Table
      of
      Contents





PagePresident’s
                Message
            2Selected
                Consolidated Financial Information
            3Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            5Independent
                Auditors’ Report
            20Consolidated
                Financial Statements
            21Stockholder
                Information
            48Corporate
                Information
            49





1




President’s
      Message


To
      Our
      Stockholders





On
      behalf
      of AMB Financial Corporation (the Company), and its wholly owned subsidiary,
      American Savings, FSB (the Bank), I am pleased to present our 2007 Annual
      Report. Your Board of Directors, officers and employees are excited regarding
      our opportunities in the future.





At
      the
      end of 2007, our President and Chief Executive Officer, Clement B. Knapp, Jr.
      retired after 39 years of service to the Bank. During his tenure, Mr. Knapp’s
      contributions to the organization were significant. Under his leadership, the
      organization transformed from a sleepy little Savings and Loan Association
      into
      a Federal Savings Bank publicly traded under a holding company structure.
      Despite his retirement as President and Chief Executive Officer, Mr. Knapp
      will
      continue to play a key role in the Company and the Bank, as he will continue
      to
      serve as the Company’s Chairman of the Board. In that capacity, he continues to
      contribute on a daily basis to the organization’s direction.





Our
      goal,
      after 97 years of serving the community in Northwest Indiana, remains to
      increase shareholder value while serving the needs of all shareholders. The
      Company intends to remain an independent, local community financial institution
      by focusing on our strength of personalized customer service.





2007
      proved to be a challenging year for the financial industry. According to the
      Office of Thrift Supervision (OTS), net income for the industry declined 82%
      for
      2007. Net income for the Bank declined as well in 2007. Net income declined
      $600,000 from the previous year to $48,000. The decline in net income is
      primarily attributed to a $635,000 increase in interest expense. This increase
      in interest expense resulted from the increase in short-term interest rates
      and
      the inversion of the yield curve in 2006 and part of 2007.





During
      this period of elevated short-term interest rates, our customers have reaped
      the
      benefits of higher yields on their deposits. Unfortunately, this did not
      translate into equal increases in the Bank’s interest income. The earning assets
      of the Bank, comprised primarily of single-family mortgage loans, carry a
      significantly longer duration than the terms of the Bank’s funding sources. As a
      result, changes in the yield on the lending portfolio often lag behind the
      repricing of the deposit and Federal Home Loan Bank borrowings portfolios.
      The
      difference in the timing of repricing causes a compression of the interest
      rate
      margin.





Federal
      Reserve action in late 2007 and early 2008 has already produced dramatic
      declines in short-term interest rates, and we are beginning to see a widening
      in
      the Bank’s interest rate margin. The Bank’s interest rate margin should
      partially decompress during 2008 as the certificate of deposit portfolio
      reprices. Any gains in the interest rate margin will be at least partially
      offset by the new non-interest expense associated with the Bank’s opening of a
      new branch in Schererville.





During
      the 2007 fiscal year, total assets declined $7.5 million to $174.8 million
      as we
      throttled back our growth in a difficult operating environment. However, as
      the
      economy and banking environment improves, we hope to take advantage of our
      new
      facility to increase our assets and deposits.





Our
      financial performance and stock performance are available on our website at http://www.ambfinancial.com .
      I urge
      you to visit our site to view this information and utilize its other
      services.





The
      entire staff of the Bank and the Company appreciates your commitment and
      support, and we look forward to a long and profitable relationship.





Sincerely,










Michael
      Mellon


President
      / CEO





2




**SELECTED
                CONSOLIDATED FINANCIAL INFORMATION****(Dollars
                in thousands)**




**At
                December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****SELECTED
                FINANCIAL DATA:**Total
                assets
            
            
            174,754
            
            
            182,282
            
            
            170,466
            
            
            157,094
            
            
            145,965Loans
                receivable, net
            
            
            148,025
            
            
            150,701
            
            
            140,035
            
            
            129,342
            
            
            120,209Investment
                securities and interest-bearing deposits
            
            
            3,849
            
            
            10,433
            
            
            9,367
            
            
            8,790
            
            
            6,997Mortgage-backed
                securities
            
            
            858
            
            
            1,252
            
            
            1,664
            
            
            2,286
            
            
            3,155Trading
                securities
            
            
            307
            
            
            339
            
            
            329
            
            
            515
            
            
            498Deposits
            
            
            118,882
            
            
            124,858
            
            
            127,435
            
            
            115,659
            
            
            108,334Borrowed
                funds
            
            
            35,913
            
            
            34,318
            
            
            21,012
            
            
            18,954
            
            
            16,130Guatanteed
                prefererd beneficial interest in junior subordinated debt
            
            
            3,000
            
            
            5,000
            
            
            5,000
            
            
            5,000
            
            
            5,000Stockholders’
                equity
            
            
            13,453
            
            
            14,661
            
            
            14,145
            
            
            13,409
            
            
            12,520




**At
                or for the Year Ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****SELECTED
                FINANCIAL RATIOS AND OTHER DATA:**Return
                on average assets
            
            
            0.03
            %
            
            0.37
            %
            
            0.53
            %
            
            0.58
            %
            
            0.78
            %Return
                on average stockholders’ equity
            
            
            0.34
            
            
            4.48
            
            
            6.20
            
            
            6.78
            
            
            9.72Average
                stockholders’ equity to average assets
            
            
            8.01
            
            
            8.28
            
            
            8.54
            
            
            8.56
            
            
            8.04Stockholders’
                equity to total assets
            
            
            7.70
            
            
            8.04
            
            
            8.30
            
            
            8.54
            
            
            8.58Interest
                rate spread during the period
            
            
            2.31
            
            
            2.69
            
            
            3.02
            
            
            3.24
            
            
            3.26Net
                interest margin
            
            
            2.29
            
            
            2.69
            
            
            3.05
            
            
            3.26
            
            
            3.23Operating
                expenses to average assets
            
            
            2.61
            
            
            2.63
            
            
            2.86
            
            
            2.81
            
            
            2.67Efficiency
                ratio (1)
            
            
            97.42
            
            
            82.52
            
            
            80.22
            
            
            75.42
            
            
            68.62Non-performing
                assets to total assets
            
            
            1.91
            
            
            2.06
            
            
            1.24
            
            
            1.02
            
            
            1.13Allowance
                for loan losses to non-performing loans
            
            
            28.46
            
            
            25.65
            
            
            50.80
            
            
            44.50
            
            
            65.35Allowance
                for loan losses to loans receivable, net (2)
            
            
            0.50
            
            
            0.45
            
            
            0.53
            
            
            0.55
            
            
            0.85Ratio
                of average interest-earning assets to average interest-bearing
                liabilities
            
            
            .99x
            
            
            1.00x
            
            
            1.01x
            
            
            1.01x
            
            
            .99xNumber
                of full service offices
            
            
            3
            
            
            3
            
            
            3
            
            
            3
            
            
            3


(1)
              Non-interest
                  expense divided by net-interest income plus non-interest income
except
                  for gains and losses on investments available for sale and other
                  assets.


(2)
              Loans
                  include loans, net, excluding the allowance for loan
                  losses.




3




**SELECTED
                CONSOLIDATED FINANCIAL INFORMATION (cont.)****(Dollars
                in thousands except per share
                data)**




**For
                the Year Ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003****SELECTED
                OPERATING DATA:**Total
                interest income
            
            $
            10,037
            
            $
            10,027
            
            $
            8,585
            
            $
            7,887
            
            $
            8,235Total
                interest expense
            
            
            6,442
            
            
            5,807
            
            
            4,149
            
            
            3,433
            
            
            3,904Net
                interest income
            
            
            3,595
            
            
            4,220
            
            
            4,436
            
            
            4,454
            
            
            4,331Provision
                for loan losses
            
            
            133
            
            
            248
            
            
            275
            
            
            189
            
            
            214Net
                interest income after provision for loan losses
            
            
            3,462
            
            
            3,972
            
            
            4,161
            
            
            4,265
            
            
            4,117Non-interest
                income:Fees
                and service charges
            
            
            978
            
            
            1,139
            
            
            1,122
            
            
            946
            
            
            1,181Rental
                income
            
            
            148
            
            
            139
            
            
            138
            
            
            137
            
            
            77Gain
                on sale of securities
            
            
            -
            
            
            -
            
            
            32
            
            
            7
            
            
            50Unrealized
                gain (loss) on trading securities
            
            
            (33
            )
            
            10
            
            
            (51
            )
            
            27
            
            
            130Gain
                on sale of other assets
            
            
            18
            
            
            39
            
            
            345
            
            
            -
            
            
            -Gain
                (loss) on sale of other real estate owned
            
            
            (88
            )
            
            (79
            )
            
            (4
            )
            
            14
            
            
            24Loss
                from limited partnership
            
            
            (45
            )
            
            (41
            )
            
            (72
            )
            
            (82
            )
            
            (91
            )Income
                from real estate held for development
            
            
            34
            
            
            51
            
            
            -
            
            
            -
            
            
            -Gain
                from life insurance proceeds
            
            
            -
            
            
            -
            
            
            -
            
            
            27
            
            
            -Increase
                from cash surrender value of life insurance
            
            
            126
            
            
            123
            
            
            118
            
            
            135
            
            
            152Loan
                loss settlement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            92Other
            
            
            23
            
            
            23
            
            
            55
            
            
            29
            
            
            57Total
                non interest income
            
            
            1,161
            
            
            1,404
            
            
            1,683
            
            
            1,240
            
            
            1,672Non
                interest expense:Compensation
                and benefits
            
            
            2,256
            
            
            2,327
            
            
            2,348
            
            
            2,185
            
            
            1,959Advertising
            
            
            165
            
            
            250
            
            
            180
            
            
            133
            
            
            110Office
                occupancy and equipment expenses
            
            
            438
            
            
            428
            
            
            428
            
            
            411
            
            
            471Data
                processing
            
            
            504
            
            
            476
            
            
            660
            
            
            558
            
            
            521Federal
                deposit insurance premiums
            
            
            16
            
            
            16
            
            
            16
            
            
            17
            
            
            18Professional
                fees
            
            
            401
            
            
            306
            
            
            243
            
            
            251
            
            
            248Other
            
            
            853
            
            
            806
            
            
            765
            
            
            719
            
            
            709Total
                non-interest expense
            
            
            4,633
            
            
            4,609
            
            
            4,640
            
            
            4,274
            
            
            4,036Income
                (loss) before income taxes
            
            
            (10
            )
            
            767
            
            
            1,204
            
            
            1,231
            
            
            1,753Income
                tax provision (benefit)
            
            
            (58
            )
            
            119
            
            
            344
            
            
            350
            
            
            571Net
                income
            
            
            48
            
            
            648
            
            
            860
            
            
            881
            
            
            1,182Basic
                earnings per share
            
            $
            0.05
            
            $
            0.64
            
            $
            0.90
            
            $
            0.94
            
            $
            1.31Diluted
                earnings per share
            
            $
            0.05
            
            $
            0.64
            
            $
            0.85
            
            $
            0.87
            
            $
            1.18





4




**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**  ****


**AND
      RESULTS OF OPERATIONS**





**General.** AMB
      Financial Corp. (the "Company") is the thrift holding company for American
      Savings FSB, (the "Bank"), a federally chartered savings bank. Collectively,
      the
      Company and the Bank are referred to herein as the "Company."





The
      Company's primary market area consists of the northwest portion of Lake County,
      Indiana. Business is conducted from its main office at 8230 Hohman Avenue,
      Munster, Indiana, as well as two full-service banking offices located in Dyer,
      and Hammond, Indiana. In addition, in December 2006, the Bank acquired property
      located in Schererville, Indiana, for the purpose of constructing a branch
      office. Construction of the branch office is currently underway and scheduled
      to
      be completed in June 2008. The Bank is a community-oriented savings institution
      whose business primarily consists of accepting deposits from customers within
      its market area and investing those funds in mortgage loans secured by one-to
      four-family residences. To a lesser extent, funds are invested in
      non-residential real estate, construction, consumer, multi-family, land and
      commercial business loans. The Company also invests in accounts receivable,
      mortgage-backed and other investment securities, leases, and equity securities.





The
      Company's results of operations are primarily dependent on net interest income,
      which is the difference between the interest income on its interest-earning
      assets, such as loans and securities, and the interest expense on its
      interest-bearing liabilities, such as deposits and borrowings and to a lesser
      degree, non-interest income and non-interest expense. Net interest income
      depends upon the volume of interest-earning assets and interest-bearing
      liabilities and the interest rate earned or paid on them, respectively.
      Non-interest income primarily consists of fees on deposits and loan products,
      increase in cash surrender value of life insurance, rental income, and
      securities gains or losses. The Company's non-interest expenses primarily
      consist of employee compensation and benefits, occupancy and equipment expenses,
      data processing service fees, federal deposit insurance premiums, and other
      operating expenses.





The
      Company's results of operations are also affected by general economic
      conditions, the monetary and fiscal policies of Federal agencies and the
      policies of agencies that regulate financial institutions. Future changes in
      applicable laws, regulations or government policies may have a material impact
      on the Company. Lending activities are influenced by the demand for real estate
      loans and other types of loans, competition among lenders, the general level
      of
      real estate values, the level of interest rates and the availability of funds.
      Deposit flows and costs of funds are influenced by prevailing market interest
      rates (including rates on non-deposit investment alternatives), account
      maturities, and the levels of personal income and savings in the Company's
      market area.





**Operating
      Strategy.** The
      Company's basic mission is to maintain its focus as an independent,
      community-oriented financial institution focused on serving customers in its
      primary market area. The Board of Directors has sought to accomplish this
      mission through an operating strategy designed to maintain capital in excess
      of
      regulatory requirements and manage, to the extent practical, the Company's
      loan
      delinquencies and vulnerability to changes in interest rates. The key components
      of the Company's operating strategy are to: (i) focus its lending operations
      on
      the origination of loans secured by one-to four-family residential real estate;
      (ii) supplement its one-to four-family residential lending activities with
      non-residential, construction, consumer, multi-family, land, and business loans;
      (iii) augment its lending activities with investments in purchased loans,
      leases, mortgage-backed and other securities; (iv) emphasize adjustable rate
      and/or short and medium duration assets when market conditions permit; (v)
      build
      and maintain its regular savings, transaction, money market and club accounts;
      and (vi) increase, at a managed pace, to the extent practicable, the volume
      of
      the Company's assets and liabilities.





Management
      and the Board of Directors of the Company have sought to enhance shareholder
      value by using excess capital to repurchase outstanding shares when business
      and
      market conditions warrant.





**Forward-Looking
      Statements.** When
      used
      throughout this document, the words or phrases “will likely result,” “are
      expected to,” “will continue,” “is anticipated,” “estimated,” “projected,” or
      similar expressions are intended to identify “forward looking statements” within
      the meaning of section 21E of the Securities and Exchange Act of 1934. Such
      statements are subject to certain risks and uncertainties including changes
      in
      economic conditions in the Bank’s market area, changes in policies by regulatory
      agencies, fluctuations in interest rates (including the amount of such rates,
      the speed of change in rates and the relationship between long and short term
      interest rates), demand for loans and real estate values in the Bank’s market
      area, the Bank’s ability to lease excess space in its offices and competition,
      that could cause actual results to differ materially from historical earnings
      and those presently anticipated or projected. The factors listed above could
      affect the Company’s financial performance and could cause actual results for
      future periods to differ materially from any statements expressed with respect
      to future periods.




5




The
      Company does not undertake, and specifically disclaims any obligation to
      publicly revise any forward-looking statements to reflect events or
      circumstances after the date of such statements or to reflect the occurrence
      of
      anticipated or unanticipated events.





**Financial
      Condition.** During
      the year ended December 31, 2007, the Company’s total assets decreased by $7.5
      million, or 4.1% to $174.8 million from $182.3 million at December 31, 2006.
      The
      decrease in assets was primarily the result of a $6.8 million, or 69.8% decline
      in cash and cash equivalents, which was used in part to fund net deposit
      outflows as well as the cost of the new branch office facility. Cash and cash
      equivalents totaled a combined $2.9 million at December 31, 2007, as compared
      to
      $9.7 million at December 31, 2006.





Investment
      securities, available for sale, decreased by $1.5 million to $1.7 million at
      December 31, 2007, as compared to $3.2 million at December 31, 2006, due to
      the
      early redemption of securities. This portfolio consists primarily of U.S.
      government agency obligations. At December 31, 2007, the Company had an
      unrealized gain on available for sale investment securities of $24,000 compared
      to an unrealized loss of $16,000 at December 31, 2006.




Trading
      account securities, which are held at the Holding Company level, decreased
      by
      $32,000 to $307,000 at December 31, 2007, as compared to $339,000 at December
      31, 2006. The decrease is attributable to a decrease in unrealized appreciation
      in the portfolio. There were no purchases or sales of trading securities during
      the year ended December 31, 2007. The trading account portfolio consists
      primarily of holdings in small thrift and community bank stocks.





Mortgage-backed
      securities, available for sale, totaled $858,000 at December 31, 2007 compared
      to $1.3 million at December 31, 2006. There were no new purchases of
      mortgage-backed securities during the current year and as a result, the balance
      of mortgage-backed securities decreased by $394,000, or 31.5% due to
      amortization and prepayments. At December 31, 2007, the Company had an
      unrealized loss on available for sale mortgage-backed securities of $4,000
      compared to an unrealized loss of $25,000 at December 31, 2006.




