% of outstanding one-to-four familyresidential loans through June 30, 2008.

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|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Three      Months EndedJune 30, |   |   | Six      Months EndedJune 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2008                            |   |   | 2007                          |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands)     |   |
| Balance      at beginning of      period                                                                 |   | $                               | 8,347  |   |                          | $      | 11,400 |   |   | $ | 8,026 |   |   | $ | 11,184 |   |
| Provision      for losses on      loans                                                                  |   |                            | 7,172  |   |                          |   | 126 |   |   |   | 7,914 |   |   |   | 313 |   |
| Charge-offs                                                                                              |   |                            | (5,129 | )      |                          |   | (915 | ) |   |   | (5,587 | ) |   |   | (1,035 | ) |
| Recoveries                                                                                               |   |                            | 13     |   |                          |   | 13 |   |   |   | 50 |   |   |   | 162 |   |
| Balance      at end of      period                                                                       |   | $                               | 10,403 |   |                          | $      | 10,624 |   |   | $ | 10,403 |   |   | $ | 10,624 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | June      30, 2008 |    |   | December      31,2007 |   |    | June      30,2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|--------|-----------------------|--------|---------|-------------------|--------|
| Allowance      for losses on      loans                                                                                                    |   | $                       | 10,403  |   |                  | $      | 8,026   |              |   | $ | 10,624 |   |
| Total      loans receivable, net of unearned      fees                                                                                     |   |                    | 726,858 |   |                  |   | 793,136 |              |   |   | 808,132 |   |
| Allowance      for losses on loans to total      loans                                                                                     |   |                    | 1.43    | %      |                  |   | 1.01    | %                 |   |   | 1.31 | % |
| Allowance      for losses on loans to non-performing loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                    | 30.01   |   |                  |   | 27.11   |              |   |   | 36.42 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | June      30,2008           |   |   | December 31, 2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (Dollars      in thousands) |   |
| Impaired      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |   |   |              |   |
| With a valuation      reserve                                                                                                                       |   | $                           | 10,395 |   |              | $      | 10,190 |   |
| With no valuation reserve      required                                                                                                             |   |                        | 20,417 |   |              |   | 14,441 |   |
| Total      impaired      loans                                                                                                       |   |                        | 30,812 |   |              |   | 24,631 |   |
| Other      non-accrual      loans                                                                                                    |   |                        | 3,858  |   |              |   | 4,969 |   |
| Total      non-accrual      loans                                                                                                    |   | $                           | 34,670 |   |              | $      | 29,600 |   |
| Valuation      reserve relating to impaired      loans                                                                               |   | $                           | 2,236  |   |              | $      | 1,202 |   |
| Average      impaired      loans                                                                                                     |   |                        | 26,003 |   |              |   | 20,675 |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June      30,2008           |    |   | December      31,2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars      in thousands) |    |
| Non-accrual      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        |    |
| Commercial and construction      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        |    |   |                  |   |
| Commercial real      estate                                                                                                                                               |   | $                           | 7,465   |   |                  | $      | 9,605 |   |
| Construction and land      development                                                                                                                                    |   |                        | 23,595  |   |                  |   | 16,240 |   |
| Commercial and      industrial                                                                                                                                            |   |                        | 288     |   |                  |   | 281 |   |
| Total commercial and construction      loans                                                                                                                              |   |                        | 31,348  |   |                  |   | 26,126 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                        |    |   |                  |   |   |   |
| Retail loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                        |    |   |                  |   |   |   |
| One-to-four family      residential                                                                                                                                       |   |                        | 2,578   |   |                  |   | 2,706 |   |
| Home equity lines of      credit                                                                                                                                          |   |                        | 738     |   |                  |   | 749 |   |
| Other                                                                                                                                                                     |   |                        | 6       |   |                  |   | 19 |   |
| Total retail      loans                                                                                                                                                   |   |                        | 3,322   |   |                  |   | 3,474 |   |
| Total non-accruing      loans                                                                                                                                             |   |                        | 34,670  |   |                  |   | 29,600 |   |
| Other      real estate owned,      net                                                                                                           |   |                        | 1,072   |   |                  |   | 1,162 |   |
| Total non-performing      assets                                                                                                                                |   |                        | 35,742  |   |                  |   | 30,762 |   |
| 90      days past due and still accruing      interest                                                                                           |   |                        | – |   |                  |   | – |   |
| Total non-performing assets plus 90 days past due      loans still accruing      interest                                                                                 |   | $                           | 35,742  |   |                  | $      | 30,762 |   |
| Non-performing      assets to total      assets                                                                                                  |   |                        | 3.24    | %      |                  |   | 2.67 | % |
| Non-performing      loans to total      loans                                                                                                    |   |                        | 4.77    | %      |                  |   | 3.73 | % |

