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

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

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

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

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TABLE OF CONTENTS

|                                                                                     |                                                                                            | 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 | 15     |
|                                                                                     |                                                                                            |   |
| Item 3.                                                                                  | Quantitative      and Qualitative Disclosures      about Market Risk                            | 40     |
|                                                                                     |                                                                                            |   |
| Item 4.                                                                                  | Controls      and Procedures                                                                    | 43     |
|                                                                                     |                                                                                            |   |
|                                                                                     |                                                                                            |   |
|                                                                                     | PART      II - OTHER INFORMATION                                                                |   |
|                                                                                     |                                                                                            |   |
| Item 1.                                                                                  | Legal      Proceedings                                                                          | 43     |
|                                                                                     |                                                                                            |   |
| Item 1A.                                                                                 | Risk      Factors                                                                               | 43     |
|                                                                                     |                                                                                            |   |
| Item 2.                                                                                  | Unregistered      Sales of Equity Securities and Use of Proceeds                                | 45     |
|                                                                                     |                                                                                            |   |
| Item 3.                                                                                  | Defaults      Upon Senior Securities                                                            | 45     |
|                                                                                     |                                                                                            |   |
| Item 4.                                                                                  | Submission      of Matters to a Vote of Security Holders                                        | 45     |
|                                                                                     |                                                                                            |   |
| Item 5.                                                                                  | Other      Information                                                                          | 46     |
|                                                                                     |                                                                                            |   |
| Item 6.                                                                                  | Exhibits                                                                                        | 46     |
|                                                                                     |                                                                                            |   |
| Signature Page                                                                           | 48                                                                                              |
|                                                                                     |                                                                                            |   |
| Certifications      for Principal Executive Officer and      Principal Financial Officer | 49                                                                                              |

Exhibit31.1

Exhibit 31.2
Exhibit 32.0

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Table of Contents

CFS BANCORP, INC.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | September 30, 2008          |      |   | December 31, 2007 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|--------|-------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (Unaudited)                 |      |   |              |   |   |
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (Dollars      in thousands) |      |
| Cash      and amounts due from depository      institutions                                                                                        |   | $                           | 16,328    |   |              | $      | 25,825 |   |
| Interest-bearing      deposits                                                                                                                     |   |                        | 6,095     |   |              |   | 9,744 |   |
| Federal      funds      sold                                                                                                                       |   |                        | 312       |   |              |   | 3,340 |   |
| Cash and cash      equivalents                                                                                                                                    |   |                        | 22,735    |   |              |   | 38,909 |   |
| Securities      available-for-sale, at fair      value                                                                                             |   |                        | 249,636   |   |              |   | 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                                                                                                                              |   |                        | 742,298   |   |              |   | 793,136 |   |
| Allowance for losses on      loans                                                                                                                                |   |                        | (8,664    | )      |              |   | (8,026 | ) |
| Net      loans                                                                                                                                                              |   |                        | 733,634   |   |              |   | 785,110 |   |
| Interest      receivable                                                                                                                           |   |                        | 4,584     |   |              |   | 5,505 |   |
| Other      real estate      owned                                                                                                                  |   |                        | 3,347     |   |              |   | 1,162 |   |
| Office      properties and      equipment                                                                                                          |   |                        | 19,907    |   |              |   | 19,326 |   |
| Investment      in bank-owned life      insurance                                                                                                  |   |                        | 36,435    |   |              |   | 36,475 |   |
| Other      assets                                                                                                                                  |   |                        | 14,511    |   |              |   | 10,079 |   |
| Goodwill      and intangible      assets                                                                                                           |   |                        | 1,185     |   |              |   | 1,234 |   |
| Total      assets                                                                                                                                                           |   | $                           | 1,113,418 |   |              | $      | 1,150,278 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |      |   |              |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |      |   |              |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |      |   |              |   |   |   |
| Deposits                                                                                                                                           |   | $                           | 832,223   |   |              | $      | 863,272 |   |
| Borrowed      money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | 141,146   |   |              |   | 135,459 |   |
| Advance      payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                        | 7,009     |   |              |   | 3,341 |   |
| Other      liabilities                                                                                                                             |   |                        | 11,939    |   |              |   | 17,792 |   |
| Total      liabilities                                                                                                                                                      |   |                        | 992,317   |   |              |   | 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;      10,676,483 and 10,705,510 sharesoutstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                        | 234       |   |              |   | 234 |   |
| Additional      paid-in      capital                                                                                                               |   |                        | 189,966   |   |              |   | 191,162 |   |
| Retained      earnings                                                                                                                             |   |                        | 91,696    |   |              |   | 97,029 |   |
| Treasury      stock, at cost; 12,616,732 and 12,583,856 shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | (155,717  | )      |              |   | (154,895 | ) |
| Treasury      stock held in Rabbi Trust, at cost; 130,091 and 133,940    shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        | (1,722    | )      |              |   | (1,766 | ) |
| Unallocated      common stock held by Employee Stock Ownership Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | (2,892    | )      |              |   | (3,126 | ) |
| Accumulated      other comprehensive income (loss), net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                        | (464      | )      |              |   | 1,776 |   |
| Total stockholders’      equity                                                                                                                                       |   |                        | 121,101   |   |              |   | 130,414 |   |
| Total liabilities and      stockholders’      equity                                                                                                                  |   | $                           | 1,113,418 |   |              | $      | 1,150,278 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |      |   |              |   |   |   |

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Table of Contents

|                                                         |   | Three      Months      EndedSeptember 30,                    |       |   | Nine      Months EndedSeptember 30, |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------|------------|--------|------------------------------------------|--------|
|                                                         |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |
|                                                         |   | 2008                                                         |       |   | 2007                                     |   |   | 2008 |   |   | 2007 |   |
|                                                         |   | (Unaudited)                                                  |       |
|                                                         |   | (Dollars      in thousands, except share and per share data) |       |
| Interest      income:                                        |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                        |   | $                                                            | 10,739     |   |                                     | $      | 14,362 |   |   | $ | 34,823 |   |   | $ | 42,818 |   |
| Securities                                                   |   |                                                         | 3,278      |   |                                     |   | 3,036 |   |   |   | 9,529 |   |   |   | 10,034 |   |
| Other                                                        |   |                                                         | 347        |   |                                     |   | 468 |   |   |   | 1,358 |   |   |   | 2,149 |   |
| Total interest      income                                   |   |                                                         | 14,364     |   |                                     |   | 17,866 |   |   |   | 45,710 |   |   |   | 55,001 |   |
| Interest      expense:                                       |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                     |   |                                                         | 4,058      |   |                                     |   | 6,516 |   |   |   | 14,300 |   |   |   | 19,829 |   |
| Borrowed money                                               |   |                                                         | 1,399      |   |                                     |   | 2,800 |   |   |   | 5,241 |   |   |   | 9,460 |   |
| Total interest      expense                                  |   |                                                         | 5,457      |   |                                     |   | 9,316 |   |   |   | 19,541 |   |   |   | 29,289 |   |
| Net      interest income                                     |   |                                                         | 8,907      |   |                                     |   | 8,550 |   |   |   | 26,169 |   |   |   | 25,712 |   |
| Provision      for losses on loans                           |   |                                                         | 1,441      |   |                                     |   | 884 |   |   |   | 9,355 |   |   |   | 1,197 |   |
| Net      interest income after provision for losses on loans |   |                                                         | 7,466      |   |                                     |   | 7,666 |   |   |   | 16,814 |   |   |   | 24,515 |   |
| Non-interest      income:                                    |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and other      fees                          |   |                                                         | 1,640      |   |                                     |   | 1,786 |   |   |   | 4,544 |   |   |   | 5,025 |   |
| Card-based fees                                              |   |                                                         | 408        |   |                                     |   | 382 |   |   |   | 1,203 |   |   |   | 1,104 |   |
| Commission    income                                         |   |                                                         | 88         |   |                                     |   | 40 |   |   |   | 281 |   |   |   | 107 |   |
| Security gains (losses),      net                            |   |                                                         | (3,470     | )      |                                     |   | (1 | ) |   |   | (3,983 | ) |   |   | 9 |   |
| Other asset gains, netother      assets                      |   |                                                         | 11         |   |                                     |   | 3 |   |   |   | 8 |   |   |   | 13 |   |
| Income from bank-owned life      insurance                   |   |                                                         | 349        |   |                                     |   | 404 |   |   |   | 1,129 |   |   |   | 1,212 |   |
| Other income                                                 |   |                                                         | 124        |   |                                     |   | 228 |   |   |   | 445 |   |   |   | 674 |   |
| Total non-interest      income                               |   |                                                         | (850       | )      |                                     |   | 2,842 |   |   |   | 3,627 |   |   |   | 8,144 |   |
| Non-interest      expense:                                   |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and employee      benefits                      |   |                                                         | 4,510      |   |                                     |   | 4,343 |   |   |   | 13,025 |   |   |   | 14,005 |   |
| Net occupancy      expense                                   |   |                                                         | 865        |   |                                     |   | 766 |   |   |   | 2,406 |   |   |   | 2,213 |   |
| Furniture and equipment      expense                         |   |                                                         | 562        |   |                                     |   | 557 |   |   |   | 1,656 |   |   |   | 1,657 |   |
| Data processing                                              |   |                                                         | 387        |   |                                     |   | 540 |   |   |   | 1,329 |   |   |   | 1,669 |   |
| Professional    fees                                         |   |                                                         | 379        |   |                                     |   | 240 |   |   |   | 865 |   |   |   | 1,200 |   |
| Marketing                                                    |   |                                                         | 289        |   |                                     |   | 214 |   |   |   | 675 |   |   |   | 615 |   |
| Amortization of core deposit      intangibles                |   |                                                         | 16         |   |                                     |   | 16 |   |   |   | 49 |   |   |   | 49 |   |
| Other general and      administrative expenses               |   |                                                         | 1,667      |   |                                     |   | 1,349 |   |   |   | 4,399 |   |   |   | 3,953 |   |
| Total non-interest      expense                              |   |                                                         | 8,675      |   |                                     |   | 8,025 |   |   |   | 24,404 |   |   |   | 25,361 |   |
| Income      (loss) before income taxes                       |   |                                                         | (2,059     | )      |                                     |   | 2,483 |   |   |   | (3,963 | ) |   |   | 7,298 |   |
| Income      tax expense (benefit)                            |   |                                                         | (1,020     | )      |                                     |   | 587 |   |   |   | (2,408 | ) |   |   | 1,808 |   |
| Net income    (loss)                                         |   | $                                                            | (1,039     | )      |                                     | $      | 1,896 |   |   | $ | (1,555 | ) |   | $ | 5,490 |   |
|                                                         |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Per      share data:                                         |   |                                                         |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per      share                         |   | $                                                            | (0.10      | )      |                                     | $      | 0.18 |   |   | $ | (0.15 | ) |   | $ | 0.52 |   |
| Diluted earnings (loss) per      share                       |   |                                                         | (0.10      | )      |                                     |   | 0.18 |   |   |   | (0.15 | ) |   |   | 0.50 |   |
| Cash dividends declared per      share                       |   |                                                         | 0.12       |   |                                     |   | 0.12 |   |   |   | 0.36 |   |   |   | 0.36 |   |
| Weighted-average      shares outstanding                     |   |                                                         | 10,269,945 |   |                                     |   | 10,460,716 |   |   |   | 10,315,899 |   |   |   | 10,591,832 |   |
| Weighted-average      diluted shares outstanding             |   |                                                         | 10,406,919 |   |                                     |   | 10,741,093 |   |   |   | 10,539,043 |   |   |   | 10,892,853 |   |