Loans
      receivable decreased $2.7 million, or 1.8%, to $148.0 million at December 31,
      2007 from $150.7 million at December 31, 2006. As a result of a decline in
      mortgage demand, loan originations and purchases decreased to $50.0 million
      for
      the year ended December 31, 2007 compared to $56.6 million in the prior year
      period. During the current year, the Company sold $1.4 million of newly
      originated long-term fixed rate loans to the Federal Home Loan Bank of
      Indianapolis in an effort to reduce interest rate risk exposure. Offsetting
      the
      originations and purchases were amortization and prepayments of loans totaling
      $50.7 million and $44.5 million for the years ended December 31, 2007 and 2006,
      respectively.





The
      mortgage loan portfolio continues to consist primarily of one-to four-family
      mortgage loans. Our one-to four-family mortgage loans, which represent 68.3%
      of
      the total loan portfolio at December 31, 2007, decreased $2.1 million to $103.1
      million at December 31, 2007 from $105.2 million at December 31, 2006. Also
      contributing to the decline in loans receivable was a $2.1 million decrease
      in
      multi-family mortgage loans, a $1.7 million decrease in construction and land
      development mortgage loans, and a $700,000 decrease in home equity lines of
      credit and consumer loans. Partially offsetting these declines was an $800,000
      increase in commercial non-mortgage loans.





The
      determination of the allowance for loan losses involves material estimates
      that
      are susceptible to significant change in the near term. The allowance for loan
      losses is maintained at a level adequate to provide for losses through charges
      to operating expense. The allowance is based upon past loss experience and
      other
      factors which, in management's judgment, deserve current recognition in
      estimating losses. Such other factors considered by management include growth
      and composition of the loan portfolio, the relationship of the allowance for
      losses to outstanding loans and economic conditions.




6




Management
      believes that the allowance is adequate. While management uses available
      information to recognize losses on loans, future additions to the allowance
      may
      be necessary based on changes in economic conditions. In addition, various
      regulatory agencies, as an integral part of their examination process,
      periodically review the Bank's allowance for losses. Such agencies may require
      the Bank to recognize additions to the allowance based on their judgments about
      information available to them at the time of their examination.





The
      allowance for loan losses totaled $738,000, an increase of $52,000 from the
      $686,000 balance at December 31, 2006. The Bank’s allowance for loan losses to
      net loans receivable was .50% at December 31, 2007, compared to .45% at December
      31, 2006. Non-performing loans totaled $2.6 million, or 1.72% of total loans
      receivable at December 31, 2007, compared to $2.7 million, or 1.71% of total
      loans receivable at December 31, 2006. Included in non-performing loans at
      December 31, 2007, was one single family construction loan totaling $231,000,
      fifteen single family mortgage loans totaling $2.0 million, one home equity
      line
      of credit totaling $25,000, one non-residential mortgage loan totaling $259,000,
      two commercial non-mortgage loans totaling $37,000 and seven non-mortgage
      consumer loans totaling $36,000. The ratio of allowance for loan losses to
      non-performing loans was 28.5% at December 31, 2007, compared to 25.7% at
      December 31, 2006.





The
      Company’s investment in a limited partnership decreased $45,000 to $712,000 at
      December 31, 2007, as compared to $757,000 as of December 31, 2006. The decline
      represents the Company’s share of the operating losses generated by the
      partnership, which consists of an investment in an apartment development, which
      generates low-income housing tax credits to offset federal income tax
      liabilities.





Real
      estate owned declined $331,000 to $750,000 at December 31, 2007, as compared
      to
      $1.1 million at December 31, 2006. The Company’s aggressive marketing efforts to
      dispose of real estate owned was offset by new transfers to real estate owned
      of
      $537,000. At December 31, 2007 real estate owned consisted of one
      non-residential parcel totaling $403,000 located in Highland, Indiana and
      thirty-two vacant land parcels located near Indianapolis, Indiana totaling
      $347,000. The real estate owned properties are valued at the lower of cost
      or
      managements’ estimate of net realizable value.





Stock
      in
      the FHLB of Indianapolis remained unchanged, totaling $1.8 million at December
      31, 2007. The Company is required to hold stock in the FHLB of Indianapolis
      in
      order obtain advances. The amount of FHLB stock required to be held by the
      Company is determined by the amount of borrowed funds from the FHLB of
      Indianapolis.





Office
      properties and equipment increased $3.4 million to $6.2 million at December
      31,
      2007, as compared to $2.8 million at December 31, 2006. The increase was
      primarily due to the construction of a three-story office building located
      in
      Schererville, Indiana, which will be partially utilized by the Bank as a full
      service branch office. The Bank will attempt to lease the remaining portion
      of
      the building. Construction of the banking facility is near completion and
      anticipated to be open to the public in June 2008. Costs incurred through
      December 31, 2007 totaled $3.6 million. Remaining costs to complete the
      construction project are anticipated to be approximately $1.5
      million.





The
      Company has acquired, in conjunction with an agreement with a local builder,
      vacant lots on which to construct single-family residences in St. John and
      Munster, Indiana. During the year ended December 31, 2007, the investment in
      real estate held for development increased $72,000 to $2.0 million from $1.9
      million at December 31, 2006, as additional expenditures of $515,000 were offset
      by the proceeds from the sale of one property totaling $476,000. At December
      31,
      2007, the Company’s $2.0 million investment in real estate development projects
      consisted of three completed single-family dwelling units and four vacant lots.
      Due to the slowdown in the real estate market, the Company has decided not
      to
      build on the remaining vacant lots at this time. All of the completed units
      and
      vacant lots are currently listed or in the process of being listed for
      sale.




7




Bank
      owned life insurance increased $126,000 to $3.7 million at December 31, 2007,
      as
      compared to $3.6 million at December 31, 2006. The change represents the
      increase in the cash surrender value of the life insurance policies purchased
      in
      connection with deferred compensation plans utilized by directors and officers
      of the Company.





Deposits
      decreased $6.0 million, or 4.8% to $118.9 million at December 31, 2007 from
      $124.9 million at December 31, 2006. The decrease in deposits is due to
      decreases in certificates of deposits of $2.3 million, passbook accounts
      totaling $700,000 and checking and money market deposits totaling $3.0 million.
      At December 31, 2007, the Bank’s non-certificate accounts (passbook, checking
      and money market accounts) comprised $40.3 million, or 33.9% of deposits,
      compared to $43.9 million, or 35.2% of deposits at December 31, 2006. The
      decrease in deposits during the current year is attributable in part to
      increased pricing competition in the local market area of the
      Company.





Borrowed
      money, which consisted primarily of FHLB of Indianapolis advances, increased
      by
      $1.6 million to $35.9 million at December 31, 2007, as compared to $34.3 million
      at December 31, 2006. The Company reduced borrowings from the FHLB of
      Indianapolis to $33.4 million at December 31, 2007, from $34.1 million at
      December 31, 2006. As of December 31, 2007, the weighted average rate for the
      FHLB of Indianapolis borrowings was 4.87%, compared to a weighted average rate
      5.16%, as of December 31, 2006. FHLB of Indianapolis borrowings scheduled to
      mature during the next twelve months total $16.0 million at a weighted average
      rate of 4.45%. During the first quarter of 2007, the Company repaid its $5.0
      million trust preferred issue and replaced it with a new $3.0 million trust
      preferred issue at a reduced rate and borrowed an additional $2.0 million that
      is scheduled to mature annually. During the year ended December 31, 2007, the
      Company also borrowed $300,000 from a third-party lender for general operating
      purposes.





Total
      stockholders’ equity of the Company decreased by $1.2 million to $13.5 million,
      or 7.70% of total assets, at December 31, 2007, compared to $14.7 million,
      or
      8.04% of total assets at December 31, 2006. The decrease in stockholders’ equity
      was the result of the Company’s repurchase of common stock for treasury in the
      amount of $947,000 and the payment of $358,000 in cash dividends, offset by
      net
      income of $48,000, stock option compensation of $12,000 and an increase in
      unrealized holding gains on securities available for sale, net of tax, in the
      amount of $37,000.





It
      is not
      clear how serious an effect the current slowdown of the economy will have on
      the
      Company’s loan volume, credit quality and deposit flows. However, management
      believes that the Company’s construction and consumer loans may be particularly
      sensitive to adverse economic conditions.





**Analysis
      of Net Interest Income.** Net
      interest income represents the difference between interest earned on
      interest-earning assets and interest paid on interest-bearing liabilities.
      Net
      interest income is affected by the relative amounts of interest-earning assets
      and interest-bearing liabilities, and the interest rates earned or paid on
      them.




8




The
      following table presents, for the periods indicated, the total dollar amounts
      of
      interest income from average interest-earning assets and the resultant yields,
      as well as the interest expense on average interest-bearing liabilities,
      expressed both in dollars and rates. No tax equivalent adjustments were made.
      All average balances were calculated using average daily balances and include
      non-accruing loans.




**ANALYSIS
        OF NET INTEREST INCOME TABLE**




For
                theYear Ended December 31,(Dollars
                in thousands)2007
            
            2006
            
            2005Average
            
            Interest
            
            
            
            Average
            
            Interest
            
            
            
            Average
            
            InterestOutstanding
            
            Earned/
            
            Yield/
            
            Outstanding
            
            Earned/
            
            Yield/
            
            Outstanding
            
            Earned/
            
            Yield/Balance
            
            Paid
            
            Rate
            
            Balance
            
            Paid
            
            Rate
            
            Balance
            
            Paid
            
            Rate**Assets**:Interest-Earning
                AssetsLoans
                receivable (1)
            
            
            146,047
            
            
            9,497
            
            
            6.50
            %
            
            146,688
            
            
            9,553
            
            
            6.51
            %
            
            133,560
            
            
            8,152
            
            
            6.10
            %Mortgage-backed
                securities
            
            
            1,015
            
            
            46
            
            
            4.53
            %
            
            1,448
            
            
            70
            
            
            4.83
            %
            
            1,989
            
            
            90
            
            
            4.52
            %Investment
                securities
            
            
            3,080
            
            
            156
            
            
            5.06
            %
            
            3,411
            
            
            166
            
            
            4.87
            %
            
            3,439
            
            
            115
            
            
            3.34
            %Interest-bearing
                deposits
            
            
            5,196
            
            
            258
            
            
            4.97
            %
            
            3,290
            
            
            152
            
            
            4.62
            %
            
            4,735
            
            
            149
            
            
            3.15
            %FHLB
                stock
            
            
            1,751
            
            
            80
            
            
            4.57
            %
            
            1,761
            
            
            86
            
            
            4.88
            %
            
            1,795
            
            
            79
            
            
            4.40
            %Total
                interest-earning assets
            
            
            157,089
            
            
            10,037
            
            
            6.39
            %
            
            156,598
            
            
            10,027
            
            
            6.40
            %
            
            145,518
            
            
            8,585
            
            
            5.90
            %Non-interest
                earning assets
            
            
            20,196
            
            
            
            
            
            
            
            
            18,415
            
            
            
            
            
            
            
            
            16,736Total
                Assets
            
            
            177,285
            
            
            
            
            
            
            
            
            175,013
            
            
            
            
            
            
            
            
            162,254**Liabilities
                and stockholders equity:**Interest-Bearing
                LiabilitiesPassbook
                accounts
            
            
            17,542
            
            
            186
            
            
            1.06
            %
            
            18,541
            
            
            232
            
            
            1.25
            %
            
            20,203
            
            
            252
            
            
            1.25
            %Demand
                and NOW accounts
            
            
            23,498
            
            
            372
            
            
            1.58
            %
            
            24,687
            
            
            434
            
            
            1.76
            %
            
            25,652
            
            
            432
            
            
            1.68
            %Certificate
                accounts
            
            
            80,319
            
            
            3,838
            
            
            4.78
            %
            
            80,834
            
            
            3,309
            
            
            4.09
            %
            
            72,437
            
            
            2,116
            
            
            2.92
            %Total
                deposits
            
            
            121,359
            
            
            4,396
            
            
            3.62
            %
            
            124,062
            
            
            3,975
            
            
            3.20
            %
            
            118,292
            
            
            2,800
            
            
            2.37
            %Borrowings
            
            
            33,131
            
            
            1,774
            
            
            5.35
            %
            
            27,260
            
            
            1,378
            
            
            5.06
            %
            
            20,738
            
            
            990
            
            
            4.77
            %Junior
                subordinated debentures
            
            
            3,495
            
            
            272
            
            
            7.78
            %
            
            5,000
            
            
            454
            
            
            9.08
            %
            
            5,000
            
            
            359
            
            
            7.18
            %Total
                interest-bearing liabilities
            
            
            157,985
            
            
            6,442
            
            
            4.08
            %
            
            156,322
            
            
            5,807
            
            
            3.71
            %
            
            144,030
            
            
            4,149
            
            
            2.88
            %Non-interest
                liabilities
            
            
            5,104
            
            
            
            
            
            
            
            
            4,206
            
            
            
            
            
            
            
            
            4,367Total
                liabilities
            
            
            163,089
            
            
            
            
            
            
            
            
            160,528
            
            
            
            
            
            
            
            
            148,397Stockholders
                equity
            
            
            14,196
            
            
            
            
            
            
            
            
            14,485
            
            
            
            
            
            
            
            
            13,857Total
                liabilities and stockholders equity
            
            
            177,285
            
            
            
            
            
            
            
            
            175,013
            
            
            
            
            
            
            
            
            162,254Net
                interest income/net interest rate spread
            
            
            
            
            
            3,595
            
            
            2.31
            %
            
            
            
            
            4,220
            
            
            2.69
            %
            
            
            
            
            4,436
            
            
            3.02
            %Net
                interest-earning assets/net interest margin
            
            
            (896
            )
            
            
            
            
            2.29
            %
            
            276
            
            
            
            
            
            2.69
            %
            
            1,488
            
            
            
            
            
            3.05
            %Ratio
                of interest-earning assets to interest bearing liabilities
            
            
            .99x
            
            
            
            
            
            
            
            
            1.00x
            
            
            
            
            
            
            
            
            1.01x




(1)
              Calculated
                  net of loans in process, deferred yield adjustments and allowance
                  for loan
                  losses.
 9




The
      table
      below presents the extent to which changes in interest rates and changes in
      the
      volume of interest-earning assets and interest bearing liabilities have affected
      the Company’s interest income and interest expense during the period indicated.
      Information is provided in each category with respect to (i) changes
      attributable to changes in rate (changes in rate multiplied by prior volume),
      (ii) changes attributable to changes in volume (changes in volume multiplied
      by
      prior rate), (iii) changes attributable to the combined impact of volume and
      rate (changes in the rate multiplied by the changes in the volume), and (iv)
      the
      net change. The changes attributable to the combined impact of volume and rate
      have been allocated proportionately to the changes due to volume and the changes
      due to rate.





For
                the Year Ended December 31,2007
                Compared to 2006 Increase (Decrease) Due to
            
            2006
                Compared to 2005 Increase (Decrease) Due toRate/
            
            
            
            
            
            
            
            Rate/Rate
            
            Volume
            
            Volume
            
            Net
            
            Rate
            
            Volume
            
            Volume
            
            Net(Dollars
                in thousands)
            
            (Dollars
                in thousands)Interest-earning
                assets:Loans
                receivable, net
            
            $
            (14
            )
            
            (42
            )
            
            -
            
            
            (56
            )
            
            546
            
            
            801
            
            
            54
            
            
            1,401Mortgage-backed
                securities
            
            
            (4
            )
            
            (21
            )
            
            1
            
            
            (24
            )
            
            6
            
            
            (24
            )
            
            (2
            )
            
            (20
            )Investment
                securities
            
            
            7
            
            
            (16
            )
            
            (1
            )
            
            (10
            )
            
            52
            
            
            (1
            )
            
            -
            
            
            51Interest-bearing
                deposit
            
            
            11
            
            
            88
            
            
            7
            
            
            106
            
            
            70
            
            
            (46
            )
            
            (21
            )
            
            3FHLB
                Stock
            
            
            (6
            )
            
            -
            
            
            -
            
            
            (6
            )
            
            9
            
            
            (2
            )
            
            -
            
            
            7Totals
            
            $
            (6
            )
            
            9
            
            
            7
            
            
            10
            
            
            683
            
            
            728
            
            
            31
            
            
            1,442Interest-bearing
                liabilities:Passbook
                accounts
            
            $
            (35
            )
            
            (13
            )
            
            2
            
            
            (46
            )
            
            1
            
            
            (21
            )
            
            -
            
            
            (20
            )Demand
                and Now accounts
            
            
            (43
            )
            
            (21
            )
            
            2
            
            
            (62
            )
            
            19
            
            
            (16
            )
            
            (1
            )
            
            2Certificate
                accounts
            
            
            554
            
            
            (21
            )
            
            (4
            )
            
            529
            
            
            849
            
            
            245
            
            
            99
            
            
            1,193Borrowed
                funds
            
            
            82
            
            
            296
            
            
            18
            
            
            396
            
            
            58
            
            
            312
            
            
            18
            
            
            388Junior
                subordinated debentures
            
            
            (65
            )
            
            (137
            )
            
            20
            
            
            (182
            )
            
            95
            
            
            -
            
            
            -
            
            
            95Totals
            
            $
            493
            
            
            104
            
            
            38
            
            
            635
            
            
            1,022
            
            
            520
            
            
            116
            
            
            1,658Net
                change in net interest income
            
            
            
            
            
            
            $
            (625
            )
            
            
            
            
            
            
            
            
            
            $
            (216
            )




10




**Comparison
      of the Results of Operations for the Years Ended December 31, 2007 and
      2006**





**General** - Net
      income for the year ended December 31, 2007 decreased $600,000, or 92.5% to
      $48,000, as compared to $648,000 for the year ended December 31, 2006. Diluted
      earnings per share totaled $.05 per share for the year ended December 31, 2007
      and $.64 per share for the year ended December 31, 2006. Return on average
      stockholders’ equity decreased to 0.34% for the year ended December 31, 2007,
      from 4.48% for the year ended December 31, 2006. Return on average assets
      decreased to .03% for the year ended December 31, 2007, from .37% for the year
      ended December 31, 2006. The decreases in net income and the related return
      ratios for the year ended December 31, 2007 were primarily the result of
      decreases in net interest income and non-interest income, offset in part, by
      a
      decrease in the provision for loan losses and a reduction in income tax expense.