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|                                                                                   |   | June 30, 2008                                                                                   |    |   |   | December 31, 2007                                                                                                                         |   |   |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------|---------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                   |   | Amount                                                                                          |    |   |   | Amount                                                                                                                                    |   | Change |   |
|                                                                                   |   | (Dollars      in thousands)                                                                     |    |
| Illinois                                                                               | $      | 6,500                                                                                           |    |   | $      | 7,484                                                                                                                                     |   | (13.1  | )%     |
| Florida                                                                                |   |  3,987                                                                                     |    |   |   | 2,627                                                                                                                                     |   | 51.8   |   |
| Texas                                                                                  |   |                2,359 |    |   |   |                       2,461 |   | (4.1   | )      |
|          Total non-performing syndications and purchased participations | $      |           12,846                              |    |   | $      | 12,572                                                                                                                                    |   | 2.2    |   |
|          Percentage to total non-performing loans                       |   | 37.1                                                                                            | %  |   |   | 42.5                                                                                                                                      | %      |   |   |
|          Percentage to total syndications and purchased participations  | 15.6   |                                                                                            |    |   | 15.2   |                                                                                                                                      |   |   |

|                          |   | June 30,    2008            |    |   | December 31,      2007 |   |   |   |   |
|-------------------------------|--------|-----------------------------|---------|--------|------------------------|--------|--------|--------|--------|
|                          |   | Amount                      |    |   | % of Total             |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                          |   | (Dollars      in thousands) |    |
| Checking      accounts:       |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing          |   | $                           | 62,055  |   |                   |   | 7.3    | %      |   | $ | 62,306 |   |   |   | 7.2 | % |   |   | (0.4 | )% |
| Interest-bearing              |   |                        | 102,528 |   |                   |   | 12.1   |   |   |   | 107,467 |   |   |   | 12.5 |   |   |   | (4.6 | ) |
| Money      market accounts    |   |                        | 191,253 |   |                   |   | 22.5   |   |   |   | 171,470 |   |   |   | 19.9 |   |   |   | 11.5 |   |
| Savings      accounts         |   |                        | 122,749 |   |                   |   | 14.5   |   |   |   | 127,297 |   |   |   | 14.7 |   |   |   | (3.6 | ) |
| Core deposits                 |   |                        | 478,585 |   |                   |   | 56.4   |   |   |   | 468,540 |   |   |   | 54.3 |   |   |   | 2.1 |   |
| Certificates      of deposit: |   |                        |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less than $100,000            |   |                        | 252,386 |   |                   |   | 29.8   |   |   |   | 263,134 |   |   |   | 30.5 |   |   |   | (4.1 | ) |
| $100,000 or greater           |   |                        | 117,468 |   |                   |   | 13.8   |   |   |   | 131,598 |   |   |   | 15.2 |   |   |   | (10.7 | ) |
| Time deposits                 |   |                        | 369,854 |   |                   |   | 43.6   |   |   |   | 394,732 |   |   |   | 45.7 |   |   |   | (6.3 | ) |
| Total deposits                |   | $                           | 848,439 |   |                   |   | 100.0  | %      |   | $ | 863,272 |   |   |   | 100.0 | % |   |   | (1.7 | ) |