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Table of Contents

|                                                                                                                                    |                                                     |  Common      Stock |                        |   |   | Additional      Paid-In Capital |    |   | Retained      Earnings |   |    | Treasury      Stock |   |   | Unallocated      CommonStock      HeldBy ESOP |   |   | Accum-ulated      Other Compre-hensive 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                                    |                                                     |                    | –                          |   |   |                            | – |   |                   |   | 5,490   |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 5,490 |   |   |
| Comprehensive      income:Change      in unrealized appreciation on available-for-sale securities, net of      reclassification and tax |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   |     1,244 |   |   |   |     1,244 |   |   |
| Total      comprehensive income                                                                                                    |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 6,734 |   |   |
| Purchase      of treasury stock                                                                                                    |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | (7,837                                        | )      |   |                                                 | – |   |   |   | –             |   |   |   | (7,837 | ) |   |
| Net      purchases of Rabbi Trust shares                                                                                                |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | (9                                            | )      |   |                                                 | – |   |   |   | –             |   |   |   | (9 | ) |   |
| Shares      earned under ESOP                                                                                                      |                                                     |                    | –                          |   |   |                            | 168     |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | 360     |   |   |   | –             |   |   |   | 528 |   |   |
| Amortization      of restricted stock awards                                                                                            |                                                     |                    | –                          |   |   |                            | 48      |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 48 |   |   |
| Cumulative      effect of change in accounting principle upon the adoption of FIN      48                                               |                                                     |                    | –                          |   |   |                            | – |   |                   |   | 240     |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 240 |   |   |
| Exercise      of stock options                                                                                                     |                                                     |                    | –                          |   |   |                            | (161    | )      |                   |   | – |                |   |   | 1,871                                         |   |   |                                                 | – |   |   |   | –             |   |   |   | 1,710 |   |   |
| Tax      benefit related to stock options exercised                                                                                     |                                                     |                    | –                          |   |   |                            | 206     |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 206 |   |   |
| Dividends      declared on common stock ($0.36 per share)                                                                               |                                                     |                    | –                          |   |   |                            | – |   |                   |   | (3,824  | )                   |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | (3,824 | ) |   |
| Balance      at September 30, 2007                                                                                                 |                                                     | $                       | 234                              |   |   | $                               | 191,086 |   |                   | $      | 96,250  |                |   | $      | (155,710                                      | )      |   | $                                                    | (3,204  | )      |   | $      | 946                 |   |   | $ | 129,602 |   |   |
|                                                                                                                                    |                                                     |                    |                             |   |   |                            |    |   |                   |   |    |                |   |   |                                          |   |   |                                                 |    |   |   |   |                |   |   |   |   |   |   |
| Balance      at January 1, 2008                                                                                                    |                                                     | $                       | 234                              |   |   | $                               | 191,162 |   |                   | $      | 97,029  |                |   | $      | (156,661                                      | )      |   | $                                                    | (3,126  | )      |   | $      | 1,776               |   |   | $ | 130,414 |   |   |
| Net loss                                                                                                                           |                                                     |                    | –                          |   |   |                            | – |   |                   |   | (1,555  | )                   |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | (1,555 | ) |   |
| Comprehensive      loss:Change      in unrealized depreciation on available-for-sale securities, net of      reclassification and tax   |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | (2,240              | ) |   |   | (2,240 | ) |   |
| Total      comprehensive loss                                                                                                           |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | (3,795 | ) |   |
| Purchase      of treasury stock                                                                                                    |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | (2,997                                        | )      |   |                                                 | – |   |   |   | –             |   |   |   | (2,997 | ) |   |
| Net      purchases of Rabbi Trust shares                                                                                                |                                                     |                    | –                          |   |   |                            | – |   |                   |   | – |                |   |   | 45                                            |   |   |                                                 | – |   |   |   | –             |   |   |   | 45 |   |   |
| Shares      earned under ESOP                                                                                                      |                                                     |                    | –                          |   |   |                            | 64      |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | 234     |   |   |   | –             |   |   |   | 298 |   |   |
| Amortization      of award under RRP                                                                                               |                                                     |                    | –                          |   |   |                            | 38      |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 38 |   |   |
| Forfeiture      of RRP award                                                                                                       |                                                     |                    | –                          |   |   |                            | 11      |   |                   |   | – |                |   |   | (11                                           | )      |   |                                                 | – |   |   |   | –             |   |   |   | – |   |   |
| Unearned      compensation restricted stock awards                                                                                      |                                                     |                    | –                          |   |   |                            | (1,555  | )      |                   |   | – |                |   |   | 1,555                                         |   |   |                                                 | – |   |   |   | –             |   |   |   | – |   |   |
| Exercise      of stock options                                                                                                     |                                                     |                    | –                          |   |   |                            | 200     |   |                   |   | – |                |   |   | 630                                           |   |   |                                                 | – |   |   |   | –             |   |   |   | 830 |   |   |
| Tax      benefit related to stock options exercised                                                                                     |                                                     |                    | –                          |   |   |                            | 46      |   |                   |   | – |                |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | 46 |   |   |
| Dividends      declared on common stock ($0.36 per share)                                                                               |                                                     |                    | –                          |   |   |                            | – |   |                   |   | (3,778  | )                   |   |   | –                                       |   |   |                                                 | – |   |   |   | –             |   |   |   | (3,778 | ) |   |
| Balance      at September 30, 2008                                                                                                 |                                                     | $                       | 234                              |   |   | $                               | 189,966 |   |                   | $      | 91,696  |                |   | $      | (157,439                                      | )      |   | $                                                    | (2,892  | )      |   | $      | (464                | ) |   | $ | 121,101 |   |   |
|                                                                                                                                    |                                                     |                    |                             |   |   |                            |    |   |                   |   |    |                |   |   |                                          |   |   |                                                 |    |   |   |   |                |   |   |   |   |   |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | Nine      Months EndedSeptember 30, |    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                |    |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 2008                                |    |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (Unaudited)                         |    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (Dollars      in thousands)         |    |
| OPERATING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                |    |   |   |   |   |   |
| Net income      (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                   | (1,555  | ) |   | $ | 5,490 |   |
| Adjustments to reconcile net      income (loss) to net cash provided by operatingactivities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                |    |   |   |   |   |   |
| Provision      for losses on      loans                                                                                                                                         |   |                                | 9,355   |   |   |   | 1,197 |   |
| Depreciation      and      amortization                                                                                                                                         |   |                                | 1,312   |   |   |   | 1,274 |   |
| Premium      amortization on the early extinguishment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                | 1,246   |   |   |   | 3,689 |   |
| Net      premium amortization on securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                | (871    | ) |   |   | (476 | ) |
| Deferred      income tax (benefit)      expense                                                                                                                                 |   |                                | (2,746  | ) |   |   | 2,204 |   |
| Tax      benefit from exercises of non-qualified stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                | (46     | ) |   |   | (206 | ) |
| Amortization      of cost of stock benefit      plans                                                                                                                           |   |                                | 336     |   |   |   | 576 |   |
| Proceeds      from sale of loans      held-for-sale                                                                                                                             |   |                                | 45      |   |   |   | 8,973 |   |
| Origination      of loans      held-for-sale                                                                                                                                    |   |                                | – |   |   |   | (8,850 | ) |
| Securities      (gains) losses,      net                                                                                                                                        |   |                                | 3,983   |   |   |   | (9 | ) |
| Other      asset gains,      net                                                                                                                                                |   |                                | (8      | ) |   |   | (13 | ) |
| Net      increase in cash surrender value of bank-owned life    insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                | (1,129  | ) |   |   | (1,212 | ) |
| Decrease      (increase) in other      assets                                                                                                                                   |   |                                | 126     |   |   |   | (3,226 | ) |
| (Decrease)      increase in other      liabilities                                                                                                                              |   |                                | (5,505  | ) |   |   | 3,738 |   |
| Net      cash provided by operating      activities                                                                                                                                       |   |                                | 4,543   |   |   |   | 13,149 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                |    |   |   |   |   |   |
| INVESTING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                |    |   |   |   |   |   |
| Securities,      available-for-sale:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                |    |   |   |   |   |   |
| Proceeds from      sales                                                                                                                                         |   |                                | 1,992   |   |   |   | 65,236 |   |
| Proceeds from maturities and      paydowns                                                                                                                       |   |                                | 55,464  |   |   |   | 78,884 |   |
| Purchases                                                                                                                                                        |   |                                | (89,128 | ) |   |   | (75,315 | ) |
| Securities,      held-to-maturity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                |    |   |   |   |   |   |
| Proceeds from maturities and      paydowns                                                                                                                       |   |                                | 440     |   |   |   | – |   |
| Net loan fundings and principal      payments      received                                                                                            |   |                                | 39,944  |   |   |   | (32,800 | ) |
| Proceeds from sales of loans      and loan      participations                                                                                         |   |                                | – |   |   |   | 11,988 |   |
| Proceeds from sale of real      estate      owned                                                                                                      |   |                                | 263     |   |   |   | 521 |   |
| Proceeds      from bank-owned life      insurance                                                                                                      |   |                                | 1,169   |   |   |   | 1,036 |   |
| Purchases of property and      equipment                                                                                                               |   |                                | (1,844  | ) |   |   | (2,605 | ) |
| Net cash provided by investing      activities                                                                                                                                  |   |                                | 8,300   |   |   |   | 46,945 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                |    |   |   |   |   |   |
| FINANCING      ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                |    |   |   |   |   |   |
| Proceeds from exercise of stock      options                                                                                                           |   |                                | 830     |   |   |   | 1,710 |   |
| Tax benefit from exercises of      non-qualified stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                | 46      |   |   |   | 206 |   |
| Dividends paid on common      stock                                                                                                                    |   |                                | (3,895  | ) |   |   | (4,006 | ) |
| Purchase of treasury      stock                                                                                                                        |   |                                | (2,997  | ) |   |   | (7,837 | ) |
| Net disposition (purchase) of      Rabbi Trust      shares                                                                                             |   |                                | 45      |   |   |   | (9 | ) |
| Net decrease in deposit      accounts                                                                                                                  |   |                                | (31,155 | ) |   |   | (47,366 | ) |
| Net increase in advance      payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                | 3,668   |   |   |   | 3,445 |   |
| Increase (decrease) in      short-term      borrowings                                                                                                 |   |                                | 14,652  |   |   |   | (9,559 | ) |
| Proceeds from Federal Home Loan      Bank      debt                                                                                                    |   |                                | 75,000  |   |   |   | 7,000 |   |
| Repayments of Federal Home Loan      Bank      debt                                                                                                    |   |                                | (85,211 | ) |   |   | (42,197 | ) |
| Net cash flows used for financing      activities                                                                                                                     |   |                                | (29,017 | ) |   |   | (98,613 | ) |
| Decrease in cash and cash      equivalents                                                                                                             |   |                                | (16,174 | ) |   |   | (38,519 | ) |
| Cash and cash equivalents at      beginning of      period                                                                                             |   |                                | 38,909  |   |   |   | 67,167 |   |
| Cash and cash equivalents at      end of      period                                                                                                   |   | $                                   | 22,735  |   |   | $ | 28,648 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                |    |   |   |   |   |   |