**Interest
      income** - Total
      interest income increased by $10,000 to $10.0 million for the year ended
      December 31, 2007, as compared with the prior year. This increase was the result
      of an increase of $490,000 in the average balance of interest-earning assets
      to
      $157.1 million for the year ended December 31, 2007, as compared to $156.6
      million for the year ended December 31, 2006, partially offset by a slight
      decrease in the average yield on interest-earnings assets to 6.39% for the
      year
      ended December 31, 2007, as compared to 6.40% for the year ended December 31,
      2006. The increase in the average balance of interest-earnings assets was due
      to
      an increase in the average balance of interest bearing deposits.





Interest
      income on loans receivable decreased $56,000 to $9.5 million, as compared to
      the
      prior year. The decrease in interest income on loans was the result of a
      $641,000 decrease in the average balance of loans outstanding, as well as a
      one
      basis point decline in the average yield to 6.50% for the year ended December
      31, 2007, from 6.51% for the year ended December 31, 2006. The decrease in
      the
      average balance was due to principal repayments exceeding lower levels of new
      originations as a result of the current real estate lending environment. The
      decrease in the average yield on loans receivable reflects the impact of
      repayments on higher rate loans, which were replaced with lower yielding new
      originations and purchases. Interest income on mortgage-backed securities
      decreased $24,000, or 33.3% due to a $433,000 decrease in the average balance
      in
      the portfolio as well as a decrease in the average yield to 4.53% for the
      current year, as compared to 4.83% for the prior year. Interest income on
      investment securities decreased $10,000, or 6.2%, to $156,000, as compared
      to
      the prior year. The decrease in interest income on investment securities was
      the
      result of a $331,000 decrease in the average balance of investment securities
      outstanding, which was partially offset by a increase in the average yield
      to
      5.06% for the year ended December 31, 2007, from 4.87% for the year ended
      December 31, 2006. The decrease in the average balance was due to the early
      redemption of investment securities in the current year. Interest income on
      interest bearing deposits increased by $106,000, or 69.6%, as compared to the
      prior year. The increase in interest income was the result of a $1.9 million
      increase in the average balance outstanding, as well as an increase in the
      average yield to 4.97% for the year ended December 31, 2007, from 4.62% for
      the
      year ended December 31, 2006. The increase in the average balance was due in
      part to excess funds from loan repayments. The increase in the average yield
      was
      due to higher short-term interest rates paid on overnight deposits during 2007,
      as compared to 2006. Dividend income on FHLB of Indianapolis stock decreased
      by
      $6,000, or 7.4%, as compared to the prior year. The decrease in dividend income
      was the result of a $10,000 decrease in the average balance outstanding, as
      well
      as a decrease in the average yield to 4.57% for the year ended December 31,
      2007, from 4.88% for the year ended December 31, 2006. The decrease in the
      average balance was due to stock redemptions during 2006, which lowered the
      average balance for 2007, while the decrease in the average yield reflects
      the
      impact of a lower dividend rate paid in 2007, as compared to 2006.





**Interest
      Expense** - Total
      interest expense increased by $635,000, or 10.9%, to $6.4 million for the year
      ended December 31, 2007, as compared to $5.8 million for the year ended December
      31, 2006. The cost of interest-bearing liabilities increased 37 basis points
      to
      4.08% for the year ended December 31, 2007, as compared to 3.71% for the year
      ended December 31, 2006, as higher short-term interest rates required management
      to raise the rate on repricing certificates of deposits to remain competitive.
      The average balance of interest-bearing liabilities also rose during the year
      by
      $1.7 million to $158.0 million for the year ended December 31, 2007, as compared
      to $156.3 million for the year ended December 31, 2006.




11




Interest
      expense on deposits increased by $421,000, or 10.6% to $4.4 million for the
      year
      ended December 31, 2007, as compared with the prior year as a result of a 42
      basis point increase in the average cost of deposits. The increase in the
      average cost of deposits was primarily impacted by a 69 basis point average
      rate
      increase on certificates of deposits to an average rate of 4.78% during 2007,
      as
      compared to an average rate of 4.09% for 2006. During 2007, the majority of
      certificates of deposits that were scheduled to reprice did so at relatively
      higher short-term rates. Due to recent declines in short-term market rates
      of
      interest, the Company anticipates a reduction in the average rates paid on
      maturing certificates of deposits as they reprice in 2008.





Interest
      expense on borrowings increased by $214,000 to $2.0 million, or 11.7% for the
      year ended December 31, 2007, as compared with the prior year as a result of
      a
      $4.4 million increase in the average balance of borrowings to $36.6 million
      for
      the year ended December 31, 2007, from $32.3 million for the year ended December
      31, 2006. The increase was partially offset by a decrease of nine basis points
      in the average cost of borrowed funds. Interest expense on FHLB of Indianapolis
      advances increased by $291,000 to $1.7 million for the year ended December
      31,
      2007, as compared with the prior year as a result of a $4.3 million increase
      in
      the average balance of borrowings to $31.3 million for the year ended December
      31, 2007, from $27.0 million for the year ended December 31, 2006, as well
      as an
      increase of 23 basis points in the average cost of borrowed funds to 5.27%.
      Interest expense on other borrowings increased $105,000 to $123,000 at December
      31, 2007, as compared to $18,000 at December 31, 2006. The increase was due
      primarily to the aforementioned $2.0 million borrowing in conjunction with
      the
      Company’s refinancing of its trust preferred issue and an additional $300,000
      borrowing from a third-party lender. During the first quarter of 2007, the
      Company repaid its $5.0 million trust preferred issue and replaced it with
      a new
      $3.0 million trust preferred issue at a reduced rate as well as the $2.0 million
      borrowing discussed above. Interest expense on trust preferred borrowings
      decreased $182,000, to $272,000 at December 31, 2007, as compared to $454,000
      at
      December 31, 2006. The decrease was due to a $1.5 million decline in the average
      balance outstanding as well as a 130 basis point decline in the weighted average
      cost of the borrowing.





**Provision
      for Loan Losses** -
      The
      Company establishes provisions for losses on loans, which are charged to
      operations, in order to maintain the allowance for losses on loans at a level,
      which is deemed appropriate to absorb losses inherent in the portfolio. In
      determining the appropriate level of the allowance for loan losses, management
      considers past and anticipated loss experience, evaluations of real estate
      collateral, current and anticipated economic conditions, volume and type of
      lending, and the levels of non-performing and other classified loans. The amount
      of the allowance is based on estimates, and ultimate losses may vary from such
      estimates. Management assesses the allowance for losses on loans on a periodic
      basis and makes appropriate provisions to maintain the adequacy of the
      allowance. The actual determination of the total provision is the combination
      of
      specific reserves, which may be established from time to time on individual
      classified assets, and a general reserve that is based in part on certain ratios
      applied to various loan pools as stratified by the Company, considering
      historical charge-offs and delinquency levels.





Based
      on
      management’s assessment of the adequacy of the loan loss reserve, the Company
      recorded a provision for loan losses of $133,000 for the year ended December
      31,
      2007, as compared to $248,000 in the prior year. The prior year period includes
      $108,000 of additional provision for establishing a loan loss reserve against
      a
      non-residential loan, which was subsequently charged off. Total charge-offs
      were
      $331,000 and $342,000 during the years ended December 31, 2007 and 2006,
      respectively, while recoveries on loans previously charged off totaled $250,000
      and $32,000 during the same periods. The allowance for loan losses totaled
      $738,000 at December 31, 2007, as compared to $686,000 at December 31,
      2006.





**Non-Interest
      Income** -
      Non-interest income decreased by $243,000, or 17.4% to $1.2 million for the
      year
      ended December 31, 2007, as compared to $1.4 million for the year ended December
      31, 2006. The decrease was due in part to a $161,000 decline in service fee
      income, primarily in loan related fees due in part to a decline in origination
      activity and accounts receivable program fees due to a decline in volume, a
      $43,000 decline in income from trading securities due to a decline in the market
      value of the Company’s investment in equity securities, a $21,000 decline in
      gains on the sale of assets due to the Company recording a $39,000 gain on
      the
      sale of stock in the Bank’s data processing provider during the prior year, a
      $9,000 increase in losses on the sale of real estate owned properties, and
      a
      $17,000 reduction in income from real estate held for development.




12




**Non-Interest
      Expense** -
      Non-interest expense increased by $24,000 between the periods primarily due
      to a
      $95,000 increase in professional fees, a $47,000 increase in other expenses,
      and
      a $28,000 increase in data processing expenses. The increase in professional
      fees was the result of a $45,000 increase in legal fees related to lending
      activities and holding company issues, as well as a $42,000 increase in
      professional fees regarding consulting matters. The increase in other expenses
      of $47,000 was impacted in part by a $30,000 loss incurred on a fraudulent
      check. Partially offsetting these increases was a decline in compensation and
      benefits of $71,000 and decreased advertising costs of $85,000. The decline
      in
      compensation and benefits was due to an $87,000 reduction in the management
      incentive program, partially offset by a $50,000 contribution to the employee
      stock ownership plan of the Company, and a $39,000 decrease in stock option
      compensation expense. In order to more closely align the interests of its
      employees and shareholders, the Company elected to fund the employee stock
      ownership plan and eliminate any management bonus for 2007. The decrease in
      advertising expense was due to the Company not undertaking as many promotions
      during the current year as compared to the prior year. At December 31, 2007,
      the
      Company had fully utilized its FDIC insurance credit. As a result, federal
      deposit insurance premiums are expected to amount to approximately $90,000
      annually beginning in 2008. It is also anticipated that our occupancy and
      equipment expenses, compensation and various other expenses will increase
      significantly in 2008 as a result of the opening of our new branch office
      facility. The Company will attempt to lease a portion of the building that
      it
      will not utilize.





**Income
      Taxes** - The
      Company recorded an income tax benefit of $58,000 for the year ended December
      31, 2007, as compared to an income tax expense of $119,000 for the year ended
      December 31, 2006. The current year’s tax benefit was generated in part by
      favorable permanent tax adjustments. The prior year’s tax expense was positively
      impacted by the recognition of $70,000 in low-income housing tax credits. No
      low-income housing tax credit was recorded in the current year due to no book
      taxable income to offset. However, if in future years sufficient book taxable
      income is evident, the tax credits may be utilized which will have the effect
      of
      lowering the effective tax rate. The prior year’s tax provision was also
      impacted as a result of amending prior years’ state income tax returns, which
      resulted in the Company receiving $25,000 in refunds.





**Comparison
      of the Results of Operations for the Years Ended December 31, 2006 and
      2005**





**General** - Net
      income for the year ended December 31, 2006 decreased $212,000 to $648,000,
      from
      $860,000 for the year ended December 31, 2005. Diluted earnings per share
      totaled $.64 per share for the year ended December 31, 2006 and $.85 per share
      for the year ended December 31, 2005. Return on average stockholders’ equity
      decreased to 4.48% for the year ended December 31, 2006, from 6.20% for the
      year
      ended December 31, 2005. Return on average assets decreased to .37% for the
      year
      ended December 31, 2006, from .53% for the year ended December 31, 2005. The
      decreases in net income and the related return ratios for the year ended
      December 31, 2006 were primarily the result of decreases in net interest income
      and non-interest income offset, in part, by a reduction in income tax expense.





**Interest
      income** - Total
      interest income increased by $1.4 million, or 16.8%, to $10.03 million for
      the
      year ended December 31, 2006 compared to the year ended December 31, 2005.
      This
      increase was the result of an increase of $11.1 million in the average balance
      of interest-earning assets to $156.6 million for the year ended December 31,
      2006, from $145.5 million for the year ended December 31, 2005, as well as
      an
      increase in the average yield on interest-earnings assets to 6.40% for the
      year
      ended December 31, 2006, from 5.90% for the year ended December 31, 2005. The
      increase in the average balance of interest-earnings assets was primarily due
      to
      increases in the average balances of loans receivable. The increase in the
      average yield on interest-earning assets was primarily due to the impact of
      economic conditions that resulted in an increase in rates throughout the year,
      particularly for short and medium term instruments, resulting in the
      reinvestment of prepaid and matured asset at higher rates. In addition, net
      premium amortization on purchased mortgage loans decreased $35,000 to $45,000
      for the year ended December 31, 2006, from $80,000 for the year ended December
      31, 2005 generating a year-over-year improvement.





Interest
      income on loans receivable increased $1.4 million, or 17.2%, to $9.55 million,
      as compared to the prior year. The increase in interest income on loans was
      the
      result of a $13.1 million increase in the average balance of loans, as well
      as
      an increase in the average yield to 6.51% for the year ended December 31, 2006,
      from 6.10% for the year ended December 31, 2005. The increase in the average
      yield on loans receivable reflects the impact of an increasing interest rate
      environment as lower rate loans were repaid and replaced with higher yield
      new
      originations and purchases. Interest income on mortgage-backed securities
      decreased due to a decrease in the average balance in the portfolio. Interest
      income on the investment portfolio and on interest-bearing deposits rose due
      to
      the overall increase in short-term rates between the periods.




13




**Interest
      Expense** - Total
      interest expense increased by $1.7 million, or 40.0%, to $5.81 million for
      the
      year ended December 31, 2006, as compared to $4.15 million for the year ended
      December 31, 2005. The cost of interest-bearing liabilities increased 83 basis
      points to 3.71% for the year ended December 31, 2006, compared to 2.88% for
      the
      year ended December 31, 2005, as higher short-term interest rates forced
      management to raise the rate on repricing certificates of deposits. The balance
      of interest-bearing liabilities also rose during the year by $12.3 million
      to
      $156.3 million for the year ended December 31, 2006, as compared to $144.0
      million for the year ended December 31, 2005.





Interest
      expense on borrowings increased by $483,000 to $1.83 million for the year ended
      December 31, 2006, compared with the prior year as a result of a $6.5 million
      increase in the average balance of borrowings to $32.3 million for the year
      ended December 31, 2006, from $25.7 million for the year ended December 31,
      2005, as well as an increase of 44 basis points in the average cost of borrowed
      funds. Maturities of lower costing fixed rate FHLB advances refinanced into
      higher cost borrowings and the rate increased on our LIBOR-based trust preferred
      securities.





**Provision
      for Loan Losses** - The
      Company establishes provisions for losses on loans, which are charged to
      operations, in order to maintain the allowance for losses on loans at a level,
      which is deemed appropriate to absorb losses inherent in the portfolio. In
      determining the appropriate level of the allowance for loan losses, management
      considers past and anticipated loss experience, evaluations of real estate
      collateral, current and anticipated economic conditions, volume and type of
      lending, and the levels of non-performing and other classified loans. The amount
      of the allowance is based on estimates, and ultimate losses may vary from such
      estimates. Management assesses the allowance for losses on loans on a periodic
      basis and makes appropriate provisions to maintain the adequacy of the
      allowance. The actual determination of the total provision is the combination
      of
      specific reserves, which may be established from time to time on individual
      classified assets, and a general reserve that is based in part on certain ratios
      applied to various loan pools as stratified by the Company, considering
      historical charge-offs and delinquency levels.





Based
      on
      management’s assessment of the adequacy of the loan loss reserve, the Company
      recorded a provision for loan losses of $248,000 for the year ended December
      31,
      2006 compared to $275,000 in the prior year. Net charge-offs were $311,000
      and
      $242,000 during the years ended December 31, 2006 and 2005, respectively. The
      allowance for loan losses totaled $686,000 at December 31, 2006, and $749,000
      at
      December 31, 2005.





**Non-Interest
      Income** -
      Non-interest income for the year ended December 31, 2006 decreased $279,000,
      to
      $1.40 million from $1.68 million for the year ended December 31, 2005. The
      decrease in non-interest income was primarily due to a reduced gain on the
      sale
      of the stock in the Bank’s data processing provider to $39,000 in the current
      year compared to $345,000 recorded in the prior year. In addition, the Company
      recorded an increased loss of $75,000 from the sale and write-down of other real
      estate owned properties in the current year compared to the prior year.
      Offsetting these declines was $51,000 in income from real estate operations,
      which began in 2006. Loan fee income increased by $54,000 during the year,
      primarily due to increased mortgage release fee income, while deposit related
      fee income fell by $94,000 due to reduced ATM surcharge fees and to a lesser
      extent, reduced fee income from NOW account overdraft fees. Service fee income
      relating to the Company’s accounts receivable program increased by $56,000 due
      entirely to increased activity from those accounts serviced by the Bank.





In
      addition, the Company also recorded a loss of $41,000 and $72,000 for the years
      ended December 31, 2006 and 2005, respectively, related to an investment in
      a
      low-income housing joint venture. As a result of this investment, the Company
      recorded an offsetting $140,000 in federal income tax credits during both years,
      which resulted in the reduction of the Company’s effective income tax
      rate.




14




**Non-Interest
      Expense** - The
      Company’s non-interest expense decreased $31,000 to $4.61 million for the year
      ended December 31, 2006, as compared to $4.64 million for the year ended
      December 31, 2005. The decrease in non-interest expense resulted primarily
      from
      decreased data processing costs of $184,000, due to increased efficiencies,
      which were undertaken during 2005 as well as significant costs incurred in
      the
      prior year to convert to a new ATM/debit card platform. In addition, staffing
      costs declined by $21,000, primarily related to $221,000 of ESOP expenses
      incurred in the prior year, which offset increases in compensation, pension
      and
      other benefit costs. Advertising costs increased by $70,000 as many new
      promotion campaigns were undertaken to promote the Bank’s products and image in
      the local community. Professional fees also increased by $63,000 as due in
      part
      to increased legal and audit fees, as well as an extensive loan file review
      and
      several compliance reviews that occurred during the year.