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|                         |   | June 30,    2008            |   |   | December 31,      2007 |   |   |   |   |
|------------------------------|--------|-----------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                         |   | Amount                      |   |   | % of Total             |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                         |   | (Dollars      in thousands) |   |
| Checking      accounts:      |   |                        |   |   |                   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing         |   | $                           | 453    |   |                   |   | 0.8    | %      |   | $ | 1,028 |   |   |   | 1.6 | % |   |   | (55.9 | )% |
| Interest-bearing             |   |                        | 7,426  |   |                   |   | 12.9   |   |   |   | 13,022 |   |   |   | 20.9 |   |   |   | (43.0 | ) |
| Money market accounts        |   |                        | 35,527 |   |                   |   | 61.7   |   |   |   | 31,610 |   |   |   | 50.6 |   |   |   | 12.4 |   |
| Core deposits                |   |                        | 43,406 |   |                   |   | 75.4   |   |   |   | 45,660 |   |   |   | 73.1 |   |   |   | (4.9 | ) |
| Certificates      of deposit |   |                        | 14,167 |   |                   |   | 24.6   |   |   |   | 16,803 |   |   |   | 26.9 |   |   |   | (15.7 | ) |
| Total municipal deposits     |   | $                           | 57,573 |   |                   |   | 100.0  | %      |   | $ | 62,463 |   |   |   | 100.0 | % |   |   | (7.8 | )% |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | June 30,    2008                 |   |   | December 31,      2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | Weighted-AverageContractual Rate |   |   |  Amount           |   |   | Weighted-      AverageContractual Rate |   |   |  Amount |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | (Dollars      in thousands)      |   |
| Short-term      variable-rate borrowings:                                                                                                                                                                                                                                                                                                                                                                                                     |   |                             |   |   |                   |   |   |   |   |   |   |   |
| Repo Sweep      accounts                                                                                                     |   |                             | 1.60   | %      |                   | $      | 24,035 |   |   |   | 3.42 | % |   | $ | 18,014 |   |
| Overnight federal funds      purchased                                                                                       |   |                             | 2.85   |   |                   |   | 1,750 |   |   |   | 4.50 |   |   |   | 6,000 |   |
| Secured      advances from FHLB – Indianapolis:                                                                                                                                                                                                                                                                                                                                                                                         |   |                             |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Maturing in 2008 –      fixed-rate                                                                                |   |                             | 3.93   |   |                   |   | 32,000 |   |   |   | 3.89 |   |   |   | 72,000 |   |
| Maturing in 2009 –      fixed-rate                                                                                |   |                             | 3.99   |   |                   |   | 30,000 |   |   |   | 3.99 |   |   |   | 30,000 |   |
| Maturing in 2011 –      fixed-rate                                                                                |   |                             | 3.75   |   |                   |   | 15,000 |   |   |   | – |   |   |   | – |   |
| Maturing in 2014 – fixed-rate      (1)                                                                            |   |                             | 6.71   |   |                   |   | 1,169 |   |   |   | 6.71 |   |   |   | 1,169 |   |
| Maturing in 2018 – fixed-rate      (1)                                                                            |   |                             | 5.54   |   |                   |   | 2,707 |   |   |   | 5.54 |   |   |   | 2,707 |   |
| Maturing in 2019 – fixed-rate      (1)                                                                            |   |                             | 6.31   |   |                   |   | 7,119 |   |   |   | 6.31 |   |   |   | 7,196 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                             |   |   |                   |   | 87,995 |   |   |   |   |   |   |   | 113,072 |   |
| Less:  deferred premium on early      extinguishment of      debt                                                            |   |                             |   |   |                   |   | (651 | ) |   |   |   |   |   |   | (1,627 | ) |
| Net FHLB – Indianapolis      advances                                                                                  |   |                             |   |   |                   |   | 87,344 |   |   |   |   |   |   |   | 111,445 |   |
| Total      borrowed      money                                                                                |   |                             |   |   |                   | $      | 113,129 |   |   |   |   |   |   | $ | 135,459 |   |
| Weighted-average      contractual interest rate                                                                                                                                                                                                                                                                                                                                                                                               |   |                             | 3.63   | %      |                   |   |   |   |   |   | 4.06 | % |   |   |   |   |

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

|   | • | repurchases      of shares of the Company’s common stock during 2008 totaling $3.0      million; |
|--------|---------|--------------------------------------------------------------------------------------------------------|

|   | • | cash      dividends declared during 2008 totaling $2.5  million; |
|--------|---------|------------------------------------------------------------------|

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|   | • |  a decrease in      accumulated other comprehensive income of $803,000; and |
|--------|---------|----------------------------------------------------------------------------------|
|   | • |  a net loss of      $516,000.                                               |