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| Supplemental      disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Loans transferred to real      estate      owned                                                                                         |   | $      | 2,480  |   |   | $      | 1,321 |   |
| Cash paid for interest on      deposits                                                                                                  |   |   | 14,532 |   |   |   | 19,805 |   |
| Cash paid for interest on      borrowings                                                                                                |   |   | 4,030  |   |   |   | 5,850 |   |
| Cash paid for      taxes                                                                                                                 |   |   | 800    |   |   |   | 1,400 |   |

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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 |   | $                           | 249,636 |   |                                                                   | $      | – |   |   | $ | 224,786 |   |   | $ | 24,850 |   |

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|                                                                                                                                                                                                                                                                                                                                           |   | Available-for-sale    Securities |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                                                                                                                                                                                                                                                                           |   | (Dollars      in thousands)      |    |
| Beginning      balance                                                     |   | $                                | – |   |
| Total realized and unrealized      gains andlosses:                                                                                                                                                                                                                                                                                            |   |                             | – |   |
| Included in net      income                                                                         |   |                             | – |   |
| Included in accumulated      othercomprehensive      income                                                        |   |                             | – |   |
| Purchases,      issuances and settlements                                                                                                                                                                                                                                                                                                      |   |                             | – |   |
| Transfers      in and/or out of Level 3                                                                                                                                                                                                                                                                                                        |   |                             | 24,850  |   |
| Ending      balance                                                        |   | $                                | 24,850  |   |
|                                                                                                                                                                                                                                                                                                                                           |   |                             |    |   |

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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                                       | $      29,825 | $               – | $               – | $      29,825 |

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

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | Three      Months EndedSeptember 30,               |       |   | Nine      Months EndedSeptember 30, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|--------|-------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2008                                               |       |   | 2007                                |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars      in thousands, except per share data) |       |
| Net      income      (loss)                                                                                                          |   | $                                                  | (1,039     | )      |                                | $      | 1,896 |   |   | $ | (1,555 | ) |   | $ | 5,490 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                               | 10,269,945 |   |                                |   | 10,460,716 |   |   |   | 10,315,899 |   |   |   | 10,591,832 |   |
| Weighted-average      common share equivalents                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                               | 136,974    |   |                                |   | 280,377 |   |   |   | 223,144 |   |   |   | 301,021 |   |
| Weighted-average      common shares and commonshare equivalents      outstanding                                                               |   |                                               | 10,406,919 |   |                                |   | 10,741,093 |   |   |   | 10,539,043 |   |   |   | 10,892,853 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Basic      earnings (loss) per      share                                                                                            |   | $                                                  | (0.10      | )      |                                | $      | 0.18 |   |   | $ | (0.15 | ) |   | $ | 0.52 |   |
| Diluted      earnings (loss) per      share                                                                                          |   |                                               | (0.10      | )      |                                |   | 0.18 |   |   |   | (0.15 | ) |   |   | 0.50 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                               |       |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Number      of anti-dilutive stock options excluded fromthe diluted earnings per share      calculation                                                                                                                                                                                                                                                                                                                                                              |   |                                               | 1,076,000  |   |                                |   | 206,000 |   |   |   | 498,000 |   |   |   | 76,000 |   |
| Weighted-average      exercise price of anti-dilutiveoption shares                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                                  | 12.38      |   |                                | $      | 14.65 |   |   | $ | 12.99 |   |   | $ | 14.66 |   |

| 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                                |   |                        | 110,926 |   |                                       |   | 14.02 |   |
| Vested                                 |   |                        | (2,505  | )      |                                       |   | 13.84 |   |
| Forfeited                              |   |                        | – |   |                                       |   | – |   |
| Unvested      as of September 30, 2008 |   |                        | 111,031 |   |                                       | $      | 14.02 |   |
|                                   |   |                        |    |   |                                       |   |   |   |

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|                                           |   | Number      ofShares |      |   | Weighted-AverageExercise Price |   |
|------------------------------------------------|--------|----------------------|-----------|--------|--------------------------------|--------|
| Options      outstanding at January 1, 2008    |   |                 | 1,253,295 |   |                           | $      | 12.23 |   |
| Granted                                        |   |                 | –   |   |                           |   | – |   |
| Exercised                                      |   |                 | (67,050   | )      |                           |   | 12.39 |   |
| Forfeited                                      |   |                 | (46,000   | )      |                           |   | 13.62 |   |
| Options      outstanding at September 30, 2008 |   |                 | 1,140,245 |   |                           | $      | 12.16 |   |
| Options      exercisable at September 30, 2008 |   |                 | 1,140,245 |   |                           | $      | 12.16 |   |

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

|                                                                                                                                                                                                                                                                                                                                                                                                 |   | Nine      Months EndedSeptember 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                 |   | 2008                                |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   | (Dollars      in thousands)         |   |
| Unrealized      holding gains (losses) arising during the period:                                                                                                                                                                                                                                                                                                                                    |   |                                |   |   |   |   |   |   |
| Unrealized net gains      (losses)                                                            |   | $                                   | (7,504 | ) |   | $ | 1,984 |   |
| Related tax (expense)      benefit                                                            |   |                                | 2,769  |   |   |   | (735 | ) |
| Net                                                                                           |   |                                | (4,735 | ) |   |   | 1,249 |   |
| Less:  reclassification      adjustment for net gains (losses) realized during the      period:                                                                                                                                                                                                                                                                                       |   |                                |   |   |   |   |   |   |
| Realized net gains      (losses)                                                              |   |                                | (3,983 | ) |   |   | 9 |   |
| Related tax (expense)      benefit                                                            |   |                                | 1,488  |   |   |   | (4 | ) |
| Net                                                                                           |   |                                | (2,495 | ) |   |   | 5 |   |
| Total      other comprehensive income (loss)                                                                                                                                                                                                                                                                                                                                                         |   | $                                   | (2,240 | ) |   | $ | 1,244 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                |   |   |   |   |   |   |

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

Item2.