**Income
      Taxes** - The
      Company recorded a provision for income taxes of $119,000, or an effective
      tax
      rate of 15.5% for the year ended December 31, 2006 compared to $344,000, or
      an
      effective tax rate of 28.6% for the year ended December 31, 2005. Both periods
      were positively impacted by the recognition of approximately $140,000 in
      low-income housing tax credits which have a greater impact on the effective
      tax
      rate in a lower earnings period compared to a higher earnings period. The 2006
      year’s tax provision was also impacted as a result of amending prior years’
state income tax returns, which resulted in the Company receiving $25,000 in
      refunds.





15




**Qualitative
      and Quantitative Disclosure of Market Risk**





The
      principal objectives of the Company's interest rate risk management activities
      are to: (i) define an acceptable level of risk based on the Company's business
      focus, operating environment, capital and liquidity requirements, and
      performance objectives; (ii) quantify and monitor the amount of interest rate
      risk inherent in its asset/liability structure; and (iii) modify the Company's
      asset/liability structure, as necessary, to manage interest rate risk and net
      interest margins ** in
      changing rate environments. Management seeks to achieve these objectives through
      an analysis of the value of the Company’s net portfolio value (“NPV”) under
      different interest rate scenarios and the ratio of interest rate sensitive
      assets to interest rate sensitive liabilities within specified maturities or
      repricing periods. The Company does not currently engage in the use of
      off-balance sheet derivative instruments to control ** interest
      rate risk and management does not intend to engage in such activity in the
      immediate future.





Notwithstanding
      the Company's interest rate risk management activities, the potential for
      changing interest rates is an uncertainty that could have an adverse effect
      on
      the earnings and net asset value of the Company. When interest-bearing
      liabilities mature or reprice more quickly than interest-earning assets in
      a
      given period, a significant increase in market interest rates could adversely
      affect net interest income. Similarly, when interest-earning assets mature
      or
      reprice, which can occur through the prepayment of long-term loans more quickly
      than interest-bearing liabilities and net asset value, falling interest rates
      could result in a decrease in net interest income and net asset value. Also,
      changes in interest rates usually have an impact on the value of the Company’s
      financial assets. Finally, a flattening or inversion of the "yield curve" (i.e.,
      a narrowing of the spread between long- and short-term interest rates), could
      adversely impact net interest income to the extent that the Company's assets
      have a longer average term than its liabilities.





In
      managing the Company's asset/liability position, the Board and management
      attempt to manage the Company's interest rate risk while enhancing net interest
      margins. However, the Board of Directors generally believes that the increased
      net interest income resulting ** from
      a
      mismatch in the maturity of the Company's asset and liability portfolios can,
      during periods of declining or stable interest rates and periods in which there
      is a substantial positive difference between long- and short-term interest
      rates
      (i. *e.,* a
“positively sloped yield curve”), provide high enough returns to justify the
      increased exposure to sudden and unexpected increases in interest rates. As
      a
      result, the Company's results of ** operations
      and net portfolio values remain significantly vulnerable to increases in
      interest rates and to fluctuations in the difference between long- and
      short-term interest rates. In particular, our net interest margin has been
      adversely affected by the recent flat and inverted yield curve interest rate
      environment.





One
      approach used by management to monitor its exposure to interest rate risk is
      the
      NPV analysis. The NPV represents the excess of the present value of expected
      cash flows from assets over the present value of expected cash flows from
      liabilities. The NPV model estimates the sensitivity of the Bank’s NPV over a
      series of instantaneous and sustained parallel shifts in interest
      rates.





Presented
      below, as of December 31, 2007 and 2006, is an analysis of the Bank’s interest
      rate risk as measured by changes in NPV for instantaneous and sustained parallel
      shifts in the yield curve in 100 basis point (1%) increments, up to 300 basis
      points and down 200 basis points in 2007 and 2006 in accordance with OTS
      regulations. As illustrated in the table, the Bank’s NPV is more sensitive to
      rising rates than declining rates. From an overall perspective, such difference
      in sensitivity occurs principally because, as rates rise, borrowers do not
      prepay fixed rate loans as quickly as they do when interest rates are declining.
      Also, the interest the Bank would pay on its deposits in the event of a rate
      increase would increase more rapidly than the yield on its assets because the
      Bank’s deposits generally have shorter periods to repricing.





16


**NET
        PORTFOLIO BALANCES**


**Year
        Ended December 31,**


**Assumed****Change
                in Interest Rates**
            
            **2007**
            
            **2006****(Basis
                Points)**
            
            **$
                Amount**
            
            **$
                Change**
            
            **%
                Change**
            
            **$
                Amount**
            
            **$
                Change**
            
            **%
                Change**(dollars
                in thousands)+300
            
            
            11,454
            
            
            (5,857
            )
            
            (34
            )
            
            12,359
            
            
            (6,415
            )
            
            (34
            )+200
            
            
            13,615
            
            
            (3,696
            )
            
            (21
            )
            
            14,738
            
            
            (4,036
            )
            
            (21
            )+100
            
            
            15,860
            
            
            (1,451
            )
            
            (8
            )
            
            16,973
            
            
            (1,801
            )
            
            (10
            )17,311
            
            
            
            
            
            
            
            
            18,774-100
            
            
            17,585
            
            
            274
            
            
            2
            
            
            19,916
            
            
            1,142
            
            
            6-200
            
            
            17,211
            
            
            (100
            )
            
            (1
            )
            
            20,101
            
            
            1,327
            
            
            7




Certain
      assumptions utilized by the OTS in assessing the interest rate risk of thrift
      institutions were employed in preparing the preceding table. These assumptions
      relate to interest rates, loan prepayment rates, deposit decay rates, and the
      market values of certain assets under the various interest rate scenarios.
      It
      was also assumed that delinquency rates would not change as a result of changes
      in interest rates although there can be no assurance that this will be the
      case.
      Even if interest rates change in the designated amounts, there can be no
      assurance that the Bank's assets and liabilities would perform as set forth
      above. In addition, a change in U.S. Treasury rates in the designated amounts,
      accompanied by a change in the shape of the Treasury yield curve, would cause
      significantly different changes to the NPVs indicated above.





Other
      types of market risk, such as foreign currency exchange risk and commodity
      price
      risk, do not arise in the normal course of the Company’s business
      activities.




**Liquidity
      and Capital Resources**





The
      Company's primary sources of funds are deposits, borrowings, principal and
      interest payments on loans and securities and, to a lesser extent, proceeds
      from
      the sale of loans and securities. While maturities and scheduled amortization
      of
      loans and securities provide a relatively predictable flow of funds, other
      sources of funds such as loan prepayments and deposit inflows are less
      predictable due to the effects of changes in interest rates, economic conditions
      and competition.





The
      primary investing activity of the Company is the origination and purchase of
      real estate and other loans. During the years ended December 31, 2007 and 2006,
      the Company's disbursements for loan originations totaled $42.4 million and
      $49.3 million, respectively, and loan purchases totaled $6.2 million and $7.3
      million, respectively.





For
      the
      year ended December 31, 2007, the Company experienced a net decrease in deposits
      (including the effect of interest credited) of $6.0 million, as compared to
      a
      net decrease in deposits of $2.6 million during 2006. New borrowings, consisting
      primarily of FHLB of Indianapolis advances, totaled $19.8 million during 2007,
      compared to $20.0 million in 2006. Borrowings of $20.2 million and $6.7 million
      were repaid in fiscal 2007 and 2006, respectively. The necessary liquidity
      needed during 2007 was obtained through the utilization of excess cash and
      cash
      equivalents. The decline in deposits during 2007 was primarily attributable
      to
      increased rate competition in a flat to inverted yield curve environment.





The
      Company may borrow funds from the FHLB of Indianapolis subject to certain
      limitations. At December 31, 2007, based on the level of qualifying collateral
      available to secure advances, the Company's had an unused borrowing capacity
      of
      $31.3 million.




17




The
      Company's most liquid assets are cash and cash equivalents, which include highly
      liquid short-term investments, such as overnight deposits, that are readily
      convertible to known amounts of cash. The level of these assets is dependent
      on
      the Company's operating, financing and investing activities during any given
      period. At December 31, 2007 and 2006, cash and cash equivalents totaled $2.9
      million and $9.7 million, respectively.





At
      December 31, 2007, the Company had outstanding loan origination commitments
      of
      $1.8 million. Undisbursed loans in process totaled $2.2 million at year-end.
      The
      Bank has approved, but unused, home equity lines of credit of approximately
      $5.5
      million at December 31, 2007. In addition, the Company has approved, but unused,
      equity lines of credit on various construction and commercial projects of
      approximately $2.4 at December 31, 2007, as well as approved, but unused, credit
      card lines of credit of approximately $2.0 million. The Company anticipates
      that
      it will have sufficient funds available to meet its current loan origination
      and
      other commitments. Certificates of deposit scheduled to mature in one year
      or
      less from December 31, 2007 totaled $67.6 million. Based on the Company's most
      recent experience and pricing strategy, management believes that a significant
      portion of such deposits will remain with the Company.





The
      OTS
      capital regulations require savings institutions to meet two minimum capital
      standards: a 3% leverage (core capital) ratio and an 8% risk-based capital
      ratio. The Bank satisfied these minimum capital standards at December 31, 2007
      with a leverage capital ratio of 8.86% and a total risk-based capital ratio
      of
      14.13%. In determining the amount of risk-weighted assets for purposes of the
      risk-based capital requirement, a savings institution must compute its
      risk-based assets by multiplying its assets and certain off-balance sheet items
      by risk-weights, which range from 0% for cash and obligations issued by the
      United States Government or its agencies, to 100% for consumer and commercial
      loans, as assigned by the OTS capital regulations. These capital requirements,
      which are applicable to the Bank only, do not consider additional capital held
      at the Company level, and require certain adjustments to stockholder's equity
      to
      arrive at the various regulatory capital amounts.





The
      Bank
      may not declare or pay cash dividends on, or repurchase any of its shares of
      common stock if the effect thereof would cause equity to be reduced below
      applicable regulatory capital requirements, or the amount required to be
      maintained for the liquidation account established in connection with the
      Conversion. The Bank paid $800,000 in dividends to the Company for the year
      ended December 31, 2007 and 2006. Unlike the Bank, the Company is not subject
      to
      OTS regulatory restrictions on the payment of dividends to its shareholders;
      however, it is subject to the requirements of Delaware law. Delaware law
      generally limits dividends to an amount equal to the excess of the net assets
      of
      the Company (the amount by which total assets exceed total liabilities) over
      its
      statutory capital, or if there is no such excess, to its profits for the current
      and/or immediately preceding fiscal year.





**Impact
      of Inflation and Changing Prices**





The
      consolidated financial statements and related data presented herein have been
      prepared in accordance with GAAP, which require the measurement of financial
      position and operating results in terms of historical dollars without
      considering the changes in the relative purchasing power of money over time
      due
      to inflation. The impact of inflation is reflected in the increased cost of
      the
      Company's operations. Unlike industrial companies, nearly all of the assets
      and
      liabilities of the Company are monetary in nature. As a result, interest rates
      have a greater impact on the Company's performance than do the effects of
      general levels of inflation. Interest rates do not necessarily move in the
      same
      direction or to the same extent as the price of goods and services.




18




**Impact
      of New Accounting Standards**





The
      following does not constitute a comprehensive summary of all material changes
      or
      developments affecting the manner in which the Company keeps its books and
      records and performs its financial accounting responsibilities. It is intended
      only as a summary of some of the recent pronouncements made by the Financial
      Accounting Standards Board (“FASB”), which are of particular interest to
      financial institutions.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements (SFAS 157), which defines fair value, establishes
      a
      framework for measuring fair value, and expands disclosures about fair value
      measurements required under other accounting pronouncements, but does not change
      existing guidance as to whether or not an instrument is carried at fair value.
      Additionally, it establishes a fair value hierarchy that prioritizes the
      information used to develop those assumptions. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007
      and interim periods within those fiscal years. Earlier application is encouraged
      provided that the reporting entity has not yet issued financial statements
      for
      that fiscal year, including financial statements for an interim period within
      that fiscal year. The Company does not expect the adoption of SFAS 157 to have
      a
      material impact on its financial condition or results of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities (SFAS 159), which allows an entity the
      irrevocable option to elect fair value for the initial and subsequent
      measurement for certain financial assets and liabilities. Subsequent changes
      in
      fair value of these financial assets and liabilities would be recognized in
      earnings when they occur. SFAS 159 further establishes certain additional
      disclosure requirements. SFAS 159 is effective for fiscal years beginning after
      November 15, 2007, with earlier adoption permitted. The Company does not expect
      the adoption of SFAS 159 to have a material impact on its financial condition
      or
      results of operations.





19




Cobitz,
      VandenBerg & Fennessy


CERTIFIED
      PUBLIC ACCOUNTANTS


9944
      S.
      Roberts Road · Suite 202


Palos
      Hills, Illinois 60465








**INDEPENDENT
      AUDITORS' REPORT**







The
      Board
      of Directors


AMB
      Financial Corp.





We
      have
      audited the consolidated statements of financial condition of AMB Financial
      Corp. and subsidiaries as of December 31, 2007 and 2006, and the related
      consolidated statements of income, changes in stockholders' equity and cash
      flows for each of the three years in the period ending December 31, 2007. These
      consolidated financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatements. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of AMB Financial Corp. and
      subsidiaries at December 31, 2007 and 2006, and the results of their operations
      and their cash flows for each of the three years in the period ending December
      31, 2007, in conformity with accounting principles generally accepted in the
      United States of America.














February
      15, 2008


Palos
      Hills, Illinois





20




AMB
      FINANCIAL CORP.


AND
      SUBSIDIARIES





Consolidated
      Statements of Financial Condition


December
                  31,2007
              
              2006AssetsCash
                  and amounts due from depository institutions
              
              $
              2,555,155
              
              
              4,224,462Interest-bearing
                  deposits
              
              
              379,853
              
              
              5,503,380Total
                  cash and cash equivalents
              
              
              2,935,008
              
              
              9,727,842Investment
                  securities, available for sale, at fair value (note 2)
              
              
              1,718,634
              
              
              3,178,431Trading
                  securities (note 3)
              
              
              306,566
              
              
              339,275Mortgage-backed
                  securities, available for sale, at fair value (note 4)
              
              
              857,988
              
              
              1,252,251Loans
                  receivable (net of allowance for loan losses:2007
                  - $737,886; 2006 - $686,467) (note 5)
              
              
              148,024,848
              
              
              150,701,080Real
                  estate owned
              
              
              750,412
              
              
              1,081,113Investment
                  in limited partnership (note 7)
              
              
              712,129
              
              
              757,129Stock
                  in Federal Home Loan Bank of Indianapolis, at cost
              
              
              1,750,900
              
              
              1,750,900Accrued
                  interest receivable (note 8)
              
              
              741,272
              
              
              796,354Office
                  properties and equipment - net (note 9)
              
              
              6,211,224
              
              
              2,856,432Real
                  estate held for development (note 10)
              
              
              1,953,953
              
              
              1,881,551Bank
                  owned life insurance
              
              
              3,740,294
              
              
              3,614,272Prepaid
                  expenses and other assets (note 11)
              
              
              5,050,438
              
              
              4,345,847Total
                  assets
              
              
              174,753,666
              
              
              182,282,477Liabilities
                  and Stockholders' EquityLiabilities:Deposits
                  (note 12)
              
              
              118,881,547
              
              
              124,858,001Borrowed
                  money (note 13)
              
              
              35,913,019
              
              
              34,317,589Junior
                  subordinated debentures (note 14)
              
              
              3,000,000
              
              
              5,000,000Note
                  payable
              
              
              206,530
              
              
              342,567Advance
                  payments by borrowers for taxes and insurance
              
              
              189,225
              
              
              401,967Other
                  liabilities (note 15)
              
              
              3,110,841
              
              
              2,701,185Total
                  liabilities
              
              
              161,301,162
              
              
              167,621,309Stockholders'
                  Equity:Preferred
                  stock, $.01 par value: authorized 100,000 shares; none
                  outstanding
              
              
              -
              
              
              -Common
                  stock, $.01 par value: authorized 1,900,000 shares; 1,686,169 shares
                  issued and 984,166 shares outstanding at December 31, 20007 and
                  1,046,350
                  shares outstanding at December 31, 2006
              
              
              16,862
              
              
              16,862Additional
                  paid-in capital
              
              
              11,530,669
              
              
              11,519,168Retained
                  earnings, substantially restricted
              
              
              9,653,588
              
              
              9,963,363Accumulated
                  other comprehensive income (loss), net of tax
              
              
              12,228
              
              
              (24,650
              )Treasury
                  stock, at cost (702,003 and 639,819 shares at December 31, 2007
                  and
                  2006)
              
              
              (7,760,843
              )
              
              (6,813,575
              )Total
                  stockholders' equity (notes 19 and 20)
              
              
              13,452,504
              
              
              14,661,168Commitments
                  and contingencies (notes 21 and 22)Total
                  liabilities and stockholders' equity
              
              $
              174,753,666
              
              
              182,282,477




See
      accompanying notes to consolidated financial statements.




21




AMB
      FINANCIAL CORP.