|                                                |   | Actual                      |    |   | For Capital Adequacy Purposes |   |   | To Be Well-Capitalized Under Prompt Corrective      Action      Provisions |
|-----------------------------------------------------|--------|-----------------------------|---------|--------|-------------------------------|--------|--------|----------------------------------------------------------------------------|
|                                                |   | Amount                      |    |   | Ratio                         |   |   | Amount                                                                     |   | Ratio |   |   | Amount |   |   | Ratio |
|                                                |   | (Dollars      in thousands) |
| As      of June 30, 2008:                           |   |                        |    |   |                          |   |   |                                                                       |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted      assets          |   | $                           | 123,743 |   |                          |   | 14.48  | %                                                                          |   | $ | 68,370 |   | >8.00 | % |   | $ | 85,462 |   |   | >10.00 | % |
| Tier 1 (core) capital to risk-weighted      assets  |   |                        | 113,368 |   |                          |   | 13.27  |                                                                       |   |   | 34,185 |   | >4.00 |   |   |   | 51,277 |   |   | >6.00 |   |
| Tier 1 (core) capital to adjusted total      assets |   |                        | 113,368 |   |                          |   | 10.32  |                                                                       |   |   | 43,937 |   | >4.00 |   |   |   | 54,921 |   |   | >5.00 |   |
| Tangible capital to adjusted total      assets      |   |                        | 113,368 |   |                          |   | 10.32  |                                                                       |   |   | 16,476 |   | >1.50 |   |   |   | 21,969 |   |   | >2.00 |   |
|                                                |   |                        |    |   |                          |   |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As      of December 31, 2007:                       |   |                        |    |   |                          |   |   |                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted      assets          |   | $                           | 128,225 |   |                          |   | 13.93  | %                                                                          |   | $ | 73,661 |   | >8.00 | % |   | $ | 92,077 |   |   | >10.00 | % |
| Tier 1 (core) capital to risk-weighted      assets  |   |                        | 120,227 |   |                          |   | 13.06  |                                                                       |   |   | 36,831 |   | >4.00 |   |   |   | 55,246 |   |   | >6.00 |   |
| Tier 1 (core) capital to adjusted total      assets |   |                        | 120,227 |   |                          |   | 10.50  |                                                                       |   |   | 45,782 |   | >4.00 |   |   |   | 57,227 |   |   | >5.00 |   |
| Tangible capital to adjusted total      assets      |   |                        | 120,227 |   |                          |   | 10.50  |                                                                       |   |   | 17,168 |   | >1.50 |   |   |   | 22,891 |   |   | >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; and  |
|--------|---------|------------------------------------------------|

|   | • | borrowings      from the FHLB. |
|--------|---------|--------------------------------|

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|   | • | purchases      of available-for-sale securities totaling $84.3  million; |
|--------|---------|--------------------------------------------------------------------------|

|   | • | net      repayment of FHLB debt totaling $25.1 million;  and |
|--------|---------|--------------------------------------------------------------|

|   | • | decreases      in the balance of deposit accounts totaling $14.9  million. |
|--------|---------|----------------------------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                          |   | Payments Due By      Period |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                          |   | One      YearOr Less        |   |   | Over      OneThroughThreeYears |   |   | Over      Three ThroughFive Years |   |   | Over      FiveYears |   |   | Total |   |
|                                                                                                                                                                                                                                                                                                                          |   | (Dollars      in thousands) |   |
| FHLB      advances      (1)                                                        |   | $                           | 42,277 |   |   | $ | 20,613 |   |   | $ | 15,702 |   |   | $ | 9,403 |   |   | $ | 87,995 |   |
| Short-term      borrowings      (2)                                                |   |                        | 25,785 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 25,785 |   |
| Operating      leases                                                              |   |                        | 535    |   |   |   | 423 |   |   |   | 141 |   |   |   | – |   |   |   | 1,099 |   |
| Dividends      payable on common stock                                                                                                                                                                                                                                                                                        |   |                        | 1,296  |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 1,296 |   |
|                                                                                                                                                                                                                                                                                                                          |   | $                           | 69,893 |   |   | $ | 21,036 |   |   | $ | 15,843 |   |   | $ | 9,403 |   |   | $ | 116,175 |   |

| (1) | Does      not include interest expense at the weighted-average contractual rate of      4.20% for the periods presented. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

| (2) | Does      not include interest expense at the weighted-average contractual rate of      1.68% for the periods presented. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