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|                                                                                                                                                                                                                                                                                                                                              |   | Three Months Ended September      30, |      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                              |   | 2008                                  |      |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                              |   | Average      Balance                  |      |   | Interest |   |   | AverageYield/Cost |   |   | Average      Balance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                              |   | (Dollars      in thousands)           |      |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                     |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable      (1)                                                                              |   | $                                     | 728,312   |   |   | $ | 10,739 |   |   |   | 5.87 | % |   | $ | 815,081 |   |   | $ | 14,362 |   |   |   | 6.99 | % |
| Securities      (2)                                                                                    |   |                                  | 261,574   |   |   |   | 3,278 |   |   |   | 4.90 |   |   |   | 251,463 |   |   |   | 3,036 |   |   |   | 4.72 |   |
| Other interest-earning assets      (3)                                                                                                                                                                                                                                                                                                            |   |                                  | 31,143    |   |   |   | 347 |   |   |   | 4.43 |   |   |   | 39,691 |   |   |   | 468 |   |   |   | 4.68 |   |
| Total interest-earning      assets                                                                                                                                                                                                                                                                                                                |   |                                  | 1,021,029 |   |   |   | 14,364 |   |   |   | 5.60 |   |   |   | 1,106,235 |   |   |   | 17,866 |   |   |   | 6.41 |   |
|                                                                                                                                                                                                                                                                                                                                              |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      earning      assets                                                   |   |                                  | 82,098    |   |   |   |   |   |   |   |   |   |   |   | 78,313 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                       |   | $                                     | 1,103,127 |   |   |   |   |   |   |   |   |   |   | $ | 1,184,548 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                              |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                         |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                           |   | $                                     | 104,159   |   |   |   | 141 |   |   |   | 0.54 |   |   | $ | 97,737 |   |   |   | 218 |   |   |   | 0.88 |   |
| Money market      accounts                                                                                       |   |                                  | 181,771   |   |   |   | 887 |   |   |   | 1.94 |   |   |   | 167,068 |   |   |   | 1,390 |   |   |   | 3.30 |   |
| Savings      accounts                                                                                            |   |                                  | 122,037   |   |   |   | 140 |   |   |   | 0.46 |   |   |   | 139,438 |   |   |   | 245 |   |   |   | 0.70 |   |
| Certificates of      deposit                                                                                     |   |                                  | 367,993   |   |   |   | 2,890 |   |   |   | 3.12 |   |   |   | 400,990 |   |   |   | 4,663 |   |   |   | 4.61 |   |
| Total      deposits                                                                                                             |   |                                  | 775,960   |   |   |   | 4,058 |   |   |   | 2.08 |   |   |   | 805,233 |   |   |   | 6,516 |   |   |   | 3.21 |   |
|                                                                                                                                                                                                                                                                                                                                              |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowedmoney:                                                                                                                                                                                                                                                                                                                                    |   |                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term borrowings      (4)                                                                                                                                                                                                                                                                                                              |   |                                  | 29,140    |   |   |   | 129 |   |   |   | 1.76 |   |   |   | 19,139 |   |   |   | 200 |   |   |   | 4.15 |   |
| FHLB debt      (5)(6)                                                                                                 |   |                                  | 94,118    |   |   |   | 1,270 |   |   |   | 5.28 |   |   |   | 147,153 |   |   |   | 2,600 |   |   |   | 6.91 |   |
| Total borrowed      money                                                                                                       |   |                                  | 123,258   |   |   |   | 1,399 |   |   |   | 4.44 |   |   |   | 166,292 |   |   |   | 2,800 |   |   |   | 6.59 |   |
| Total interest-bearing      liabilities                                                                                                                                                                                                                                                                                                           |   |                                  | 899,218   |   |   |   | 5,457 |   |   |   | 2.41 |   |   |   | 971,525 |   |   |   | 9,316 |   |   |   | 3.80 |   |
| Non-interest      bearing deposits                                                                                                                                                                                                                                                                                                           |   |                                  | 63,418    |   |   |   |   |   |   |   |   |   |   |   | 66,043 |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing liabilities                                                                                                                                                                                                                                                                                                             |   |                                  | 17,298    |   |   |   |   |   |   |   |   |   |   |   | 18,112 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                  |   |                                  | 979,934   |   |   |   |   |   |   |   |   |   |   |   | 1,055,680 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                                                               |   |                                  | 123,193   |   |   |   |   |   |   |   |   |   |   |   | 128,868 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                                                                                                                                                                                   |   | $                                     | 1,103,127 |   |   |   |   |   |   |   |   |   |   | $ | 1,184,548 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning      assets                                                   |   | $                                     | 121,811   |   |   |   |   |   |   |   |   |   |   | $ | 134,710 |   |   |   |   |   |   |   |   |   |
| Net      interest income / interest rate spread                                                                                                                                                                                                                                                                                                   |   |                                  |      |   |   | $ | 8,907 |   |   |   | 3.19 | % |   |   |   |   |   | $ | 8,550 |   |   |   | 2.61 | % |
| Net      interest      margin                                                           |   |                                  |      |   |   |   |   |   |   |   | 3.47 | % |   |   |   |   |   |   |   |   |   |   | 3.07 | % |
| Ratio      of average interest-earning assetsto average interest-bearing      liabilities                                                                                                                                                                                                                                                         |   |                                  |      |   |   |   |   |   |   |   | 113.55 | % |   |   |   |   |   |   |   |   |   |   | 113.87 | % |

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

| (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 $94.6 million of contractual FHLB      borrowings reduced by an average of $531,000 of unamortized deferred      premium on the early extinguishment of debt.  Interest expense      on borrowed money includes $270,000 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 4.44% compared to an average contractual rate of      3.54%. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      2007 period includes an average of $150.2 million of contractual FHLB      borrowings reduced by an average of $3.1 million of unamortized deferred      premium on the early extinguishment of debt.  Interest expense      on borrowed money includes $1.1 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 6.59% compared to an average contractual rate of      3.99%. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                             |   | Nine Months Ended September    30, |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                             |   | 2008                               |      |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   | AverageBalance                     |      |   | Interest |   |   | AverageYield/Cost |   |   | AverageBalance |   |   | Interest |   |   | AverageYield/Cost |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   | (Dollars      in thousands)        |      |
| Interest-earning      assets:                                                                                                                                                                                                                                                                                                                                                    |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans receivable      (1)                                                                                                             |   | $                                  | 752,672   |   |   | $ | 34,823 |   |   |   | 6.18 | % |   | $ | 805,831 |   |   | $ | 42,818 |   |   |   | 7.10 | % |
| Securities      (2)                                                                                                                   |   |                               | 251,608   |   |   |   | 9,529 |   |   |   | 4.98 |   |   |   | 282,244 |   |   |   | 10,034 |   |   |   | 4.69 |   |
| Other interest-earning assets      (3)                                                                                                                                                                                                                                                                                                                                           |   |                               | 50,492    |   |   |   | 1,358 |   |   |   | 3.59 |   |   |   | 57,435 |   |   |   | 2,149 |   |   |   | 5.00 |   |
| Total interest-earning      assets                                                                                                                                                                                                                                                                                                                                               |   |                               | 1,054,772 |   |   |   | 45,710 |   |   |   | 5.79 |   |   |   | 1,145,510 |   |   |   | 55,001 |   |   |   | 6.42 |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      earning assets                                                                                                                                                                                                                                                                                                                                                 |   |                               | 85,156    |   |   |   |   |   |   |   |   |   |   |   | 77,897 |   |   |   |   |   |   |   |   |   |
| Total      assets                                                                                                      |   | $                                  | 1,139,928 |   |   |   |   |   |   |   |   |   |   | $ | 1,223,407 |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                               |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                        |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                                          |   | $                                  | 105,791   |   |   |   | 498 |   |   |   | 0.63 |   |   | $ | 100,354 |   |   |   | 729 |   |   |   | 0.97 |   |
| Money market      accounts                                                                                                                                                                                                                                                                                                                                                       |   |                               | 187,363   |   |   |   | 3,152 |   |   |   | 2.25 |   |   |   | 178,252 |   |   |   | 4,549 |   |   |   | 3.41 |   |
| Savings      accounts                                                                                                                           |   |                               | 123,822   |   |   |   | 465 |   |   |   | 0.50 |   |   |   | 145,837 |   |   |   | 721 |   |   |   | 0.66 |   |
| Certificates of      deposit                                                                                                                    |   |                               | 374,514   |   |   |   | 10,185 |   |   |   | 3.63 |   |   |   | 402,156 |   |   |   | 13,830 |   |   |   | 4.60 |   |
| Total      deposits                                                                                                                                            |   |                               | 791,490   |   |   |   | 14,300 |   |   |   | 2.41 |   |   |   | 826,599 |   |   |   | 19,829 |   |   |   | 3.21 |   |
|                                                                                                                                                                                                                                                                                                                                                                             |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Borrowed      money:                                                                                                                                                                                                                                                                                                                                     |   |                               |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other      short-term borrowings (4)                                                                                                                                                                                                                                                                                                   |   |                               | 25,323    |   |   |   | 367 |   |   |   | 1.94 |   |   |   | 20,771 |   |   |   | 655 |   |   |   | 4.22 |   |
|        FHLB      debt      (5)(6)                                                   |   |                               | 115,575   |   |   |   | 4,874 |   |   |   | 5.54 |   |   |   | 165,940 |   |   |   | 8,805 |   |   |   | 7.00 |   |
|        Total      borrowed money                                                                                                                                                                                                                                                                                                              |   |                               | 140,898   |   |   |   | 5,241 |   |   |   | 4.89 |   |   |   | 186,711 |   |   |   | 9,460 |   |   |   | 6.68 |   |
| Total interest-bearing      liabilities                                                                                                                                                                                                                                                                                                                                          |   |                               | 932,388   |   |   |   | 19,541 |   |   |   | 2.80 |   |   |   | 1,013,310 |   |   |   | 29,289 |   |   |   | 3.86 |   |
| Non-interest      bearing deposits                                                                                                                                                                                                                                                                                                                                               |   |                               | 62,357    |   |   |   |   |   |   |   |   |   |   |   | 63,438 |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing liabilities                                                                                                                                                                                                                                                                                                                                            |   |                               | 16,597    |   |   |   |   |   |   |   |   |   |   |   | 16,723 |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                                                                 |   |                               | 1,011,342 |   |   |   |   |   |   |   |   |   |   |   | 1,093,471 |   |   |   |   |   |   |   |   |   |
| Stockholders'      equity                                                                                              |   |                               | 128,586   |   |   |   |   |   |   |   |   |   |   |   | 129,936 |   |   |   |   |   |   |   |   |   |
| Total      liabilities and stockholders' equity                                                                                                                                                                                                                                                                                                                                  |   | $                                  | 1,139,928 |   |   |   |   |   |   |   |   |   |   | $ | 1,223,407 |   |   |   |   |   |   |   |   |   |
| Net      interest-earning      assets                                                                                                                                                                                                                                                       |   | $                                  | 122,384   |   |   |   |   |   |   |   |   |   |   | $ | 132,200 |   |   |   |   |   |   |   |   |   |
| Net      interest income / interest rate spread                                                                                                                                                                                                                                                                                                                                  |   |                               |      |   |   | $ | 26,169 |   |   |   | 2.99 | % |   |   |   |   |   | $ | 25,712 |   |   |   | 2.56 | % |
| Net      interest      margin                                                                                          |   |                               |      |   |   |   |   |   |   |   | 3.31 | % |   |   |   |   |   |   |   |   |   |   | 3.00 | % |
| Ratio      of average interest-earning assets to    average      interest-bearing liabilities                                                                                                                                                                                                                                                           |   |                               |      |   |   |   |   |   |   |   | 113.13 | % |   |   |   |   |   |   |   |   |   |   | 113.05 | % |

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

| (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 $116.5 million of contractual FHLB      borrowings reduced by an average of $929,000 of unamortized deferred      premium on the early extinguishment of debt.  Interest expense      on borrowed money includes $1.2 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 4.89% compared to an average contractual rate of      3.54%. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The      2007 period includes an average of $170.2 million of contractual FHLB      borrowings reduced by an average of $4.3 million of unamortized premium on      the early extinguishment of debt.  Interest expense on borrowed      money includes $3.7 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 6.68%      compared to an average contractual rate of  3.99%. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