AND
      SUBSIDIARIES





Consolidated
      Statements of Income


Years
                  Ended December 31,2007
              
              2006
              
              2005Interest
                  income:Interest
                  on loans
              
              $
              9,497,334
              
              
              9,553,222
              
              
              8,152,121Interest
                  on mortgage-backed securities
              
              
              46,381
              
              
              69,566
              
              
              90,049Interest
                  on investment securities
              
              
              156,275
              
              
              166,546
              
              
              114,952Interest
                  on interest-bearing deposits
              
              
              257,548
              
              
              151,854
              
              
              148,977Dividends
                  on Federal Home Loan Bank stock
              
              
              79,510
              
              
              85,875
              
              
              78,545Total
                  interest income
              
              
              10,037,048
              
              
              10,027,063
              
              
              8,584,644Interest
                  expense:Interest
                  on deposits
              
              
              4,395,507
              
              
              3,974,567
              
              
              2,800,411Interest
                  on borrowings
              
              
              2,046,183
              
              
              1,832,504
              
              
              1,348,978Total
                  interest expense
              
              
              6,441,690
              
              
              5,807,071
              
              
              4,149,389Net
                  interest income
              
              
              3,595,358
              
              
              4,219,992
              
              
              4,435,255Provision
                  for loan losses (note 5)
              
              
              132,789
              
              
              248,146
              
              
              274,845Net
                  interest income after provision for loan losses
              
              
              3,462,569
              
              
              3,971,846
              
              
              4,160,410Non-interest
                  income:Loan
                  fees and service charges
              
              
              135,903
              
              
              227,514
              
              
              173,487Deposit
                  related fees
              
              
              492,026
              
              
              480,986
              
              
              574,782Other
                  fee income
              
              
              350,023
              
              
              430,821
              
              
              374,052Rental
                  income
              
              
              148,023
              
              
              139,086
              
              
              138,413Unrealized
                  (loss) gain on trading securities - net
              
              
              (32,709
              )
              
              10,230
              
              
              (50,993
              )Gain
                  on sale of trading securities
              
              
              -
              
              
              -
              
              
              42,821Gain
                  on sale of loans (note 6)
              
              
              18,429
              
              
              -
              
              
              -Loss
                  on sale of investment securities
              
              
              -
              
              
              -
              
              
              (11,269
              )Loss
                  on sale of real estate owned - net
              
              
              (88,495
              )
              
              (78,513
              )
              
              (4,189
              )Loss
                  from limited partnership (note 7)
              
              
              (45,000
              )
              
              (40,819
              )
              
              (71,750
              )Income
                  from real estate held for development
              
              
              34,256
              
              
              50,598
              
              
              -Gain
                  on sale of other assets (note 11)
              
              
              -
              
              
              38,851
              
              
              345,166Increase
                  in cash surrender value of life insurance
              
              
              126,022
              
              
              122,666
              
              
              118,494Other
                  income
              
              
              22,308
              
              
              23,318
              
              
              54,025Total
                  non-interest income
              
              
              1,160,786
              
              
              1,404,738
              
              
              1,683,039Non-interest
                  expense:Staffing
                  costs (notes 16 and 17)
              
              
              2,256,050
              
              
              2,327,335
              
              
              2,348,057Advertising
              
              
              164,815
              
              
              250,282
              
              
              180,168Occupancy
                  and equipment expenses (note 9)
              
              
              437,521
              
              
              428,362
              
              
              427,937Data
                  processing
              
              
              503,783
              
              
              475,599
              
              
              659,849Professional
                  fees
              
              
              401,563
              
              
              305,433
              
              
              242,779Federal
                  deposit insurance premiums
              
              
              16,593
              
              
              16,028
              
              
              16,331Other
              
              
              852,874
              
              
              806,205
              
              
              764,917Total
                  non-interest expense
              
              
              4,633,199
              
              
              4,609,244
              
              
              4,640,038(Loss)
                  income before income taxes
              
              
              (9,844
              )
              
              767,340
              
              
              1,203,411Provision
                  for income taxes (benefit) (note 18)
              
              
              (58,284
              )
              
              119,072
              
              
              343,669Net
                  income
              
              $
              48,440
              
              
              648,268
              
              
              859,742Earnings
                  per share -Basic
              
              $
              .05
              
              
              .64
              
              
              .90Diluted
              
              $
              .05
              
              
              .64
              
              
              .85




See
      accompanying notes to consolidated financial statements.




22


AMB
      FINANCIAL CORP.


AND
      SUBSIDIARIES





Consolidated
      Statements of Changes in Stockholders' Equity




Three
      Years Ended December 31, 2007


Accumulated
              
              
              
              CommonAdditional
              
              
              
              Other
              
              
              
              StockCommon
              
              Paid-in
              
              Retained
              
              Comprehensive
              
              Treasury
              
              AcquiredStock
              
              Capital
              
              Earnings
              
              Income
                  (Loss)
              
              Stock
              
              by
                  ESOP
              
              TotalBalance
                  at December 31, 2004
              
              $
              16,862
              
              
              11,227,535
              
              
              9,458,798
              
              
              5,185
              
              
              (7,209,033
              )
              
              (89,930
              )
              
              13,409,417Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              859,742
              
              
              
              
              
              
              
              
              
              
              
              859,742Other
                  comprehensive loss, net of tax:Unrealized
                  holding loss during the year
              
              
              
              
              
              
              
              
              
              
              
              (30,816
              )
              
              
              
              
              
              
              
              (30,816
              )Add:
                  Reclassification adjustment of losses included in net
                  income
              
              
              
              
              
              
              
              
              
              
              
              6,761
              
              
              
              
              
              
              
              
              6,761Total
                  comprehensive income
              
              
              
              
              
              
              
              
              859,742
              
              
              (24,055
              )
              
              
              
              
              
              
              
              835,687Purchase
                  of treasury stock (11,618 shares)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (166,187
              )
              
              
              
              
              (166,187
              )Exercise
                  of 10,505 stock options, and reissuance of treasury stock
              
              
              
              
              
              
              
              
              (37,378
              )
              
              
              
              
              108,812
              
              
              
              
              
              71,434Tax
                  benefit related to stock options exercised
              
              
              
              
              
              27,839
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              27,839Appreciation
                  in fair value of shares charged to expense for ESOP plan
              
              
              
              
              
              135,709
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              135,709Contribution
                  to fund ESOP loan
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              89,930
              
              
              89,930Dividends
                  declared on common stock ($.27 per share)
              
              
              
              
              
              
              
              
              (259,197
              )
              
              
              
              
              
              
              
              
              
              
              (259,197
              )Balance
                  at December 31, 2005
              
              
              16,862
              
              
              11,391,083
              
              
              10,021,965
              
              
              (18,870
              )
              
              (7,266,408
              )
              
              -
              
              
              14,144,632Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              648,268
              
              
              
              
              
              
              
              
              
              
              
              648,268Other
                  comprehensive loss, net of tax:Unrealized
                  holding loss during the year
              
              
              
              
              
              
              
              
              
              
              
              (5,780
              )
              
              
              
              
              
              
              
              (5,780
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              648,268
              
              
              (5,780
              )
              
              
              
              
              
              
              
              642,488Purchase
                  of treasury stock (28,001 shares)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (420,505
              )
              
              
              
              
              (420,505
              )Exercise
                  of 106,352 stock options, and reissuance of treasury stock
              
              
              
              
              
              
              
              
              (391,555
              )
              
              
              
              
              873,338
              
              
              
              
              
              481,783Tax
                  benefit related to stock options exercised
              
              
              
              
              
              78,066
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              78,066Stock
                  option compensation
              
              
              
              
              
              50,019
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              50,019Dividends
                  declared on common stock ($.31 per share)
              
              
              
              
              
              
              
              
              (315,315
              )
              
              
              
              
              
              
              
              
              
              
              (315,315
              )Balance
                  at December 31, 2006
              
              
              16,862
              
              
              11,519,168
              
              
              9,963,363
              
              
              (24,650
              )
              
              (6,813,575
              )
              
              -
              
              
              14,661,168Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              48,440
              
              
              
              
              
              
              
              
              
              
              
              48,440Other
                  comprehensive income, net of tax:Unrealized
                  holding gain during the year
              
              
              
              
              
              
              
              
              
              
              
              36,878
              
              
              
              
              
              
              
              
              36,878Total
                  comprehensive income
              
              
              
              
              
              
              
              
              48,440
              
              
              36,878
              
              
              
              
              
              
              
              
              85,318Purchase
                  of treasury stock (62,184 shares)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (947,268
              )
              
              
              
              
              (947,268
              )Stock
                  option compensation
              
              
              
              
              
              11,501
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,501Dividends
                  declared on common stock ($.35 per share)
              
              
              
              
              
              
              
              
              (358,215
              )
              
              
              
              
              
              
              
              
              
              
              (358,215
              )Balance
                  at December 31, 2007
              
              $
              16,862
              
              
              11,530,669
              
              
              9,653,588
              
              
              12,228
              
              
              (7,760,843
              )
              
              -
              
              
              13,452,504


See
      accompanying notes to consolidated financial statements.




23




AMB
      FINANCIAL CORP.


AND
      SUBSIDIARIES





Consolidated
      Statements of Cash Flows


Years
                  Ended December 31,2007
              
              2006
              
              2005Cash
                  flows from operating activities:Net
                  income
              
              $
              48,440
              
              
              648,268
              
              
              859,742Adjustments
                  to reconcile net income to net cash from operating
                  activities:Depreciation
              
              
              200,526
              
              
              200,411
              
              
              204,650Amortization
                  of cost of stock benefit plans
              
              
              -
              
              
              -
              
              
              89,930Stock
                  option compensation
              
              
              11,501
              
              
              50,019
              
              
              -Amortization
                  of premiums and accretion of discounts
              
              
              13,743
              
              
              16,884
              
              
              22,193Federal
                  Home Loan Bank stock dividend
              
              
              -
              
              
              -
              
              
              (37,400
              )Net
                  gains on sale of securities
              
              
              -
              
              
              -
              
              
              (31,552
              )Proceeds
                  from sale of loans held for sale
              
              
              1,389,664
              
              
              -
              
              
              -Origination
                  of loans held for sale
              
              
              (1,379,711
              )
              
              -
              
              
              -Gain
                  on sale of loans
              
              
              (18,429
              )
              
              -
              
              
              -Gain
                  on sale of other assets
              
              
              -
              
              
              (38,851
              )
              
              (345,166
              )Net
                  loss on sale of real estate owned
              
              
              88,495
              
              
              78,513
              
              
              4,189Provision
                  for loan losses
              
              
              132,789
              
              
              248,146
              
              
              274,845Loss
                  from limited partnership
              
              
              45,000
              
              
              40,819
              
              
              71,750Increase
                  in cash surrender value of life insurance
              
              
              (126,022
              )
              
              (122,666
              )
              
              (118,494
              )Income
                  from real estate held for development
              
              
              (34,256
              )
              
              (50,598
              )
              
              -Unrealized
                  loss (gain) on trading securities
              
              
              32,709
              
              
              (10,230
              )
              
              50,993Proceeds
                  from sale or redemption of trading securities
              
              
              -
              
              
              -
              
              
              177,736(Decrease)
                  increase in net deferred yield adjustments on loans
              
              
              (63,108
              )
              
              101,303
              
              
              59,656(Increase)
                  decrease in prepaid and deferred taxes
              
              
              (58,284
              )
              
              (210,928
              )
              
              343,669Decrease
                  (increase) in accrued interest receivable
              
              
              55,082
              
              
              (89,793
              )
              
              (73,949
              )Increase
                  in accrued interest payable
              
              
              6,852
              
              
              37,054
              
              
              5,567(Increase)
                  decrease in purchased accounts receivable
              
              
              (704,257
              )
              
              830,216
              
              
              (432,120
              )Increase
                  in deferred compensation
              
              
              36,579
              
              
              71,671
              
              
              70,666Other,
                  net
              
              
              408,066
              
              
              371,803
              
              
              247,672Net
                  cash provided by operating activities
              
              
              85,379
              
              
              2,172,041
              
              
              1,444,577Cash
                  flows from investing activities:Proceeds
                  from sales of investment securities
              
              
              -
              
              
              -
              
              
              988,800Proceeds
                  from maturities of investment securities
              
              
              1,500,000
              
              
              500,000
              
              
              400,000Purchase
                  of investment securities
              
              
              (8,569
              )
              
              (507,965
              )
              
              (2,011,304
              )Proceeds
                  from sales of mortgage-backed securities
              
              
              -
              
              
              -
              
              
              2,316Proceeds
                  from repayments of mortgage-backed securities
              
              
              410,349
              
              
              403,294
              
              
              581,176Purchase
                  of loans
              
              
              (6,183,105
              )
              
              (7,311,923
              )
              
              (11,843,519
              )Loan
                  disbursements
              
              
              (42,422,014
              )
              
              (49,271,721
              )
              
              (41,755,779
              )Loan
                  repayments
              
              
              50,674,810
              
              
              44,504,736
              
              
              41,927,037Proceeds
                  from sale of real estate owned
              
              
              779,066
              
              
              489,396
              
              
              104,248Proceeds
                  from redemption of Federal Home Loan Bank stock
              
              
              -
              
              
              101,700
              
              
              -Purchase
                  of Federal Home Loan Bank stock
              
              
              -
              
              
              (50,000
              )
              
              -Proceeds
                  from sale of real estate held for development
              
              
              476,691
              
              
              881,679
              
              
              -Purchase
                  of real estate held for development
              
              
              (514,837
              )
              
              (1,360,021
              )
              
              (1,352,611
              )Proceeds
                  from sale of other assets
              
              
              -
              
              
              38,851
              
              
              360,166Property
                  and equipment expenditures, net
              
              
              (3,555,318
              )
              
              (665,354
              )
              
              (163,730
              )Net
                  cash provided by (for) investing activities
              
              $
              1,157,073
              
              
              (12,247,328
              )
              
              (12,763,200
              )




(Continued)




24




AMB
      FINANCIAL CORP.


AND
      SUBSIDIARIES





Consolidated
      Statements of Cash Flows


Years
                  Ended December 31,2007
              
              2006
              
              2005Cash
                  flows from financing activities:Net
                  (decrease) increase in deposits
              
              $
              (5,976,454
              )
              
              (2,576,993
              )
              
              11,776,253Proceeds
                  from borrowed money
              
              
              16,800,000
              
              
              20,000,000
              
              
              5,242,761Repayment
                  of borrowed money
              
              
              (15,204,570
              )
              
              (6,694,167
              )
              
              (3,185,000
              )Proceeds
                  from issuance of capital trust securities
              
              
              3,000,000
              
              
              -
              
              
              -Repayment
                  of capital trust securities
              
              
              (5,000,000
              )
              
              -
              
              
              -Repayment
                  of notes payable
              
              
              (136,037
              )
              
              (137,908
              )
              
              (140,434
              )(Decrease)
                  increase in advance payments by borrowers for taxes and
                  insurance
              
              
              (212,742
              )
              
              427,223
              
              
              (1,334,771
              )Proceeds
                  from exercise of stock options
              
              
              -
              
              
              481,783
              
              
              71,434Purchase
                  of treasury stock
              
              
              (947,268
              )
              
              (420,505
              )
              
              (166,187
              )Dividends
                  paid on common stock
              
              
              (358,215
              )
              
              (315,315
              )
              
              (259,197
              )Net
                  cash provided (for) by financing activities
              
              
              (8,035,286
              )
              
              10,764,118
              
              
              12,004,859Net
                  change in cash and cash equivalents
              
              
              (6,792,834
              )
              
              688,831
              
              
              686,236Cash
                  and cash equivalents at beginning of year
              
              
              9,727,842
              
              
              9,039,011
              
              
              8,352,775Cash
                  and cash equivalents at end of year
              
              $
              2,935,008
              
              
              9,727,842
              
              
              9,039,011Supplemental
                  disclosure of cash flow information:Cash
                  paid during the year for:Interest
              
              $
              6,434,838
              
              
              5,770,017
              
              
              4,143,822Income
                  taxes
              
              
              -
              
              
              330,000
              
              
              -Non-cash
                  investing activities:Transfer
                  of loans to real estate owned
              
              $
              536,860
              
              
              1,063,256
              
              
              687,334




See
      accompanying notes to consolidated financial statements.




25




AMB
      FINANCIAL CORP.


AND
      SUBSIDIARIES





Notes
      to
      Consolidated Financial Statements





1)
                Summary
                    of Significant Accounting
                    Policies


AMB
      Financial Corp. (the "Company") is a Delaware corporation incorporated on
      November 23, 1993 for the purpose of becoming the savings and loan holding
      company for American Savings, FSB (the "Bank"). On March 29, 1996, the Bank
      converted from a mutual to a stock form of ownership, and the Company completed
      its initial public offering, and, with a portion of the net proceeds acquired
      all of the issued and outstanding capital stock of the Bank (the
      "Conversion").





Principles
      of Consolidation





The
      accompanying consolidated financial statements include the accounts of the
      Company, and its wholly owned subsidiary, American Savings, FSB, the Bank's
      wholly owned subsidiary, NIFCO, Inc. and the wholly owned subsidiary of NIFCO,
      Inc., Ridge Management, Inc. Significant intercompany balances and transactions
      have been eliminated in consolidation.





Use
      of
      Estimates





The
      preparation of financial statements, in conformity with accounting principles
      generally accepted in the United States of America, requires management to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those
      estimates.





Statement
      of Cash Flows





For
      purposes of reporting cash flows, the Company has defined cash and cash
      equivalents to include cash on hand, amounts due from depository institutions,
      interest-bearing deposits in other financial institutions and federal funds
      sold.





Industry
      Segments





The
      Company operates principally in the banking industry through its subsidiary
      bank. As such, substantially all of the Company's revenues, net income,
      identifiable assets and capital expenditures are related to banking operations.