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|                                               |   | One      Yearor Less        |   |   | Over      OneThroughThreeYears |   |    | Over      Three ThroughFive Years |   |   | Over Five Years |   |   | Total  |    |
|----------------------------------------------------|--------|-----------------------------|--------|--------|--------------------------------|--------|---------|-----------------------------------|--------|--------|-----------------|--------|--------|--------|---------|
|                                               |   | (Dollars      in thousands) |   |
| Commitments      to extend credit:            |   |                        |   |   |                           |   |    |                              |   |   |            |   |   |   |    |
| Commercial                                         |   | $                           | 44,910 |   |                           | $      | 4,071   |                              |   | $      | 1,054           |   |   | $      | 412     |   |   | $ | 50,447 |   |
| Retail                                             |   |                        | 6,273  |   |                           |   | – |                              |   |   | –         |   |   |   | – |   |   |   | 6,273 |   |
| Commitments      to purchase loans:                |   |                        |   |   |                           |   |    |                              |   |   |            |   |   |   |    |   |   |   |   |   |
| Commercial                                         |   |                        | 200    |   |                           |   | – |                              |   |   | –         |   |   |   | – |   |   |   | 200 |   |
| Commitments      to fund unused construction loans |   |                        | 12,679 |   |                           |   | 14,326  |                              |   |   | 749             |   |   |   | 686     |   |   |   | 28,440 |   |
| Commitments      to fund unused lines of credit:   |   |                        |   |   |                           |   |    |                              |   |   |            |   |   |   |    |   |   |   |   |   |
| Commercial                                         |   |                        | 10,687 |   |                           |   | 7,734   |                              |   |   | –         |   |   |   | 247     |   |   |   | 18,668 |   |
| Retail                                             |   |                        | 11,774 |   |                           |   | – |                              |   |   | 250             |   |   |   | 49,818  |   |   |   | 61,842 |   |
| Letters      of credit                             |   |                        | 5,645  |   |                           |   | 408     |                              |   |   | 199             |   |   |   | 39      |   |   |   | 6,291 |   |
| Credit      enhancements                           |   |                        | 5,434  |   |                           |   | 21,652  |                              |   |   | –         |   |   |   | – |   |   |   | 27,086 |   |
|                                               |   | $                           | 97,602 |   |                           | $      | 48,191  |                              |   | $      | 2,252           |   |   | $      | 51,202  |   |   | $ | 199,247 |   |

Item3.           Quantitativeand Qualitative Disclosures about Market Risk

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|                                                 |                                  |   | Net      Portfolio Value    |   |
|------------------------------------------------------|---------------------------------------|--------|-----------------------------|--------|
|                                                 |                                  |   | At      March 31, 2008      |   |   | At      December 31, 2007 |   |
|                                                 |                                  |   | $      Amount               |   |   | $      Change |   |   | %      Change |   |   | $      Amount |   |   | $      Change |   |   | %      Change |   |
|                                                 |                                  |   | (Dollars      in thousands) |   |
| Assumed      Change in Interest Rates (Basis Points) |                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                 | +300                                  |   |                        | $      | 147,033 |   |   | $ | (21,217 | ) |   |   | (12.6 | )% |   | $ | 148,908 |   |   | $ | (18,532 | ) |   |   | (11.1 | )% |
|                                                 | +200                                  |   |                        |   | 155,696 |   |   |   | (12,555 | ) |   |   | (7.5 | ) |   |   | 158,403 |   |   |   | (9,037 | ) |   |   | (5.4 | ) |
|                                                 | +100                                  |   |                        |   | 162,850 |   |   |   | (5,401 | ) |   |   | (3.2 | ) |   |   | 166,898 |   |   |   | (542 | ) |   |   | (0.3 | ) |
|                                                 |            0 |   |                        |   | 168,251 |   |   |   | – |   |   |   | – |   |   |   | 167,440 |   |   |   | – |   |   |   | – |   |
|                                                 |  -100                            |   |                        |   | 171,071 |   |   |   | 2,821 |   |   |   | 1.7 |   |   |   | 178,059 |   |   |   | 10,619 |   |   |   | 6.3 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Percentage      of Deposits MaturingIn      First Year |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June      30, 2008                                     |   |   | December      31, 2007 |   |
| 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, 2008                                                                        |   |   | December      31, 2007 |   |
| Assumed      Change in Interest Rates (Basis      Points): |   |   |                                                                                      |   |   |   |   |
|  +300                                                      |   |   |                                                                                      | (1.0   | )% |   |   | (0.8 | )% |
|  +200                                                      |   |   |                                                                                      | (0.2   | ) |   |   | – |   |
|  +100                                                      |   |   |                                                                                      | (0.1   | ) |   |   | 0.3 |   |
|        -100                                                |   |   |                                                                                      | (0.8   | ) |   |   | (1.3 | ) |
|        -200                                                |   |   |                                                                                      | (2.6   | ) |   |   | (4.3 | ) |

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Item 4.          Controls and Procedures