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

|                                                                                                                                                                                                                                                                                                                                                                                        |   | Three      Months Ended September 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                                                                                         |   | $                                     | (2,343 | ) |   | $ | (1,529 | ) |   | $ | 249 |   |   | $ | (3,623 | ) |
| Securities                                                                                                    |   |                                  | 115    |   |   |   | 122 |   |   |   | 5 |   |   |   | 242 |   |
| Other interest-earning      assets                                                                            |   |                                  | (26    | ) |   |   | (101 | ) |   |   | 6 |   |   |   | (121 | ) |
| Total net change in income on      interest-earning      assets                                                                             |   |                                  | (2,254 | ) |   |   | (1,508 | ) |   |   | 260 |   |   |   | (3,502 | ) |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                                          |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                       |   |                                  | (85    | ) |   |   | 14 |   |   |   | (6 | ) |   |   | (77 | ) |
| Money market      accounts                                                                                                   |   |                                  | (574   | ) |   |   | 122 |   |   |   | (51 | ) |   |   | (503 | ) |
| Savings      accounts                                                                                                        |   |                                  | (85    | ) |   |   | (31 | ) |   |   | 11 |   |   |   | (105 | ) |
| Certificates of      deposit                                                                                                 |   |                                  | (1,514 | ) |   |   | (384 | ) |   |   | 125 |   |   |   | (1,773 | ) |
| Total      deposits                                                                                                                    |   |                                  | (2,258 | ) |   |   | (279 | ) |   |   | 79 |   |   |   | (2,458 | ) |
| Borrowed money:                                                                                                                                                                                                                                                                                                                                                                             |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other short-term      borrowings                                                                                             |   |                                  | (116   | ) |   |   | 105 |   |   |   | (60 | ) |   |   | (71 | ) |
| FHLB      debt                                                                                                               |   |                                  | (614   | ) |   |   | (937 | ) |   |   | 221 |   |   |   | (1,330 | ) |
| Total borrowed      money                                                                                                              |   |                                  | (730   | ) |   |   | (832 | ) |   |   | 161 |   |   |   | (1,401 | ) |
| Total net change in expense on      interest-bearing      liabilities                                                                       |   |                                  | (2,988 | ) |   |   | (1,111 | ) |   |   | 240 |   |   |   | (3,859 | ) |
| Net      change in net interest      income                                                         |   | $                                     | 734    |   |   | $ | (397 | ) |   | $ | 20 |   |   | $ | 357 |   |
|                                                                                                                                                                                                                                                                                                                                                                                        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Nine      Months Ended September 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                                                                                                                             |   | $                                    | (5,535 | ) |   | $ | (2,825 | ) |   | $ | 365 |   |   | $ | (7,995 | ) |
| Securities                                                                                                                                        |   |                                 | 655    |   |   |   | (1,089 | ) |   |   | (71 | ) |   |   | (505 | ) |
| Other interest-earning      assets                                                                                                                |   |                                 | (604   | ) |   |   | (260 | ) |   |   | 73 |   |   |   | (791 | ) |
| Total net change in income on      interest-earning      assets                                                                                                                 |   |                                 | (5,484 | ) |   |   | (4,174 | ) |   |   | 367 |   |   |   | (9,291 | ) |
| Interest-bearing      liabilities:                                                                                                                                                                                                                                                                                                                                                                                              |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking      accounts                                                                                                                                           |   |                                 | (256   | ) |   |   | 39 |   |   |   | (14 | ) |   |   | (231 | ) |
| Money market      accounts                                                                                                                                       |   |                                 | (1,551 | ) |   |   | 233 |   |   |   | (79 | ) |   |   | (1,397 | ) |
| Savings      accounts                                                                                                                                            |   |                                 | (173   | ) |   |   | (109 | ) |   |   | 26 |   |   |   | (256 | ) |
| Certificates of      deposit                                                                                                                                     |   |                                 | (2,893 | ) |   |   | (951 | ) |   |   | 199 |   |   |   | (3,645 | ) |
| Total      deposits                                                                                                                                                        |   |                                 | (4,873 | ) |   |   | (788 | ) |   |   | 132 |   |   |   | (5,529 | ) |
|     Borrowed      money:                                                                                                                                                                                                                                                                                                                                                                                    |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|        Other      short-term      borrowings                                                         |   |                                 | (354   | ) |   |   | 144 |   |   |   | (78 | ) |   |   | (288 | ) |
|        FHLB      debt                                                                                |   |                                 | (1,807 | ) |   |   | (2,672 | ) |   |   | 548 |   |   |   | (3,931 | ) |
|        Total      borrowed      money                                                                          |   |                                 | (2,161 | ) |   |   | (2,528 | ) |   |   | 470 |   |   |   | (4,219 | ) |
| Total net change in expense on      interest-bearing      liabilities                                                                                                           |   |                                 | (7,034 | ) |   |   | (3,316 | ) |   |   | 602 |   |   |   | (9,748 | ) |
| Net      change in net interest      income                                                                                             |   | $                                    | 1,550  |   |   | $ | (858 | ) |   | $ | (235 | ) |   | $ | 457 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                    |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                    |   | 2008                            |   |   | 2007                           |   |   | %      Change |   |   | 2008 |   |   | 2007 |   |   | %      Change |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   | (Dollars      in thousands)     |   |
| Interest      expense on short-termborrowings at contractual      rates                                                                                                                                                                                                                                                                                                 |   | $                               | 129    |   |                           | $      | 200 |   |   |   | (35.5 | )% |   | $ | 367 |   |   | $ | 655 |   |   |   | (44.0 | )% |
| Interest      expense on FHLB borrowings atcontractual      rates                                                  |   |                            | 1,000  |   |                           |   | 1,538 |   |   |   | (35.0 | ) |   |   | 3,628 |   |   |   | 5,116 |   |   |   | (29.1 | ) |
| Amortization      of deferred premium                                                                                                                                                                                                                                                                                                                                   |   |                            | 270    |   |                           |   | 1,062 |   |   |   | (74.6 | ) |   |   | 1,246 |   |   |   | 3,689 |   |   |   | (66.2 | ) |
| Total      interest expense on borrowings                                                                                                                                                                                                                                                                                                                               |   | $                               | 1,399  |   |                           | $      | 2,800 |   |   |   | (50.0 | ) |   | $ | 5,241 |   |   | $ | 9,460 |   |   |   | (44.6 | ) |
|                                                                                                                                                                                                                                                                                                                                                                    |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                       |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|--------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                       |   | 2008                            |   |   | 2007                           |   |   | %      Change |   |   | 2008 |   |   | 2007 |   |   | %      Change |   |
|                                       |   | (Dollars      in thousands)     |   |
| Service      charges and other fees        |   | $                               | 1,640  |   |                           | $      | 1,786 |   |   |   | (8.2 | )% |   | $ | 4,544 |   |   | $ | 5,025 |   |   |   | (9.6 | )% |
| Card-based      fees                       |   |                            | 408    |   |                           |   | 382 |   |   |   | 6.8 |   |   |   | 1,203 |   |   |   | 1,104 |   |   |   | 9.0 |   |
| Commission      income                     |   |                            | 88     |   |                           |   | 40 |   |   |   | 120.0 |   |   |   | 281 |   |   |   | 107 |   |   |   | 162.6 |   |
| Subtotal fee based      revenues           |   |                            | 2,136  |   |                           |   | 2,208 |   |   |   | (3.3 | ) |   |   | 6,028 |   |   |   | 6,236 |   |   |   | (3.3 | ) |
| Income      from bank-owned life insurance |   |                            | 349    |   |                           |   | 404 |   |   |   | (13.6 | ) |   |   | 1,129 |   |   |   | 1,212 |   |   |   | (6.8 | ) |
| Other      income                          |   |                            | 124    |   |                           |   | 228 |   |   |   | (45.6 | ) |   |   | 445 |   |   |   | 674 |   |   |   | (34.0 | ) |
| Subtotal                                   |   |                            | 2,609  |   |                           |   | 2,840 |   |   |   | (8.1 | ) |   |   | 7,602 |   |   |   | 8,122 |   |   |   | (6.4 | ) |
| Security      gains (losses), net          |   |                            | (3,470 | )      |                           |   | (1 | ) |   | NM |   |   |   | (3,983 | ) |   |   | 9 |   |   | NM |   |
| Other      asset gains, net                |   |                            | 11     |   |                           |   | 3 |   |   | NM |   |   |   | 8 |   |   |   | 13 |   |   | NM |   |
| Total non-interest      income             |   | $                               | (850   | )      |                           | $      | 2,842 |   |   |   | (129.9 | )% |   | $ | 3,627 |   |   | $ | 8,144 |   |   |   | (55.5 | )% |
|                                       |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                             |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|--------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                             |   | 2008                            |   |   | 2007                           |   |   | %      Change |   |   | 2008 |   |   | 2007 |   |   | %      Change |   |
|                                             |   | (Dollars      in thousands)     |   |
| Compensation      and mandatory benefits         |   | $                               | 3,789  |   |                           | $      | 3,784 |   |   |   | 0.1 | % |   | $ | 11,266 |   |   | $ | 12,396 |   |   |   | (9.1 | )% |
| Retirement      and stock related compensation   |   |                            | 365    |   |                           |   | 289 |   |   |   | 26.3 |   |   |   | 654 |   |   |   | 855 |   |   |   | (23.5 | ) |
| Medical      and life benefits                   |   |                            | 345    |   |                           |   | 250 |   |   |   | 38.0 |   |   |   | 1,020 |   |   |   | 675 |   |   |   | 51.1 |   |
| Other      employee benefits                     |   |                            | 11     |   |                           |   | 20 |   |   |   | 45.0 |   |   |   | 85 |   |   |   | 79 |   |   |   | 7.6 |   |
| Subtotal compensation and employee      benefits |   |                            | 4,510  |   |                           |   | 4,343 |   |   |   | 3.8 |   |   |   | 13,025 |   |   |   | 14,005 |   |   |   | (7.0 | ) |
| Net      occupancy expense                       |   |                            | 865    |   |                           |   | 766 |   |   |   | 12.9 |   |   |   | 2,406 |   |   |   | 2,213 |   |   |   | 8.7 |   |
| Furniture      and equipment expense             |   |                            | 562    |   |                           |   | 557 |   |   |   | 0.9 |   |   |   | 1,656 |   |   |   | 1,657 |   |   |   | 0.1 |   |
| Data      processing                             |   |                            | 387    |   |                           |   | 540 |   |   |   | (28.3 | ) |   |   | 1,329 |   |   |   | 1,669 |   |   |   | (20.4 | ) |
| Professional      fees                           |   |                            | 379    |   |                           |   | 240 |   |   |   | 57.9 |   |   |   | 865 |   |   |   | 1,200 |   |   |   | (27.9 | ) |
| Marketing                                        |   |                            | 289    |   |                           |   | 214 |   |   |   | 35.0 |   |   |   | 675 |   |   |   | 615 |   |   |   | 9.8 |   |
| Other      general and administrative expense    |   |                            | 1,683  |   |                           |   | 1,365 |   |   |   | 23.3 |   |   |   | 4,448 |   |   |   | 4,002 |   |   |   | 11.1 |   |
| Total non-interest      expense                  |   | $                               | 8,675  |   |                           | $      | 8,025 |   |   |   | 8.1 | % |   | $ | 24,404 |   |   | $ | 25,361 |   |   |   | (3.8 | )% |
|                                             |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | Three      Months EndedSeptember 30, |   |   | Nine      Months EndedSeptember 30, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2008                                 |   |   | 2007                                |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | (Dollars      in thousands)          |   |
| Efficiency      ratio:                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                 |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      expense                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                    | 8,675  |   |                                | $      | 8,025 |   |   | $ | 24,404 |   |   | $ | 25,361 |   |
| Net      interest income plus non-interest income                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                    | 8,057  |   |                                | $      | 11,392 |   |   | $ | 29,796 |   |   | $ | 33,856 |   |
| Efficiency      ratio                                                                                           |   |                                 | 107.7  | %      |                                |   | 70.4 | % |   |   | 81.9 | % |   |   | 74.9 | % |
| Core      efficiency ratio:                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      expense                                                                                       |   | $                                    | 8,675  |   |                                | $      | 8,025 |   |   | $ | 24,404 |   |   | $ | 25,361 |   |
| Net      interest income plus non-interest income                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                    | 8,057  |   |                                | $      | 11,392 |   |   | $ | 29,796 |   |   | $ | 33,856 |   |
| Adjustments:                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                 |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |
| Security (gains) losses,      net                                                                                              |   |                                 | 3,470  |   |                                |   | 1 |   |   |   | 3,983 |   |   |   | (9 | ) |
| Other asset gains,      net                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                 | (11    | )      |                                |   | (3 | ) |   |   | (8 | ) |   |   | (13 | ) |
| Amortization of deferred      premium on the earlyextinguishment of      debt                                                            |   |                                 | 270    |   |                                |   | 1,062 |   |   |   | 1,246 |   |   |   | 3,689 |   |
| Net interest income plus      non-interest income –as      adjusted                                                                |   | $                                    | 11,786 |   |                                | $      | 12,452 |   |   | $ | 35,017 |   |   | $ | 37,523 |   |
| Core      efficiency      ratio                                                                                 |   |                                 | 73.6   | %      |                                |   | 64.4 | % |   |   | 69.7 | % |   |   | 67.6 | % |