Investment
      Securities and Mortgage-Backed Securities, Available for Sale





Investment
      securities and mortgage-backed securities available for sale are recorded in
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
      "Accounting for Certain Investments in Debt and Equity Securities". SFAS No.
      115
      requires the use of fair value accounting for securities available for sale
      or
      trading and retains the use of the amortized cost method for investments the
      Company has the positive intent and ability to hold to maturity. SFAS No. 115
      requires the classification of debt and equity securities into one of three
      categories: held to maturity, available for sale, or trading. Held to maturity
      securities are measured at amortized cost. Unrealized gains and losses on
      trading securities are included in income. Unrealized gains and losses on
      available for sale securities are excluded from income and reported net of
      taxes
      as a separate component of stockholders' equity.





The
      Company has currently designated all of its investment securities and
      mortgage-backed securities as available for sale and has recorded these
      investments at their current fair values. Unrealized gains and losses are
      recorded in a valuation account which is included, net of income taxes, as
      a
      separate component of stockholders' equity. Gains and losses on the sale of
      securities are determined using the specific identification method and are
      reflected in earnings when realized.





Trading
      Securities





Trading
      account securities are recorded at fair value. Realized and unrealized gains
      and
      losses on trading account securities are reflected in non-interest income in
      the
      consolidated statements of income.




26


Summary
        of Significant Accounting Policies (continued)


Loans
      Receivable and Related Fees





Loans
      are
      stated at the principal amount outstanding, net of loans in process, deferred
      yield adjustment and the allowance for losses. Interest on loans is credited
      to
      income as earned and accrued only if deemed collectible. Loans are placed on
      nonaccrual status when, in the opinion of management, the full timely collection
      of principal or interest is in doubt. As a general rule, the accrual of interest
      is discontinued when principal or interest payments become 90 days past due
      or
      earlier if conditions warrant. When a loan is placed on nonaccrual status,
      previously accrued but unpaid interest is charged against current
      income.





Loan
      origination fees and certain direct loan origination costs are being deferred
      in
      accordance with SFAS No. 91 "Accounting for Nonrefundable Fees and Costs
      Associated with Originating or Acquiring Loans and Initial Direct Costs of
      Leases". This statement requires that loan origination fees and direct loan
      origination costs for a completed loan be netted and then deferred and amortized
      into interest income as an adjustment of yield over the contractual life of
      the
      loan.





The
      Company has adopted the provisions of SFAS No. 114 "Accounting by Creditors
      for
      Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for Impairment
      of a Loan - Income Recognition and Disclosures". These statements apply to
      all
      loans that are identified for evaluation except for large groups of
      smaller-balance homogeneous loans that are collectively evaluated for
      impairment. These loans include, but are not limited to, credit card,
      residential mortgage and consumer installment loans. Of the remaining loans
      which are evaluated for impairment, management has determined that there were
      loans totaling $2,592,410 to be evaluated for impairment at December 31,
      2007.





Allowance
      for Loan Losses





The
      determination of the allowance for loan losses involves material estimates
      that
      are susceptible to significant change in the near term. The allowance for loan
      losses is maintained at a level adequate to provide for losses through charges
      to operating expense. The allowance is based upon past loss experience and
      other
      factors which, in management's judgment, deserve current recognition in
      estimating losses. Such other factors considered by management include growth
      and composition of the loan portfolio, the relationship of the allowance for
      losses to outstanding loans and economic conditions.





Management
      believes that the allowance is adequate. While management uses available
      information to recognize losses on loans, future additions to the allowance
      may
      be necessary based on changes in economic conditions. In addition, various
      regulatory agencies, as an integral part of their examination process,
      periodically review the Bank's allowance for losses. Such agencies may require
      the Bank to recognize additions to the allowance based on their judgments about
      information available to them at the time of their examination.





Real
      Estate Owned





Real
      estate acquired through foreclosure or deed in lieu of foreclosure is carried
      at
      the lower of fair value minus estimated costs to sell or the related loan
      balance at the date of foreclosure. Valuations are periodically performed by
      management and an allowance for loss is established by a charge to operations
      if
      the carrying value of a property exceeds its fair value minus estimated costs
      to
      sell.





Real
      Estate Held for Development





Real
      estate properties held for development are carried at the lower of cost,
      including capitalized construction costs, or net realizable value. Gains and
      losses on individual properties are based on cash received less the cost of
      each
      individual lot.





Office
      Properties and Equipment





Land
      is
      carried at cost. Depreciation of office properties and equipment is accumulated
      on the straight line basis over estimated lives of the various assets. Useful
      lives are 25 to 40 years for office properties and 3 to 10 years for furniture,
      fixtures and equipment.




27


Summary
        of Significant Accounting Policies (continued)




Investment
      in Limited Partnership





The
      investment in limited partnership is recorded using the equity method of
      accounting. The operations of the property tends to generate an aggregate net
      loss before income taxes, but contribute income tax credits, which lowers the
      Company’s effective tax rate. The Company evaluates the recoverability of the
      carrying value on a regular basis. Losses due to impairment are recorded when
      it
      is determined that the investment no longer has the ability to recover its
      carrying amount.





Mortgage
      Servicing Rights





The
      Company generally retains the right to service mortgage loans sold to others.
      The cost allocated to mortgage servicing rights has been recognized as a
      separate asset and is being amortized in proportion to and over the period
      of
      estimated net servicing income, using a method that approximates a level yield
      and taking into consideration prepayment of the underlying loans. Mortgage
      servicing rights are periodically evaluated for impairment based on the fair
      value of those rights. Fair values are estimated using discounted cash flows
      based on current market rates of interest. The carrying value of the Company's
      mortgage serving rights, in relation to estimated servicing values, and the
      related amortization is reviewed by management on a quarterly basis. See Note
      6
      for a discussion of the current year impact on financial position and results
      of
      operations.





Income
      Taxes





The
      Company files a consolidated federal income tax return with the Bank. The
      provision for federal and state taxes on income is based on earnings reported
      in
      the financial statements. Deferred income taxes arise from the recognition
      of
      certain items of income and expense for tax purposes in years different from
      those in which they are recognized in the consolidated financial statements.
      Deferred tax assets and liabilities are recognized for the estimated future
      tax
      consequences attributable to differences between the financial statement
      carrying amount of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using tax rates in
      effect for the year in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income for the period that includes the
      enactment date.




Earnings
        Per Share




Basic
      earnings per share is computed by dividing net income by the weighted average
      number of shares outstanding for the period. ESOP shares not committed to be
      released are not considered to be outstanding. Stock options are regarded as
      future common stock and are considered in the earnings per share calculations
      and are the only other adjustments made in computing diluted earnings per share.





Weighted
      average shares used in calculating earnings per share are summarized
      below.


Years
                  Ended December 31,2007
              
              2006
              
              2005Weighted
                  average number of common shares outstanding used in basic EPS
                  calculation
              
              
              1,024,578
              
              
              1,011,735
              
              
              976,570Reduction
                  for common shares not yet released by Employee Stock Ownership
                  Plan
              
              
              -
              
              
              -
              
              
              (16,734
              )Total
                  weighted average common shares outstanding for basic
                  computation
              
              
              1,024,578
              
              
              1,011,735
              
              
              959,836Add
                  common stock equivalents for shares issuable under Stock Option
                  Plans
              
              
              4,523
              
              
              3,394
              
              
              53,168Weighted
                  average number of shares outstanding adjusted for common stock
                  equivalents
              
              
              1,029,101
              
              
              1,015,129
              
              
              1,013,004Net
                  income
              
              $
              48,440
              
              
              648,268
              
              
              859,742Basic
                  earnings per share
              
              $
              .05
              
              
              .64
              
              
              .90Diluted
                  earnings per share
              
              $
              .05
              
              
              .64
              
              
              .85




28


Summary
        of Significant Accounting Policies (continued)




Stock
      Option Plans





Prior
      to
      January 1, 2006 the Company elected to account for stock options using the
      intrinsic value method under the provisions of Accounting Principles Board
      (“APB”) Opinion No. 25 and provided pro forma net income and pro forma earnings
      per share disclosures for employee stock option grants as if the fair value
      based method, defined in SFAS No. 123, “Accounting for Stock Based
      Compensation”, had been applied. Pursuant to the guidance in these
      pronouncements, the Company did not record compensation expense related to
      stock
      options.





On
      January 1, 2006, the Company adopted Statement of Financial Standards No.
      123(R), “Share-Based Payments”. SFAS No. 123(R) requires that stock option
      awards, as well as other equity based compensation, be recognized as
      compensation expense in the income statement based on their fair values
      determined at the date of grant. The Company elected to apply SFAS No. 123(R)
      on
      a “modified prospective” method, which recognizes compensation cost (a) based on
      the requirements of SFAS No. 123(R) for all share-based payments granted after
      the effective date, and (b) based on the requirements of SFAS No. 123 for all
      awards granted to employees prior to the effective date of SFAS No. 123(R)
      that
      remain unvested on the effective date.





A
      summary
      of activity under the Company’s stock option plans for the three years ended
      December 31, 2007 is as follows:


Years
                  Ended December 31,2007
              
              2006
              
              2005Net
                  income, as reported
              
              $
              48,440
              
              
              648,268
              
              
              859,742Deduct:
                  Total stock based employee compensation expense determined under
                  the fair
                  value based method, net of related tax effects
              
              
              -
              
              
              -
              
              
              73,792Pro
                  forma net income
              
              $
              48,440
              
              
              648,268
              
              
              785,950Diluted
                  earnings per share, as reported
              
              $
              .05
              
              
              .64
              
              
              .85Pro
                  forma diluted earnings per share
              
              $
              .05
              
              
              .64
              
              
              .78




29




2)
            Investment
                Securities, Available for Sale





The
      amortized cost and fair value of investment securities available for sale are
      as
      follows:


Gross
              
              GrossAmortized
              
              Unrealized
              
              Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueDecember
                  31, 2007United
                  States Government and agency obligations
              
              $
              1,500,000
              
              
              12,350
              
              
              1,000
              
              
              1,511,350Marketable
                  equity securities
              
              
              194,522
              
              
              12,762
              
              
              -
              
              
              207,284Total
              
              $
              1,694,522
              
              
              25,112
              
              
              1,000
              
              
              1,718,634Weighted
                  average interest rate on debt securities
              
              
              4.81
              %December
                  31, 2006United
                  States Government and agency obligations
              
              $
              3,008,385
              
              
              2,085
              
              
              21,900
              
              
              2,988,570Marketable
                  equity securities
              
              
              185,953
              
              
              3,908
              
              
              -
              
              
              189,861Total
              
              $
              3,194,338
              
              
              5,993
              
              
              21,900
              
              
              3,178,431Weighted
                  average interest rate on debt securities
              
              
              5.16
              %




The
      contractual maturity of the above investments is summarized as
      follows:


December
                  31, 2007
              
              December
                  31, 2006Amortized
              
              Fair
              
              Amortized
              
              FairCost
              
              Value
              
              Cost
              
              ValueTerm
                  to MaturityDue
                  in one year or less
              
              $
              1,000,000
              
              
              999,000
              
              
              -
              
              
              -Due
                  after one year through five years
              
              
              -
              
              
              -
              
              
              2,508,385
              
              
              2,486,485Due
                  after five years through ten years
              
              
              500,000
              
              
              512,350
              
              
              500,000
              
              
              502,085Marketable
                  equity securities
              
              
              194,522
              
              
              207,284
              
              
              185,953
              
              
              189,861Total
              
              $
              1,694,522
              
              
              1,718,634
              
              
              3,194,338
              
              
              3,178,431




There
      were no sales of investment securities, available for sale during the years
      ended December 31, 2007 and 2006. Proceeds from sales of investment securities,
      available for sale during the year ended December 31, 2005, were $988,800 with
      gross losses of $11,200 realized on those sales. The change in net unrealized
      gains and losses during the current year of $40,019, net of the tax effect
      of
      $16,007, resulted in a $24,012 credit to stockholders' equity.





3)
            Trading
                Securities





Trading
      securities are accounted for at their current fair values. Trading securities
      at
      December 31, 2007 consists of equity securities (common stock with a carrying
      value of $306,566). These securities are pledged as collateral for a revolving
      line of credit as discussed in Note 13. Trading securities at December 31,
      2006
      also consists of equity securities (common stock with a carrying value of
      $339,275). The adjustment of these securities to their current fair values
      has
      resulted in a net unrealized loss of $32,709 for the year ended December 31,
      2007, a net unrealized gain of $10,230 for the year ended December 31, 2006,
      and
      a net unrealized loss of $50,993 for the year ended December 31, 2005. There
      were no sales of trading securities during the years ended December 31, 2007
      and
      2006. Proceeds from sales of trading securities during the year ended December
      31, 2005 were $177,736 with gross gains of $42,821 realized on those sales.




30




4)
            Mortgage-Backed
                Securities, Available for Sale





The
      amortized cost and fair value of mortgage-backed securities available for sale
      are as follows:


Gross
              
              GrossAmortized
              
              Unrealized
              
              Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueDecember
                  31, 2007Participation
                  Certificates:FHLMC-Fixed
                  rate
              
              $
              430,459
              
              
              5,937
              
              
              8,416
              
              
              427,980FNMA-Adjustable
                  rate
              
              
              131,999
              
              
              5
              
              
              1,311
              
              
              130,693FNMA-Fixed
                  rate
              
              
              219,183
              
              
              -
              
              
              3,428
              
              
              215,755GNMA-Fixed
                  rate
              
              
              33,140
              
              
              3,143
              
              
              -
              
              
              36,283Collateralized
                  Mortgage Obligations:FNMA-Fixed
                  rate
              
              
              46,940
              
              
              337
              
              
              -
              
              
              47,277Total
              
              $
              861,721
              
              
              9,422
              
              
              13,155
              
              
              857,988Weighted
                  average interest rate
              
              
              4.98
              %


December
                  31, 2006Participation
                  Certificates:FHLMC-Fixed
                  rate
              
              $
              609,560
              
              
              6,476
              
              
              21,565
              
              
              594,471FNMA-Adjustable
                  rate
              
              
              10,051
              
              
              -
              
              
              27
              
              
              10,024FNMA-Fixed
                  rate
              
              
              480,480
              
              
              -
              
              
              13,452
              
              
              467,028GNMA-Fixed
                  rate
              
              
              39,757
              
              
              2,960
              
              
              -
              
              
              42,717Collateralized
                  Mortgage Obligations:FNMA-Fixed
                  rate
              
              
              137,580
              
              
              431
              
              
              -
              
              
              138,011Total
              
              $
              1,277,428
              
              
              9,867
              
              
              35,044
              
              
              1,252,251Weighted
                  average interest rate
              
              
              4.93
              %


There
      were no sales of mortgage-backed securities, available for sale during the
      years
      ended December 31, 2007 and 2006. Proceeds from the sale of mortgage-backed
      securities, available for sale during the year ended December 31, 2005 were
      $2,316 with gross losses of $69 realized on those sales. The change in net
      unrealized gains and losses during the current year of $21,444, net of the
      tax
      effect of $8,578, resulted in a $12,866 credit to stockholders'
      equity.


31


5)
            Loans
                Receivable


December
                  31,2007
              
              2006Mortgage
                  loans:One-to-four
                  family
              
              $
              103,102,577
              
              
              105,222,934Multi-family
              
              
              6,210,287
              
              
              8,319,235Nonresidential
              
              
              18,173,355
              
              
              18,189,953Construction
              
              
              8,512,344
              
              
              6,424,014Land
              
              
              4,662,527
              
              
              8,480,119Total
                  mortgage loans
              
              
              140,661,090
              
              
              146,636,255Other
                  loans:Loans
                  on deposit accounts
              
              
              122,808
              
              
              125,635Equity
                  lines of credit
              
              
              4,842,500
              
              
              5,523,545Other
                  consumer
              
              
              1,579,685
              
              
              1,638,576Total
                  other loans
              
              
              6,544,993
              
              
              7,287,756Commercial
                  business loans
              
              
              3,776,961
              
              
              2,942,843Total
                  loans receivable
              
              
              150,983,044
              
              
              156,866,854Less:Loans
                  in process
              
              
              2,198,456
              
              
              5,394,345Net
                  deferred yield adjustments
              
              
              21,854
              
              
              84,962Allowance
                  for loan losses
              
              
              737,886
              
              
              686,467Loans
                  receivable, net
              
              $
              148,024,848
              
              
              150,701,080Weighted
                  average interest rate
              
              
              6.57
              %
              
              6.66
              %





Activity
      in the allowance for loan losses is summarized as follows:


Years
                  Ended December 31,2007
              
              2006
              
              2005Balance,
                  beginning of year
              
              $
              686,467
              
              
              748,859
              
              
              715,979Provision
                  for loan losses
              
              
              132,789
              
              
              248,146
              
              
              274,845Charge-offs
              
              
              (331,348
              )
              
              (342,411
              )
              
              (249,265
              )Recoveries
              
              
              249,978
              
              
              31,873
              
              
              7,300Balance,
                  end of year
              
              $
              737,886
              
              
              686,467
              
              
              748,859




Delinquent
      loans (loans having monthly payments past due ninety days or more and
      non-accruing) at December 31, 2007 and 2006 amounted to approximately $2,593,000
      and $2,676,000, respectively.








For
      the
      years ended December 31, 2007 and 2006, gross interest income, which would
      have
      been recorded had the non-accruing loans been current in accordance with their
      original terms, amounted to approximately $121,000 and $111,000,
      respectively.





Loans
      to
      directors and executive officers aggregated approximately $1,616,000 and
      $817,000 at December 31, 2007 and 2006, respectively. Such loans are made on
      substantially the same terms as those for other loan customers.