Item1.           LegalProceedings

Item 1A.        RiskFactors

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

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| Period           |   | Total Number of Shares Purchased |    |   | Average Price Paid Per      Share |   |    | Total Number of Shares Purchased as Part of      Publicly Announced Plans or      Programs |   |   | Maximum Number of Shares that May Yet      Be Purchased Under the Plans or Programs      (1) |   |
|------------------|--------|----------------------------------|---------|--------|-----------------------------------|--------|---------|--------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------|--------|
| April 1-30, 2008 |   |                             | – |   |                              | $      | – |                                                                                       |   |   | –                                                                                           |   |   |   | 583,130 |   |
| May 1-31, 2008   |   |                             | 123,349 |   |                              |   | 14.51   |                                                                                       |   |   | 123,349                                                                                           |   |   |   | 459,781 |   |
| June 1-30, 2008  |   |                             | 11,169  |   |                              |   | 13.61   |                                                                                       |   |   | 11,169                                                                                            |   |   |   | 448,612 |   |
| Total            |   |                             | 134,518 |   |                              |   | 14.44   |                                                                                       |   |   | 134,518                                                                                           |   |   |   | 448,612 |   |

| (1) | The      Company publicly announced on February 27, 2007 a repurchase program for      600,000 shares.  Prior to April 1, 2008, 546,870 shares had been      repurchased under that program.  A total of 53,130 shares were      repurchased under this program during the second quarter of      2008.  On March 20, 2008, the Company publicly announced a new      share repurchase plan for an additional 530,000 shares.  A total      of 81,388 shares were repurchased under this program during the second      quarter of 2008. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Item3.           DefaultsUpon Senior Securities

Item4.            Submissionof Matters to a Vote of Security Holders

|   | (2) | Adoption      of the CFS Bancorp, Inc. 2008 Omnibus Equity Incentive    Plan: |
|--------|-----|-------------------------------------------------------------------------------|

|   | (3) | Ratify      the selection of BKD, LLP as the Company’s independent registered      public |
|--------|-----|-------------------------------------------------------------------------------------------------|

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Item5.           OtherInformation

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Item6.           Exhibits

|   | (a)    |   | List      of exhibits (filed herewith unless otherwise noted).                                                              |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|
|   | 3.1    |   | Articles      of Incorporation of CFS Bancorp, Inc. (1)                                                                     |
|   | 3.2    |   | Bylaws      of CFS Bancorp, Inc. (2)                                                                                        |
|   | 4.0    |   | Form      of Stock Certificate of CFS Bancorp, Inc. (3)                                                                     |
|   | 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 (8)                                                      |
|   | 10.10* |   | Separation      Agreement entered into between CFS Bancorp, Inc., Citizens Financial Bank      and Zoran Koricanac (8)      |
|   | 10.11* |   | Separation      Agreement entered into between CFS Bancorp, Inc., Citizens Financial Bank      and Thomas L. Darovic (9)    |
|   | 10.12* |   | CFS      Bancorp, Inc. 2008 Omnibus Equity Incentive Plan (10)                                                              |
|   | 10.13* |   | Employment      Agreement entered into between Citizens Financial Bank and Daryl D.      Pomranke (4)                       |
|   | 10.14* |   | Employment      Agreement entered into between CFS Bancorp, Inc. and Daryl D. Pomranke      (4)                             |
|   | 10.15* |   | CFS      Bancorp, Inc. 2008 Cash Incentive Compensation Program  (4)                                                        |
|   | 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. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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|       |  December 31,      2004.                                                                                                                                         |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (8)  |  Incorporated      by Reference from the Company's Form 8-K filed on November 16,    2007.                                                                       |
|  (9)  |  Incorporated      by Reference from the Company's Form 8-K filed on January 3,    2008.                                                                         |
|  (10) |  Incorporated      by Reference from the Company's Definitive Proxy Statement from the Annual      Meeting of Shareholders filed with the SEC on March 17, 2008. |
|  *    |  Indicates      management contract or compensatory plan or arrangement required to be      filed as an exhibit to this report.                                  |

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SIGNATURES

| Date:  August      1, 2008 | By:    | /s/      Thomas F. Prisby                          |
|--------------------------------------|--------|----------------------------------------------------|
|                                 |   | Thomas      F. Prisby, Chairman of the Board and   |
|                                 |   | Chief      Executive Officer                       |
|                                 |   |                                               |
| Date:  August      1, 2008 | By:    | /s/      Charles V. Cole                           |
|                                 |   | Charles      V. Cole, Executive Vice President and |
|                                 |   | Chief      Financial Officer                       |

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