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|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Amortized      Cost         |    |   | Gross      Unrealized Gains |   |    | Gross      Unrealized Losses |   |   | FairValue |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|-----------------------------|--------|---------|------------------------------|--------|--------|-----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | (Dollars      in thousands) |    |
| At      September 30, 2008:                                                                                                                                                                                                                                                                                                                                                                                                  |   |                        |    |   |                        |   |    |                         |   |   |      |   |   |   |   |   |
| Government sponsored entity (GSE)      securities                                                                                                                                                                                                                                                                                                                                                                            |   | $                           | 104,883 |   |                        | $      | 2,681   |                         |   | $      | –   |   |   | $ | 107,564 |   |
| Mortgage-backed      securities                                                                        |   |                        | 11,141  |   |                        |   | 46      |                         |   |   | (170      | )      |   |   | 11,017 |   |
| Collateralized mortgage      obligations                                                               |   |                        | 78,127  |   |                        |   | 625     |                         |   |   | (808      | )      |   |   | 77,944 |   |
| Commercial mortgage-backed      securities                                                                                                                                                                                                                                                                                                                                                                                   |   |                        | 28,127  |   |                        |   | 29      |                         |   |   | (177      | )      |   |   | 27,979 |   |
| Pooled trust preferred      securities                                                                 |   |                        | 27,807  |   |                        |   | – |                         |   |   | (2,957    | )      |   |   | 24,850 |   |
| Equity      securities                                                                                 |   |                        | 282     |   |                        |   | – |                         |   |   | –   |   |   |   | 282 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                           | 250,367 |   |                        | $      | 3,381   |                         |   | $      | (4,112    | )      |   | $ | 249,636 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                        |    |   |                        |   |    |                         |   |   |      |   |   |   |   |   |
| 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 |   |
| Pooled 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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|                                             |   | September 30, 2008          |    |   | December 31, 2007 |   |   |   |   |
|--------------------------------------------------|--------|-----------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                                             |   | Amount                      |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                             |   | (Dollars      in thousands) |    |
| Commercial      and construction loans:          |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial real      estate                      |   | $                           | 330,878 |   |              |   | 44.6   | %      |   | $ | 328,427 |   |   |   | 41.4 | % |   |   | 0.7 | % |
| Construction and land      development           |   |                        | 88,186  |   |              |   | 11.9   |   |   |   | 128,584 |   |   |   | 16.2 |   |   |   | (31.4 | ) |
| Commercial and      industrial                   |   |                        | 55,367  |   |              |   | 7.4    |   |   |   | 60,398 |   |   |   | 7.6 |   |   |   | (8.3 | ) |
| Total commercial and construction      loans     |   |                        | 474,431 |   |              |   | 63.9   |   |   |   | 517,409 |   |   |   | 65.2 |   |   |   | (8.3 | ) |
|                                             |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Retail      loans:                               |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| One-to-four family      residential              |   |                        | 207,212 |   |              |   | 27.9   |   |   |   | 212,598 |   |   |   | 26.8 |   |   |   | (2.5 | ) |
| Home equity lines of      credit                 |   |                        | 59,049  |   |              |   | 8.0    |   |   |   | 60,326 |   |   |   | 7.6 |   |   |   | (2.1 | ) |
| Other                                            |   |                        | 1,606   |   |              |   | 0.2    |   |   |   | 2,803 |   |   |   | 0.4 |   |   |   | (42.7 | ) |
| Total retail    loans                            |   |                        | 267,867 |   |              |   | 36.1   |   |   |   | 275,727 |   |   |   | 34.8 |   |   |   | (2.9 | ) |
|                                             |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      loans receivable, net of unearnedfees |   | $                           | 742,298 |   |              |   | 100.0  | %      |   | $ | 793,136 |   |   |   | 100.0 | % |   |   | (6.4 | )% |
|                                             |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                       |   | September 30, 2008          |   |   | December 31, 2007 |   |   |   |   |
|--------------------------------------------|--------|-----------------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                                       |   | Amount                      |   |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                                       |   | (Dollars      in thousands) |   |
| Illinois                                   |   | $                           | 37,393 |   |              |   | 47.9   | %      |   | $ | 39,459 |   |   |   | 47.8 | % |   |   | (5.2 | )% |
| Ohio                                       |   |                        | 13,965 |   |              |   | 17.9   |   |   |   | 15,759 |   |   |   | 19.1 |   |   |   | (11.4 | ) |
| Indiana                                    |   |                        | 13,210 |   |              |   | 16.9   |   |   |   | 11,361 |   |   |   | 13.8 |   |   |   | 16.3 |   |
| Florida                                    |   |                        | 6,289  |   |              |   | 8.1    |   |   |   | 7,375 |   |   |   | 8.9 |   |   |   | (14.7 | ) |
| Colorado                                   |   |                        | 4,475  |   |              |   | 5.7    |   |   |   | 2,834 |   |   |   | 3.4 |   |   |   | 57.9 |   |
| Texas                                      |   |                        | 1,482  |   |              |   | 1.9    |   |   |   | 3,808 |   |   |   | 4.6 |   |   |   | (61.1 | ) |
| New      York                              |   |                        | 1,229  |   |              |   | 1.6    |   |   |   | 1,957 |   |   |   | 2.4 |   |   |   | (37.2 | ) |
| Total participations and      syndications |   | $                           | 78,043 |   |              |   | 100.0  | %      |   | $ | 82,553 |   |   |   | 100.0 | % |   |   | (5.5 | )% |
|                                       |   |                        |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Three      Months EndedSeptember 30, |   |   | Nine      Months EndedSeptember 30, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2008                                 |   |   | 2007                                |   |   | 2008 |   |   | 2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands)          |   |
| Balance      at beginning of      period                                                                 |   | $                                    | 10,403 |   |                                | $      | 10,624 |   |   | $ | 8,026 |   |   | $ | 11,184 |   |
| Provision      for losses on      loans                                                                  |   |                                 | 1,441  |   |                                |   | 884 |   |   |   | 9,355 |   |   |   | 1,197 |   |
| Charge-offs                                                                                              |   |                                 | (3,246 | )      |                                |   | (246 | ) |   |   | (8,833 | ) |   |   | (1,281 | ) |
| Recoveries                                                                                               |   |                                 | 66     |   |                                |   | 15 |   |   |   | 116 |   |   |   | 177 |   |
| Balance      at end of      period                                                                       |   | $                                    | 8,664  |   |                                | $      | 11,277 |   |   | $ | 8,664 |   |   | $ | 11,277 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                 |   |   |                                |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | September      30, 2008 |    |   | December      31,2007 |   |    | September      30,2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|--------|-----------------------|--------|---------|------------------------|--------|
| Allowance      for losses on      loans                                                                                                    |   | $                            | 8,664   |   |                  | $      | 8,026   |                   |   | $ | 11,277 |   |
| Total      loans receivable, net of unearned      fees                                                                                     |   |                         | 742,298 |   |                  |   | 793,136 |                   |   |   | 820,832 |   |
| Allowance      for losses on loans to total      loans                                                                                     |   |                         | 1.17    | %      |                  |   | 1.01    | %                      |   |   | 1.37 | % |
| Allowance      for losses on loans to non-performing loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         | 18.13   |   |                  |   | 27.11   |                   |   |   | 34.50 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | September      30,2008      |   |   | December      31, 2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|--------|------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | (Dollars      in thousands) |   |
| Impaired      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                        |   |   |                   |   |   |   |
| With a valuation      reserve                                                                                                                       |   | $                           | 15,791 |   |                   | $      | 10,190 |   |
| With no valuation reserve      required                                                                                                             |   |                        | 27,398 |   |                   |   | 14,441 |   |
| Total      impaired      loans                                                                                                       |   |                        | 43,189 |   |                   |   | 24,631 |   |
| Other      non-accrual      loans                                                                                                    |   |                        | 4,610  |   |                   |   | 4,969 |   |
| Total      non-accrual      loans                                                                                                    |   | $                           | 47,799 |   |                   | $      | 29,600 |   |
| Valuation      reserve relating to impaired      loans                                                                               |   | $                           | 523    |   |                   | $      | 1,202 |   |
| Average      outstanding impaired      loans                                                                                         |   |                        | 28,973 |   |                   |   | 20,675 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | September      30,2008      |    |   | December      31,2007 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|---------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (Dollars      in thousands) |    |
| Non-accrual      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |    |   |                  |   |   |   |
| Commercial and construction      loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                        |    |   |                  |   |   |   |
| Commercial real      estate                                                                                                                                              | $                           | 16,401  |   |                  | $      | 9,605 |   |
| Construction and land      development                                                                                                                                   |                        | 26,982  |   |                  |   | 16,240 |   |
| Commercial and      industrial                                                                                                                                           |                        | 330     |   |                  |   | 281 |   |
| Total commercial and      construction      loans                                                                                                                        |                        | 43,713  |   |                  |   | 26,126 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                        |    |   |                  |   |   |   |
| Retail loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                        |    |   |                  |   |   |   |
| One-to-four family      residential                                                                                                                                      |                        | 3,116   |   |                  |   | 2,706 |   |
| Home equity lines of      credit                                                                                                                                         |                        | 964     |   |                  |   | 749 |   |
| Other                                                                                                                                                                    |                        | 6       |   |                  |   | 19 |   |
| Total retail      loans                                                                                                                                                  |                        | 4,086   |   |                  |   | 3,474 |   |
| Total non-accruing      loans                                                                                                                                            |                        | 47,799  |   |                  |   | 29,600 |   |
| Other      real estate owned,      net                                                                                                          |                        | 3,347   |   |                  |   | 1,162 |   |
| Total non-performing      assets                                                                                                                               |                        | 51,146  |   |                  |   | 30,762 |   |
| 90      days past due and still accruing      interest                                                                                          |                        | – |   |                  |   | – |   |
| Total non-performing assets      plus 90 days past due loans stillaccruing      interest                                                                                 | $                           | 51,146  |   |                  | $      | 30,762 |   |
| Non-performing      assets to total      assets                                                                                                 |                        | 4.59    | %      |                  |   | 2.67 | % |
| Non-performing      loans to total      loans                                                                                                   |                        | 6.44    | %      |                  |   | 3.73 | % |