32


6)
            Loans
                Receivable, Held for Sale





The
      Bank
      will, from time to time, sell loans to the Federal Home Loan Bank of
      Indianapolis (“FHLB”). As such, the Bank may designate a portion of the loan
      portfolio to be classified as held for sale. During the year ended December
      31,
      2007, the Bank sold first mortgage loans totaling $1,379,711 to the FHLB. The
      Company retains the servicing on loans sold to FHLB. Proceeds from the sale
      of
      loans during the year ended December 31, 2007 were $1,389,664 with gains of
      $9,953 realized on those sales. In addition, the Company recorded a gain of
      $8,476 for the year ended December 31, 2007 on loan sales from the establishment
      of a mortgage servicing right asset. During the year ended December 31, 2007,
      the Company amortized $526 of mortgage servicing rights against current
      servicing fee income.





As
      of
      December 31, 2007, there were no loans classified in this portfolio. Loans
      held
      for sale are valued at the lower of cost or fair value. At December 31, 2007,
      loans serviced for the FHLB amounted to $1,374,009.





7)  Investment
      in Limited Partnership





The
      investment in limited partnership of $712,129 and $757,129 at December 31,
      2007
      and 2006 represents a 39.60% equity in Pedcor Investments 1997 - XXXI
      ("Pedcor"), a limited partnership organized to build, own and operate a 56
      unit
      apartment complex. The Bank has recorded its equity in the losses of Pedcor
      in
      the amount of $45,000, $40,819 and $71,750 for the years ended December 31,
      2007, 2006 and 2005. Condensed financial statements for Pedcor are as
      follows:


December
                  31,Condensed
                  Statements of Financial Condition
              
              2007
              
              2006AssetsCash
              
              $
              42,297
              
              
              53,542Property
                  and equipment
              
              
              3,230,834
              
              
              3,331,236Land
              
              
              112,000
              
              
              112,000Other
              
              
              140,769
              
              
              166,730Total
                  assets
              
              
              3,525,900
              
              
              3,663,508Liabilities
                  and Partner’s CapitalNotes
                  payable - Bank
              
              
              190,926
              
              
              308,419Notes
                  payable - Other
              
              
              1,850,507
              
              
              2,045,747Other
                  liabilities
              
              
              299,820
              
              
              323,477Total
                  liabilities
              
              
              2,341,253
              
              
              2,677,643Partners'
                  capital
              
              
              1,184,647
              
              
              985,865Total
                  liabilities and partners' capital
              
              $
              3,525,900
              
              
              3,663,508
  Years
                  Ended December 31,Condensed
                  Statements of Operations
              
              2007
              
              2006
              
              2005Total
                  revenues
              
              $
              293,209
              
              
              291,505
              
              
              242,033Total
                  expenses
              
              
              397,039
              
              
              394,582
              
              
              423,219Net
                  loss
              
              $
              (103,830
              )
              
              (103,077
              )
              
              (181,186
              )




8)
            Accrued
                Interest Receivable





Accrued
      interest receivable is summarized as follows:


December
                  31,2007
              
              2006Investment
                  securities
              
              $
              37,056
              
              
              56,904Mortgage-backed
                  securities
              
              
              3,603
              
              
              5,251Loans
                  receivable
              
              
              907,063
              
              
              869,709Allowance
                  for uncollected interest
              
              
              (206,450
              )
              
              (135,510
              )Total
                  accrued interest receivable
              
              $
              741,272
              
              
              796,354




33




9)
            Office
                Properties and Equipment





Office
      properties and equipment are summarized as follows:


December
                  31,2007
              
              2006Cost:Land-Munster
              
              $
              40,669
              
              
              40,669Hammond
              
              
              33,300
              
              
              33,300Dyer
              
              
              300,000
              
              
              300,000Schereville
              
              
              380,345
              
              
              380,345Building
                   -Munster
              
              
              457,773
              
              
              457,773Hammond
              
              
              319,985
              
              
              319,985Dyer
              
              
              1,803,735
              
              
              1,796,151Branch
                  construction in process
              
              
              3,602,403
              
              
              143,433Furniture
                  and equipment
              
              
              2,133,757
              
              
              2,071,743Total
              
              
              9,071,967
              
              
              5,543,399Less
                  accumulated depreciation:Building 
                  -Munster
              
              
              430,525
              
              
              429,202Hammond
              
              
              287,687
              
              
              283,010Dyer
              
              
              463,757
              
              
              408,755Furniture
                  and equipment
              
              
              1,678,774
              
              
              1,566,000Total
              
              
              2,860,743
              
              
              2,686,967Net
                  book value
              
              $
              6,211,224
              
              
              2,856,432




Depreciation
      of office properties and equipment for the years ended December 31, 2007, 2006
      and 2005 amounted to $200,526, $200,411 and $204,650, respectively.





The
      Bank
      owns a three- story office building in Dyer, Indiana, which is one-third
      utilized by the Bank as its branch office location. An additional one-third
      of
      the building is leased to a third party at a current annual lease rent of
      $83,238. This lease terminates May 31, 2008 subject to a six month lease renewal
      option. One half of the remaining third of the building is being leased to
      a
      third-party at a current annual lease rent of $34,855. This lease commenced
      on
      October 1, 2003 and terminates September 30, 2009 subject to two six-year lease
      renewal options. The remainder of the building is being leased to a third-party
      at a current annual lease rent of $36,857. This lease commenced on January
      1,
      2004 and terminates December 31, 2008 subject to two five-year lease renewal
      options.





The
      Bank
      is currently constructing a three-story office building located in Schererville,
      Indiana, which will be partially utilized by the Bank as a full service branch
      office. The Bank will attempt to lease the remaining portion of the building.
      Construction of the banking facility is near completion and anticipated to
      be
      open to the public in June, 2008. Remaining costs to complete the construction
      project are anticipated to be approximately $1,500,000.





10)
            Real
                Estate Held for Development





The
      Company has entered into an agreement with a local builder to acquire vacant
      lots and construct single family residences. Costs incurred as of December
      31,
      2007 for the acquisition of seven land parcels and construction costs on three
      completed residences amounted to $1,953,953. Upon sale of each completed
      residence, before any profit distribution, the Company will receive a stipulated
      amount as interest on the funds that have been advanced. After payment of this
      amount, the Company is entitled to receive 30% of any remaining profit. There
      was one sale during the year ended December 31, 2007 resulting in income
      recognition of $34,256 and two sales during the year ended December 31, 2006
      resulting in income recognition of $50,598. At December 31, 2007, the completed
      properties have been listed for sale and are being actively marketed. Due to
      the
      recent slowdown in the housing industry, the Company has decided not to build
      on
      the remaining vacant lots and has listed them for sale.




34





11)
            Prepaid
                Expenses and Other Assets





Prepaid
                expenses and other assets consist of the
                following:


December
                  31,2007
              
              2006Prepaid
                  insurance premiums
              
              $
              64,729
              
              
              89,534Prepaid
                  pension cost
              
              
              220,936
              
              
              277,573Prepaid
                  statutory trust preferred fees
              
              
              154,360
              
              
              160,780Prepaid
                  income taxes
              
              
              290,103
              
              
              337,264Other
                  prepaid expenses
              
              
              83,178
              
              
              70,814Deferred
                  federal and state income tax asset - net (a)
              
              
              458,871
              
              
              384,780Purchased
                  accounts receivable (b)
              
              
              3,661,158
              
              
              2,959,901Miscellaneous
                  (c)
              
              
              117,103
              
              
              65,201Total
              
              $
              5,050,438
              
              
              4,345,847


(a)
            Significant
                components of the deferred tax assets and liabilities are as
                follows:


December
                  31,2007
              
              2006Deferred
                  tax assets:Deferred
                  compensation
              
              $
              388,824
              
              
              374,192Nondeductible
                  incentive plan expense
              
              
              6,957
              
              
              6,957Book
                  allowance for loan losses
              
              
              296,354
              
              
              274,587Allowance
                  for uncollected interest
              
              
              82,580
              
              
              71,280Unrealized
                  loss on securities available for sale
              
              
              -
              
              
              16,434Total
                  deferred tax assets
              
              
              774,715
              
              
              743,450Deferred
                  tax liabilities:Accelerated
                  tax depreciation
              
              
              28,213
              
              
              43,844Federal
                  Home Loan Bank stock dividend
              
              
              67,258
              
              
              67,258Pension
                  expense
              
              
              88,374
              
              
              111,029Unrealized
                  gain on trading account securities
              
              
              39,291
              
              
              52,375Unrealized
                  gain on securities available for sale
              
              
              8,151
              
              
              -Other
              
              
              84,557
              
              
              84,164Total
                  deferred tax liabilities
              
              
              315,844
              
              
              358,670Net
                  deferred tax benefit
              
              $
              458,871
              
              
              384,780





(b)
            The
                Bank has entered into a program to purchase and manage the accounts
                receivable of credit-worthy merchants with required repurchase of
                delinquent accounts and with the merchant's repurchase obligation
                supported by a cash collateral reserve account. For each merchant,
                the
                Bank establishes a maximum amount of purchased receivables allowed
                to be
                outstanding at any one time. At December 31, 2007 and 2006, the unused
                amount was $1,951,000 and $2,655,000,
                respectively.





c)
            In
                March 2005, the shareholders of Intrieve Incorporated, the Bank’s data
                processing provider, approved the sale and merger of Intrieve into
                Harland
                Financial Solutions Inc., a wholly owned subsidiary of John H. Harland
                Company. This transaction closed in April 2005. As a shareholder
                of
                Intrieve, the Bank received $360,166 in cash on its $15,000 investment,
                resulting in a gain of $345,166 for the year ended December 31, 2005.
                During the year ended December 31, 2006, the Bank received additional
                funds of $38,851 from this investment which represents the net proceeds
                of
                amounts held back to cover expenses of the transaction.




35




12)
            Deposits





Deposit
                accounts are summarized as follows:


December
                  31,2007
              
              2006Passbook
                  accounts
              
              $
              16,928,984
              
              
              17,616,276Demand
                  deposits and NOW accounts
              
              
              13,332,751
              
              
              15,465,231Money
                  market accounts
              
              
              9,992,585
              
              
              10,852,290Subtotal
              
              
              40,254,320
              
              
              43,933,797Certificates
                  of deposit by interest rate:1.01-
                  2.00%
              
              
              -
              
              
              297,7032.01-
                  3.00
              
              
              566,706
              
              
              1,989,5153.01-
                  4.00
              
              
              10,107,045
              
              
              14,421,2014.01-
                  5.00
              
              
              39,148,903
              
              
              34,932,8695.01-
                  6.00
              
              
              28,804,573
              
              
              29,282,916Subtotal
              
              
              78,627,227
              
              
              80,924,204Total
              
              $
              118,881,547
              
              
              124,858,001





The
      weighted average rate on deposit accounts at December 31, 2007 and 2006 was
      3.58% and 3.49%, respectively.





The
      aggregate amount of certificates of deposit with a minimum denomination of
      $100,000 was $21,614,000 and $22,296,000 at December 31, 2007 and 2006,
      respectively.





A
      summary
      of certificates of deposit by maturity is as follows:


December
                  31,2007
              
              2006Within
                  12 months
              
              $
              67,630,655
              
              
              73,033,33412months
                  to24months
              
              
              7,581,389
              
              
              4,697,75824months
                  to36months
              
              
              2,582,338
              
              
              2,327,43736months
                  to48months
              
              
              832,845
              
              
              865,675Total
              
              $
              78,627,227
              
              
              80,924,204





Interest
      expense on deposits consists of the following:





Years
                Ended December 31,2007
            
            2006
            
            2005Passbook
                accounts
            
            $
            186,033
            
            
            231,534
            
            
            252,244NOW
                accounts
            
            
            66,110
            
            
            64,906
            
            
            61,160Money
                market accounts
            
            
            305,583
            
            
            368,782
            
            
            370,977Certificates
                of deposit
            
            
            3,837,781
            
            
            3,309,345
            
            
            2,116,030Total
            
            $
            4,395,507
            
            
            3,974,567
            
            
            2,800,411




36




13)
            Borrowed
                Money





Borrowed
      money consists of advances from the Federal Home Loan Bank of Indianapolis
      and
      is summarized as follows:


Interest
              
              
              
              December
                  31,Maturity
                  Date
              
              Rate
              
              
              
              2007
              
              2006March
                  28, 2007
              
              
              4.37%
              
              
              
              
              $
              -
              
              
              2,000,000April
                  13, 2007
              
              
              4.18
              
              
              
              
              
              -
              
              
              1,000,000May
                  25, 2007
              
              
              5.24
              
              
              
              
              
              -
              
              
              2,000,000July
                  18, 2007
              
              
              5.67
              
              
              
              
              
              -
              
              
              1,000,000August
                  23, 2007
              
              
              5.46
              
              
              
              
              
              -
              
              
              1,000,000August
                  29, 2007
              
              
              5.45
              
              
              
              
              
              -
              
              
              2,000,000November
                  28, 2007
              
              
              5.21
              
              
              
              
              
              -
              
              
              2,000,000December
                  26, 2007
              
              
              5.27
              
              
              
              
              
              -
              
              
              2,000,000January
                  23, 2008
              
              
              4.88
              
              
              
              
              
              2,000,000
              
              
              2,000,000February
                  19, 2008
              
              
              5.24
              
              
              
              
              
              1,000,000
              
              
              -April
                  22, 2008
              
              
              3.75*
              
              
              
              
              
              1,000,000
              
              
              -May
                  1, 2008
              
              
              5.42
              
              
              
              
              
              2,000,000
              
              
              -May
                  27, 2008
              
              
              3.75*
              
              
              
              
              
              2,000,000
              
              
              -June
                  23, 2008
              
              
              3.75*
              
              
              
              
              
              2,000,000
              
              
              -July
                  1, 2008
              
              
              4.13
              
              
              
              
              
              2,000,000
              
              
              2,000,000July
                  18, 2008
              
              
              5.35
              
              
              
              
              
              2,000,000
              
              
              -August
                  25, 2008
              
              
              3.84
              
              
              
              
              
              2,000,000
              
              
              2,000,000March
                  30, 2009
              
              
              5.23
              
              
              
              
              
              2,000,000
              
              
              2,000,000May
                  15, 2009
              
              
              5.93
              
              
              
              
              
              190,926
              
              
              308,419August
                  24, 2009
              
              
              5.02
              
              
              
              
              
              1,000,000
              
              
              -August
                  31, 2009
              
              
              4.90
              
              
              
              
              
              2,000,000
              
              
              -August
                  16, 2010
              
              
              5.99
              
              
              
              
              
              1,500,000
              
              
              1,500,000September
                  20, 2010
              
              
              5.95
              
              
              
              
              
              1,000,000
              
              
              1,000,000December
                  20, 2010
              
              
              4.98
              
              
              
              
              
              2,000,000
              
              
              2,000,000March
                  28, 2011
              
              
              5.26
              
              
              
              
              
              3,000,000
              
              
              3,000,000December
                  20, 2011
              
              
              3.90
              
              
              
              
              
              1,250,000
              
              
              -December
                  20, 2012
              
              
              4.03
              
              
              
              
              
              1,250,000
              
              
              -July
                  15, 2015
              
              
              5.91
              
              
              
              
              
              611,236
              
              
              623,969November
                  16, 2020
              
              
              6.71
              
              
              
              
              
              1,568,096
              
              
              1,642,440Total
              
              
              
              
              
              
              
              $
              33,370,258
              
              
              34,074,828Weighted
                  average interest rate
              
              
              
              
              
              
              
              
              4.87
              %
              
              5.16
              %





*Variable
      rate





The
      Bank
      has adopted a collateral pledge agreement whereby the Bank has agreed to at
      all
      times keep on hand, free of all other pledges, liens, and encumbrances, first
      mortgages with unpaid principal balances aggregating no less than 145% of the
      outstanding secured advances from the Federal Home Loan Bank of Indianapolis.
      At
      December 31, 2007, no securities were pledged for these borrowings.





Interest
      expense on FHLB advances amounted to $1,650,852, $1,360,285 and $987,546 for
      the
      years ended December 31, 2007, 2006 and 2005, respectively.





37




13)
            Borrowed
                Money (continued)





The
      Company has entered into a revolving line of credit in the maximum amount of
      $243,000. The loan bears interest at one half percent under the Wall Street
      Journal prime rate. At December 31, 2007, the Company pledged common stock
      with
      a market value of approximately $307,000 as collateral securing this line of
      credit. At December 31, 2007, the Company had an outstanding balance against
      this line of credit of $242,761. Interest expense incurred on this advance
      amounted to $18,568, $18,563 and $2,397 for the years ended December 31, 2007,
      2006 and 2005, respectively.





The
      Company has also entered into a non-revolving line of credit in the maximum
      amount of $600,000. The loan bears interest at a fixed rate of 6.75%. At
      December 31, 2007, the Company pledged two real estate held for development
      properties with a market value of approximately $980,000 as collateral securing
      this line of credit. The Company had an outstanding balance against this line
      of
      credit of $300,000 as of December 31, 2007. Interest expense incurred on this
      advance amounted to $3,206 for the year ended December 31, 2007.





In
      connection with the redemption of the junior subordinated debentures during
      2007, the Company borrowed $2,000,000 from a third-party lender at a variable
      rate of interest tied to the LIBOR index (6.28% at December 31, 2007). The
      Company pledged its stock investment in the subsidiary Bank as collateral
      securing this advance. Interest expense incurred on this advance amounted to
      $101,820 for the year ended December 31, 2007.





14)
            Guaranteed
                Preferred Beneficial Interest in Junior Subordinated
                Debentures





In
      2007,
      the Company issued $3,000,000 of junior subordinated debentures (2007
      debentures) to AMB Financial Statutory Trust II. The 2007 debentures are the
      sole assets of this trust, which issued common securities to the Company and
      preferred capital securities to third-party investors. The 2007 debentures
      bear
      interest at a fixed rate of 6.55%, payable quarterly in arrears, for the first
      five years and then bear interest at a rate of 3-month LIBOR plus 1.65%
      thereafter. These debentures are non-callable for five years and, after that
      period, are redeemable at par plus accrued unpaid interest, in whole or in
      part,
      with the prior approval of the Office of Thrift Supervision. The 2007 debentures
      have a scheduled maturity date of June 15, 2037. Interest expense for the year
      ended December 31, 2007 amounted to $156,192.