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|                                                                                                                                                                                                                                                                                                                                                                                                                     |   | September      30,2008      |    |   | December      31,2007 |   |    | Change |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|-----------------------|--------|---------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   | (Dollars      in thousands) |    |
| Illinois                                                                                                |   | $                           | 20,502  |   |                  | $      | 7,484   |   |   |   | 173.9 | % |
| Indiana                                                                                                 |   |                        | 5,444   |   |                  |   | – |   |   |   | – |   |
| Florida                                                                                                 |   |                        | 3,986   |   |                  |   | 2,627   |   |   |   | 51.7 |   |
| Texas                                                                                                   |   |                        | – |   |                  |   | 2,461   |   |   |   | (100.0 | ) |
| Total non-performing      syndications and purchasedparticipations                                                          |   | $                           | 29,932  |   |                  | $      | 12,572  |   |   |   | 138.1 |   |
| Percentage to total      non-performing loans                                                                                                                                                                                                                                                                                                                                                                            |   |                        | 62.6    | %      |                  |   | 42.5    | %      |   |   |   |   |
| Percentage to total syndications      and purchasedparticipations                                                           |   |                        | 38.4    |   |                  |   | 15.2    |   |   |   |   |   |

|                          |   | September 30, 2008          |    |   | December 31, 2007 |   |   |   |   |
|-------------------------------|--------|-----------------------------|---------|--------|-------------------|--------|--------|--------|--------|
|                          |   | Amount                      |    |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                          |   | (Dollars      in thousands) |    |
| Checking      accounts:       |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing     |   | $                           | 64,596  |   |              |   | 7.8    | %      |   | $ | 62,306 |   |   |   | 7.2 | % |   |   | 3.7 | % |
| Interest-bearing              |   |                        | 102,215 |   |              |   | 12.3   |   |   |   | 107,467 |   |   |   | 12.5 |   |   |   | (4.9 | ) |
| Money      market accounts    |   |                        | 171,492 |   |              |   | 20.6   |   |   |   | 171,470 |   |   |   | 19.9 |   |   |   | 0.0 |   |
| Savings      accounts         |   |                        | 119,238 |   |              |   | 14.3   |   |   |   | 127,297 |   |   |   | 14.7 |   |   |   | (6.3 | ) |
| Core deposits                 |   |                        | 457,541 |   |              |   | 55.0   |   |   |   | 468,540 |   |   |   | 54.3 |   |   |   | (2.3 | ) |
| Certificates      of deposit: |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less than    $100,000         |   |                        | 253,087 |   |              |   | 30.4   |   |   |   | 263,134 |   |   |   | 30.5 |   |   |   | (3.8 | ) |
| $100,000 or    greater        |   |                        | 121,595 |   |              |   | 14.6   |   |   |   | 131,598 |   |   |   | 15.2 |   |   |   | (7.6 | ) |
| Time deposits                 |   |                        | 374,682 |   |              |   | 45.0   |   |   |   | 394,732 |   |   |   | 45.7 |   |   |   | (5.1 | ) |
| Total deposits                |   | $                           | 832,223 |   |              |   | 100.0  | %      |   | $ | 863,272 |   |   |   | 100.0 | % |   |   | (3.6 | ) |
|                          |   |                        |    |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                          |                              | September 30, 2008 |   |   | December 31, 2007 |   |   |   |   |
|-------------------------------|-----------------------------------|--------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                          |                              | Amount             |   |   | % of Total        |   |   | Amount |   |   | % of Total |   |   | % Change |   |
|                          |  (Dollars      in thousands) |               |   |
| Checking      accounts:       |                              |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest      bearing     |                              | $                  | 767    |   |              |   | 1.5    | %      |   | $ | 1,028 |   |   |   | 1.6 | % |   |   | (25.4 | )% |
| Interest-bearing              |                              |               | 7,208  |   |              |   | 13.7   |   |   |   | 13,022 |   |   |   | 20.9 |   |   |   | (44.6 | ) |
| Money market      accounts    |                              |               | 24,194 |   |              |   | 46.1   |   |   |   | 31,610 |   |   |   | 50.6 |   |   |   | (23.5 | ) |
| Core deposits                 |                              |               | 32,169 |   |              |   | 61.3   |   |   |   | 45,660 |   |   |   | 73.1 |   |   |   | (29.5 | ) |
| Certificates      of deposit  |                              |               | 20,335 |   |              |   | 38.7   |   |   |   | 16,803 |   |   |   | 26.9 |   |   |   | 21.0 |   |
| Total municipal      deposits |                              | $                  | 52,504 |   |              |   | 100.0  | %      |   | $ | 62,463 |   |   |   | 100.0 | % |   |   | (15.9 | )% |
|                          |                              |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | September 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   | %      |              | $      | 19,927 |   |   |   | 3.42 | % |   | $ | 18,014 |   |
| Overnight federal funds      purchased                                                                                      |   |                                  | 2.80   |   |              |   | 18,740 |   |   |   | 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 2010 –      fixed-rate                                                                          |   |                                  | 3.22   |   |              |   | 15,000 |   |   |   | – |   |   |   | – |   |
| Maturing in 2011 –      fixed-rate                                                                               |   |                                  | 3.75   |   |              |   | 15,000 |   |   |   | – |   |   |   | – |   |
| Maturing in 2014 – fixed-rate      (1)                                                                           |   |                                  | 6.71   |   |              |   | 1,146 |   |   |   | 6.71 |   |   |   | 1,169 |   |
| Maturing in 2018 – fixed-rate      (1)                                                                           |   |                                  | 5.54   |   |              |   | 2,707 |   |   |   | 5.54 |   |   |   | 2,707 |   |
| Maturing in 2019 – fixed-rate      (1)                                                                           |   |                                  | 6.30   |   |              |   | 7,007 |   |   |   | 6.31 |   |   |   | 7,196 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                  |   |   |              |   | 102,860 |   |   |   |   |   |   |   | 113,072 |   |
| Less:  deferred premium      on early extinguishmentof      debt                                                            |   |                                  |   |   |              |   | (381 | ) |   |   |   |   |   |   | (1,627 | ) |
| Net FHLB – Indianapolis      advances                                                                                 |   |                                  |   |   |              |   | 102,479 |   |   |   |   |   |   |   | 111,445 |   |
| Total      borrowed      money                                                                               |   |                                  |   |   |              | $      | 141,146 |   |   |   |   |   |   | $ | 135,459 |   |
| Weighted-average      contractual interest rate                                                                                                                                                                                                                                                                                                                                                                                              |   |                                  | 3.54   | %      |              |   |   |   |   |   | 4.06 | % |   |   |   |   |

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

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|   | • | cash      dividends declared during 2008 totaling $3.8  million; |
|--------|---------|------------------------------------------------------------------|

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

|   | • | a      decrease in accumulated other comprehensive income of $2.2 million;      and |
|--------|---------|-------------------------------------------------------------------------------------|

|   | • | a      net loss of $1.6 million. |
|--------|---------|----------------------------------|

|                                                |   | Actual                      |    |   | For      Capital Adequacy Purposes |   |   | To      Be Well-Capitalized Under Prompt Corrective Action Provisions |
|-----------------------------------------------------|--------|-----------------------------|---------|--------|------------------------------------|--------|--------|-----------------------------------------------------------------------|
|                                                |   | Amount                      |    |   | Ratio                              |   |   | Amount                                                                |   |   | Ratio |   |   | Amount |   |   | Ratio |
|                                                |   | (Dollars      in thousands) |
| As      of September 30, 2008:                      |   |                        |    |   |                               |   |   |                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total capital to risk-weighted      assets          |   | $                           | 121,426 |   |                               |   | 14.38  | %                                                                     |   | $ | 67,549 |   |   | >8.00      % |   |   | $ | 84,436 |   |   | >10.00      % |   |   |
| Tier 1 (core) capital to      risk-weighted assets  |   |                        | 112,798 |   |                               |   | 13.36  |                                                                  |   |   | 33,774 |   |   | >4.00 |   |   |   | 50,662 |   |   | >6.00 |   |   |
| Tier 1 (core) capital to      adjusted total assets |   |                        | 112,798 |   |                               |   | 10.15  |                                                                  |   |   | 44,470 |   |   | >4.00 |   |   |   | 55,587 |   |   | >5.00 |   |   |
| Tangible capital to adjusted      total assets      |   |                        | 112,798 |   |                               |   | 10.15  |                                                                  |   |   | 16,676 |   |   | >1.50 |   |   |   | 22,235 |   |   | >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  |
|--------|---------|------------------------------------------------|

|   | • | FHLB      borrowings. |
|--------|---------|-----------------------|

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|   | • | purchases      of available-for-sale securities totaling $89.1  million; |
|--------|---------|--------------------------------------------------------------------------|

|   | • | decreases      in the balance of deposit accounts totaling $31.2 million;    and |
|--------|---------|----------------------------------------------------------------------------------|

|   | • | net      repayment of FHLB debt totaling $10.2million. |
|--------|---------|--------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                          |   | Payments Due By Period      |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                          |   | One      YearOr Less        |   |   | Over      OneThroughThree Years |   |   | Over      Three ThroughFive Years |   |   | Over      FiveYears |   |   | Total |   |
|                                                                                                                                                                                                                                                                                                                          |   | (Dollars      in thousands) |   |
| FHLB      advances      (1)                                                        |   | $                           | 42,286 |   |   | $ | 50,634 |   |   | $ | 727 |   |   | $ | 9,213 |   |   | $ | 102,860 |   |
| Short-term      borrowings      (2)                                                |   |                        | 38,667 |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 38,667 |   |
| Operating      leases                                                              |   |                        | 515    |   |   |   | 407 |   |   |   | 116 |   |   |   | – |   |   |   | 1,038 |   |
| Dividends      payable on common stock                                                                                                                                                                                                                                                                                        |   |                        | 1,297  |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 1,297 |   |
|                                                                                                                                                                                                                                                                                                                          |   | $                           | 82,765 |   |   | $ | 51,041 |   |   | $ | 843 |   |   | $ | 9,213 |   |   | $ | 143,862 |   |
|                                                                                                                                                                                                                                                                                                                          |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | Does      not include interest expense at the weighted-average contractual rate of      4.05% for the periods presented. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

| (2) | Does      not include interest expense at the weighted-average contractual rate of      2.18% for the periods presented. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

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|                                               |   | One      Yearor Less        |    |   | Over      OneThroughThree Years |   |    | Over      Three ThroughFive Years |   |   | Over      Five Years |   |   | Total  |    |
|----------------------------------------------------|--------|-----------------------------|---------|--------|---------------------------------|--------|---------|-----------------------------------|--------|--------|----------------------|--------|--------|--------|---------|
|                                               |   | (Dollars      in thousands) |    |
| Commitments      to extend credit:                 |   |                        |    |   |                            |   |    |                              |   |   |                 |   |   |   |    |   |   |   |   |   |
| Commercial                                         |   | $                           | 60,496  |   |                            | $      | 3,443   |                              |   | $      | 627                  |   |   | $      | 799     |   |   | $ | 65,365 |   |
| Retail                                             |   |                        | 3,542   |   |                            |   | – |                              |   |   | –              |   |   |   | – |   |   |   | 3,542 |   |
| Commitments      to purchase loans:                |   |                        |    |   |                            |   |    |                              |   |   |                 |   |   |   |    |   |   |   |   |   |
| Commercial                                         |   |                        | 200     |   |                            |   | – |                              |   |   | –              |   |   |   | – |   |   |   | 200 |   |
| Commitments      to fund unused construction loans |   |                        | 10,700  |   |                            |   | 8,246   |                              |   |   | 25                   |   |   |   | 266     |   |   |   | 19,237 |   |
| Commitments      to fund unused lines of credit:   |   |                        |    |   |                            |   |    |                              |   |   |                 |   |   |   |    |   |   |   |   |   |
| Commercial                                         |   |                        | 19,832  |   |                            |   | 5,466   |                              |   |   | 120                  |   |   |   | 497     |   |   |   | 25,915 |   |
| Retail                                             |   |                        | 11,570  |   |                            |   | – |                              |   |   | 250                  |   |   |   | 48,659  |   |   |   | 60,479 |   |
| Letters      of credit                             |   |                        | 4,472   |   |                            |   | 1,348   |                              |   |   | 199                  |   |   |   | 3,439   |   |   |   | 9,458 |   |
| Credit      enhancements                           |   |                        | 10,850  |   |                            |   | 16,236  |                              |   |   | –              |   |   |   | – |   |   |   | 27,086 |   |
|                                               |   | $                           | 121,662 |   |                            | $      | 34,739  |                              |   | $      | 1,221                |   |   | $      | 53,660  |   |   | $ | 211,282 |   |
|                                               |   |                        |    |   |                            |   |    |                              |   |   |                 |   |   |   |    |   |   |   |   |   |

Item3.

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|                                                 |                                  |   | Net Portfolio Value         |   |
|------------------------------------------------------|---------------------------------------|--------|-----------------------------|--------|
|                                                 |                                  |   | At June 30, 2008            |   |   | At December 31, 2007 |   |
|                                                 |                                  |   | $ Amount                    |   |   | $ Change |   |   | % Change |   |   | $ Amount |   |   | $ Change |   |   | % Change |   |
|                                                 |                                  |   | (Dollars      in thousands) |   |
| Assumed      Change in Interest Rates (Basis Points) |                                  |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                 | +300                                  |   |                        | $      | 137,718 |   |   | $ | (25,792 | ) |   |   | (15.8 | )% |   | $ | 148,908 |   |   | $ | (18,532 | ) |   |   | (11.1 | )% |
|                                                 | +200                                  |   |                        |   | 147,455 |   |   |   | (16,056 | ) |   |   | (9.8 | ) |   |   | 158,403 |   |   |   | (9,037 | ) |   |   | (5.4 | ) |
|                                                 | +100                                  |   |                        |   | 156,293 |   |   |   | (7,218 | ) |   |   | (4.4 | ) |   |   | 166,898 |   |   |   | (542 | ) |   |   | (0.3 | ) |
|                                                 |       0 |   |                        |   | 163,511 |   |   |   | – |   |   |   | – |   |   |   | 167,440 |   |   |   | – |   |   |   | – |   |
|                                                 |  -100                            |   |                        |   | 169,297 |   |   |   | 5,786 |   |   |   | 3.5 |   |   |   | 178,059 |   |   |   | 10,619 |   |   |   | 6.3 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Percentage      of Deposits MaturingIn First Year |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | September 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 in Net      Interest IncomeOver      a Twelve Month Time Period |   |
|-----------------------------------------------------------------|------------|--------|----------------------------------------------------------------------------------------|--------|
|                                                            |       |   | September 30, 2008                                                                     |   |   | December 31, 2007 |   |
| Assumed      Change in Interest Rates (Basis      Points): |       |   |                                                                                   |   |   |   |   |   |   |
|                                                            | +300       |   |                                                                                   |   | – |   |   |   | (0.8 | )% |
|                                                            | +200       |   |                                                                                   |   | 0.5 | % |   |   | – |   |
|                                                            | +100       |   |                                                                                   |   | 0.2 |   |   |   | 0.3 |   |
|                                                            |  -100 |   |                                                                                   |   | (0.9 | ) |   |   | (1.3 | ) |
|                                                            |  -200 |   |                                                                                   |   | (2.3 | ) |   |   | (4.3 | ) |

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Item4.

Item 1.

Item1A.

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Item2.

Item3.

Item4. 

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Item5.

Item6.

|   | (a)    |   | List      of exhibits (filed herewith unless otherwise noted).                                                              |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------|
|   | 3.1    |   | Articles      of Incorporation of CFS Bancorp, Inc. (1)                                                                     |
|   | 3.2    |   | Bylaws      of CFS Bancorp, Inc. (2)                                                                                        |
|   | 4.0    |   | Form      of Stock Certificate of CFS Bancorp, Inc. (3)                                                                     |
|   | 10.1*  |   | Employment      Agreement entered into between Citizens Financial Bank and Thomas F.      Prisby (4)                        |
|   | 10.2*  |   | Employment      Agreement entered into between CFS Bancorp, Inc. and Thomas F. Prisby      (4)                              |
|   | 10.3*  |   | CFS      Bancorp, Inc. Amended and Restated 1998 Stock Option Plan    (5)                                                   |
|   | 10.4*  |   | CFS      Bancorp, Inc. Amended and Restated 1998 Recognition and Retention Plan and      Trust Agreement (5)                |
|   | 10.5*  |   | CFS      Bancorp, Inc. 2003 Stock Option Plan (6)                                                                           |
|   | 10.6*  |   | Employment      Agreement entered into between Citizens Financial Bank and Charles V. Cole      (4)                         |
|   | 10.7*  |   | Employment      Agreement entered into between CFS Bancorp, Inc. and Charles V. Cole      (4)                               |
|   | 10.8*  |   | Amended      and Restated Supplemental ESOP Benefit Plan of CFS Bancorp, Inc. and      Citizens Financial Services, FSB (7) |
|   | 10.9*  |   | CFS      Bancorp, Inc. Directors’ Deferred Compensation Plan (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 |
|-----|--------------------------------------------------------------------------------------------------------|

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|   | 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 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 thisreport. |
|---|-------------------------------------------------------------------------------------------------------------------------------|

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SIGNATURES

| Date:  October      31, 2008 | By:    | /s/ Thomas F.      Prisby                          |
|----------------------------------------|--------|----------------------------------------------------|
|                                   |   | Thomas      F. Prisby, Chairman of the Board and   |
|                                   |   | Chief      Executive Officer                       |
|                                   |   |                                               |
| Date:  October      31, 2008 | By:    | /s/ Charles V.      Cole                           |
|                                   |   | Charles      V. Cole, Executive Vice President and |
|                                   |   | Chief      Financial Officer                       |

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