On
      March
      27, 2007, the Company exercised the early call on its previously issued
      $5,000,000 of junior subordinated debentures (2002 debentures) issued to AMB
      Financial Statutory Trust I. The 2002 debentures were repaid with the proceeds
      of the 2007 debentures and the aforementioned $2,000,000 advance from a
      third-party lender. Interest expense for the years ended December 31, 2007,
      2006
      and 2005 on the 2002 debentures amounted to $115,545, $453,656, and $359,035,
      respectively.





15)
            Other
                Liabilities





Other
      liabilities include the following:


December
                  31,2007
              
              2006Accrued
                  interest on deposits
              
              $
              13,564
              
              
              14,136Accrued
                  interest on borrowings
              
              
              82,356
              
              
              74,932Accrued
                  payroll and bonus
              
              
              36,138
              
              
              120,642Accrued
                  audit and accounting fees
              
              
              38,620
              
              
              39,010Accrued
                  real estate and personal property taxes
              
              
              179,416
              
              
              75,822Deferred
                  compensation (see note 15)
              
              
              972,060
              
              
              935,481Outstanding
                  bank drafts
              
              
              1,131,732
              
              
              1,162,197Miscellaneous
                  accounts payable
              
              
              656,955
              
              
              278,965Total
              
              $
              3,110,841
              
              
              2,701,185
 
 38


16)
            Benefit
                Plans





The
      Bank
      participates in an industry-wide, multi-employer, defined-benefit pension plan,
      which covers all full-time employees who have attained at least 21 years of
      age
      and completed one year of service. The Plan is administered by the Financial
      Institutions Retirement Fund. Calculations to determine full-funding status
      are
      made annually as of June 30. Contributions to the Plan for the Plan years ended
      June 30, 2008, 2007 and 2006 amounted to $319,086, $383,246 and $380,900,
      respectively. Pension expense for the years ended December 31, 2007, 2006 and
      2005 amounted to $381,323, $407,735, and $350,037, respectively. Information
      regarding the Bank's share of assets and liabilities and plan benefit
      information of this plan is not available on an individual basis.





The
      Bank
      participates in the Financial Institutions Thrift Plan, which qualifies under
      Section 401(k) of the Internal Revenue Code and which covers substantially
      all
      employees. This plan calls for a discretionary contribution within specified
      limits and a matching Bank contribution equal to 25% of the first 6% of the
      employee contributions. Plan expense for the years ended December 31, 2007,
      2006
      and 2005 amounted to $14,602, $15,361 and $15,919, respectively.





The
      Bank
      also has established three non-qualified 401(k) Plans providing participating
      officers of the Bank the opportunity to defer up to 6% of their salary into
      a
      tax deferred accumulation for future retirement. In addition, the Bank has
      also
      established a Director Deferral Plan. All deferred non-qualified 401(k) Plan
      contributions and deferred director fees are credited with interest from the
      Bank at the rate of 10% per year. Interest credited by the Bank to the
      non-qualified plans and deferred director fees on accumulated funds was $95,801,
      $89,456 and $82,583 for the years ended December 31, 2007, 2006 and 2005,
      respectively.




39




17)
            Director,
                Officer and Employee Plans





Stock
      Option Plan - In
      conjunction with the Conversion, the stockholders of the Company approved the
      AMB Financial Corp. 1996 Stock Option and Incentive Plan. This is an incentive
      stock option plan for the benefit of the directors, officers and employees
      of
      the Company and its affiliates. This Plan authorized grants of options to
      purchase 210,767 shares of common stock after adjustments of stock dividends
      and
      stock splits (original authorized number of shares was 112,412, equal to 10%
      of
      the total number of shares issued in the Conversion). On October 23, 1996,
      187,573 options (after adjusting for the stock dividends) were granted at $6.80
      per share, exercisable at a rate of 20% per year commencing October 23, 1997,
      and expiring ten years from the date of grant.





At
      the
      shareholders’ meeting on April 27, 2005, the shareholders approved the AMB
      Financial Corp. 2005 Stock Option Plan, which authorized 40,000 stock options
      to
      become available for grant. During 2005, options for 43,120 shares were granted
      (23,194 options from the 1996 Plan and 19,926 from the 2005 Plan) at $13.25
      per
      share exercisable over four years and expiring ten years from the date of grant.
      The per share weighted average fair value of stock options granted during 2005
      was $ 3.51 on the date of grant, using a Black-Scholes option pricing model
      with
      the following historical weighted average assumptions: expected dividend yield
      of 2.0%, risk-free interest rate of 3.85%, expected life of 10 years and
      volatility of 27%.





The
      following is an analysis of the stock option activity for each of the years
      in
      the three year period ended December 31, 2007, and the stock options outstanding
      at the end of the respective periods.


Exercise
                  PriceNumberOptions
              
              of
                  Options
              
              Per
                  Share
              
              TotalOutstanding
                  at December 31, 2004
              
              
              116,857
              
              $
              6.80
              
              
              794,627Granted
              
              
              43,120
              
              
              13.25
              
              
              571,340Exercised
              
              
              (10,505
              )
              
              6.80
              
              
              (71,434
              )Forfeited
              
              
              -Outstanding
                  at December 31, 2005
              
              
              149,472
              
              
              6.80-13.25
              
              
              1,294,533Granted
              
              
              -Exercised
              
              
              (106,352
              )
              
              6.80
              
              
              (723,193
              )Forfeited
              
              
              (2,810
              )
              
              13.25
              
              
              (37,232
              )Outstanding
                  at December 31, 2006
              
              
              40,310
              
              
              13.25
              
              
              534,108Granted
              
              
              -Exercised
              
              
              -Forfeited
              
              
              (2,810
              )
              
              13.25
              
              
              (37,232
              )Outstanding
                  at December 31, 2007
              
              
              37,500
              
              $
              13.25
              
              $
              496,875Exercisable
                  at December 31, 2007
              
              
              36,500
              
              $
              13.25
              
              $
              483,625Options
                  available for future grants at December 31, 2007
              
              25,694




As
      of
      December 31, 2007, the weighted average exercise price for options outstanding
      was $13.25 with a weighted average remaining contractual life of 7.25
      years.





Employee
      Stock Option Plan (“ESOP”) - The
      ESOP is a qualified deferred compensation plan funded by contributions from
      the
      Bank. Contributions to the ESOP are at the discretion of the Board of Directors
      and are used to purchase shares of the Company’s common stock. All employees
      over the age of 18 meeting minimum service requirements are eligible to
      participate in the plan. Employee contributions are not permitted. Plan
      contributions charged to expense totaled $50,000 for the year ended December
      31,
      2007. Eligible employees were vested in their proportionate share of this ESOP
      contribution at December 31, 2007.




40




18)
            Income
                Taxes





The
      Bank
      had qualified under provisions of the Internal Revenue Code, which permitted
      it
      to deduct from taxable income an allowance for bad debt, which differed from
      the
      provision for such losses charged to income. Accordingly, retained earnings
      at
      December 31, 2007 includes approximately $1,950,000, for which no provision
      for
      income taxes has been made. If in the future this portion of retained earnings
      is distributed, or the Bank no longer qualifies as a bank for tax purposes,
      income taxes may be imposed at the then applicable rates.





The
      provision for income taxes consists of the following:


Years
                  Ended December 31,2007
              
              2006
              
              2005Current
              
              $
              40,392
              
              
              131,828
              
              
              381,864Deferred
              
              
              (98,676
              )
              
              (12,756
              )
              
              (38,195
              )Total
              
              $
              (58,284
              )
              
              119,072
              
              
              343,669




Deferred
      income tax expense consists of the following tax effects of timing
      differences:


Years
                  Ended December 31,2007
              
              2006
              
              2005Federal
                  Home Loan Bank stock dividend
              
              $
              -
              
              
              -
              
              
              7,440Federal
                  Home Loan Bank stock redemption
              
              
              -
              
              
              (4,022
              )
              
              -Depreciation
              
              
              (15,631
              )
              
              (708
              )
              
              3,939Deferred
                  compensation
              
              
              (14,632
              )
              
              (28,668
              )
              
              (28,266
              )Pension
              
              
              (22,655
              )
              
              (9,354
              )
              
              13,443Book
                  loan loss provision (in excess of) less than tax deduction
              
              
              (21,767
              )
              
              24,957
              
              
              (13,152
              )Unrealized
                  gain on trading account securities
              
              
              (13,084
              )
              
              4,092
              
              
              (20,397
              )Other,
                  net
              
              
              (10,907
              )
              
              947
              
              
              (1,202
              )Total
              
              $
              (98,676
              )
              
              (12,756
              )
              
              (38,195
              )




41




19)
            Regulatory
                Capital Requirements





The
      Bank
      is subject to various regulatory capital requirements administered by the
      federal banking agencies. Failure to meet minimum total requirements can
      initiate certain mandatory and possible additional discretionary actions by
      regulators that, if undertaken, could have a direct material effect on the
      Bank's financial statements. Under capital adequacy guidelines and the
      regulatory framework for prompt correction action, the Bank must meet specific
      capital guidelines that involve quantitative measures of the Bank's assets,
      liabilities, and certain off-balance-sheet items as calculated under regulatory
      accounting practices. The Bank's capital amounts and classification are also
      subject to quantitative judgments by the regulators about components, risk
      weightings, and other factors.





Quantitative
      measures established by regulation to ensure capital adequacy require the Bank
      to maintain minimum amounts and ratios, set forth in the table below of the
      total risk-based, tangible and core capital, as defined in the regulations.
      Management believes, as of December 31, 2007, that the Bank meets all capital
      adequacy requirements to which it is subject.





The
      Bank,
      according to federal regulatory standards, is well-capitalized under the
      regulatory framework for prompt corrective action. To be categorized as
      adequately capitalized, the Bank must maintain minimum total risk-based,
      tangible, and core ratios as set forth in the table. There are no conditions
      or
      events since that notification that management believes have changed the
      institution's category.





At
      December 31, 2007 and 2006, the Bank's actual capital amounts and ratios,
      minimum amounts and ratios required for capital adequacy purposes and minimum
      amounts and ratios to meet the well-capitalized criteria under prompt corrective
      action provision, are as follows:


Actual
              
              For
                  Capital Adequacy Purposes
              
              To
                  Be Well-Capitalized Under Prompt Corrective Action
                  ProvisionsAmount
              
              Ratio
              
              Amount
              
              Ratio
              
              Amount
              
              RatioDecember
                  31, 2007Tangible
              
              $
              15,153,994
              
              
              8.86
              %
              $
              2,565,000
              
              
              1.50
              %
              $
              N/A
              
              
              N/A
              %Core
              
              
              15,153,994
              
              
              8.86
              
              
              5,130,000
              
              
              3.00
              
              
              8,549,000
              
              
              5.00Risk-based
              
              
              15,891,880
              
              
              14.13
              
              
              8,996,000
              
              
              8.00
              
              
              11,245,000
              
              
              10.00December
                  31, 2006Tangible
              
              $
              15,574,894
              
              
              8.74
              %
              $
              2,672,000
              
              
              1.50
              %
              $
              N/A
              
              
              N/A
              %Core
              
              
              15,574,894
              
              
              8.74
              
              
              5,344,000
              
              
              3.00
              
              
              8,907,000
              
              
              5.00Risk-based
              
              
              16,261,361
              
              
              14.93
              
              
              8,712,000
              
              
              8.00
              
              
              10,891,000
              
              
              10.00


Tangible
              
              Core
              
              Risk-basedCapital
              
              Capital
              
              CapitalDecember
                  31, 2007Stockholders'
                  equity
              
              $
              15,167,017
              
              
              15,167,017
              
              
              15,167,017Unrealized
                  gain on securities available for sale, net of taxes
              
              
              (12,228
              )
              
              (12,228
              )
              
              (12,228
              )Retained
                  mortgage servicing rights
              
              
              (795
              )
              
              (795
              )
              
              (795
              )General
                  loss allowances
              
              
              -
              
              
              -
              
              
              737,886Regulatory
                  capital computed
              
              $
              15,153,994
              
              
              15,153,994
              
              
              15,891,880December
                  31, 2006Stockholders'
                  equity
              
              $
              15,550,244
              
              
              15,550,244
              
              
              15,550,244Unrealized
                  loss on securities available for sale, net of taxes
              
              
              24,650
              
              
              24,650
              
              
              24,650General
                  loss allowances
              
              
              -
              
              
              -
              
              
              686,467Regulatory
                  capital computed
              
              $
              15,574,894
              
              
              15,574,894
              
              
              16,261,361




42




20)
            Stockholders'
                Equity





As
      part
      of the Conversion, the Bank established a liquidation account for the benefit
      of
      all eligible depositors who continue to maintain their deposit accounts in
      the
      Bank after conversion. In the unlikely event of a complete liquidation of the
      Bank, each eligible depositor will be entitled to receive a liquidation
      distribution from the liquidation account, in the proportionate amount of the
      then current adjusted balance for deposit accounts held, before distribution
      may
      be made with respect to the Bank's capital stock. The Bank may not declare
      or
      pay a cash dividend to the Company on, or repurchase any of, its capital stock
      if the effect thereof would cause the retained earnings of the Bank to be
      reduced below the amount required for the liquidation account. Except for such
      restrictions, the existence of the liquidation account does not restrict the
      use
      or application of retained earnings.





In
      addition, the Bank may not declare, or pay cash dividends on, or repurchase
      any
      of its shares of common stock if the effect thereof would cause stockholders'
      equity to be reduced below applicable regulatory capital maintenance
      requirements, or if such declaration and payment would otherwise violate
      regulatory requirements.





Unlike
      the Bank, the Company is not subject to these regulatory restrictions on the
      payment of dividends to its stockholders. However, the Company's source of
      funds
      for future dividends may depend upon dividends received by the Company from
      the
      Bank.





21)
            Financial
                Instruments with Off-Balance Sheet
                Risk





The
      Bank
      is a party to various transactions with off-balance sheet risk in the normal
      course of business. These transactions are primarily commitments to originate
      loans and to extend credit on previously approved unused lines of credit. These
      financial instruments carry varying degrees of credit and interest-rate risk
      in
      excess of amounts recorded in the consolidated financial
      statements.





Commitments
      to originate mortgage loans of $1,796,500 at December 31, 2007 represent amounts
      which the Bank plans to fund within the normal commitment period of 60 to 90
      days. The mortgage loan commitments are fixed rates ranging from 6.125% to
      8.250%. Because the credit worthiness of each customer is reviewed prior to
      extension of the commitment, the Bank adequately controls its credit risk on
      these commitments, as it does for loans recorded on the balance sheet. The
      Bank
      conducts all of its lending activities in the Northwest Indiana area. Management
      believes the Bank has a diversified loan portfolio and the concentration of
      lending activities in these local communities does not result in an acute
      dependency upon economic conditions of the lending region.





The
      Bank
      has approved, but unused, home equity lines of credit of approximately
      $5,510,000 at December 31, 2007. Approval of lines of credit is based upon
      underwriting standards that generally do not allow total borrowings, including
      the line of credit, to exceed 75% of the estimated fair value of the customer's
      home. In addition, the Bank has approved, but unused, equity lines of credit
      on
      various construction and commercial projects of approximately $2,370,000 at
      December 31, 2007. The Bank also has approved but unused credit card lines
      of
      credit of approximately $2,002,000.





The
      Bank
      is currently participating with several local financial institutions in credit
      enhancement agreements with in-state municipalities to guarantee the repayment
      on municipal revenue bonds. The Bank has accepted credit risk on these various
      municipal projects in the amount of approximately $936,000. These credit
      enhancements are in cooperation with the Federal Home Loan Bank of Indianapolis
      ("FHLB") and have pledging requirements as part of the qualifying collateral
      agreement with FHLB. Additionally, at December 31, 2007, the Bank had issued
      standby letters of credit totaling approximately $267,000 to guarantee the
      performance of various customers to third parties.




43




22)
            Contingencies





The
      Bank
      is, from time to time, a party to certain lawsuits in the ordinary course of
      its
      business, wherein it enforces its security interest. The Bank is currently
      involved in litigation with Steve Tokarski, the successor personal
      representative of the Estate of John Wroblewski. The suit involves multiple
      claims, including an alleged conversion by the Bank of a restricted deposit
      account in the amount of $155,000 to satisfy two delinquent loans as well as
      alleged negligence by the Bank in the cashing of two checks totaling
      approximately $513,000. The suit claims that the Bank violated a Notice of
      Restriction placed on the deposit account by applying funds without proper
      written consents and that the Bank assisted an individual, presumably acting
      on
      behalf of John Wroblewski under a power of attorney, in misappropriating funds
      belonging to the Estate by cashing the checks mentioned above. The Bank intends
      to vigorously defend the litigation and counsel is of the opinion the Bank
      has
      strong legal and factual defenses which should permit the Bank to successfully
      defend the litigation. Legal counsel intends to file a Motion for Summary
      Judgment setting forth additional factual allegation establishing the Bank’s
      right to apply the funds of the restricted deposit account to the then
      delinquent amount due the Bank. Counsel also believes that the claims are barred
      by the two-year statute of limitations since the Plaintiff filed the Complaint
      in June, 2007, more than two years after the May, 2005 withdrawal of funds
      or
      the June, 2003 presentation and cashing of checks discussed above. At this
      time,
      the outcome of this litigation is still in question, and the amount of potential
      loss, if any, cannot be estimated.





23)
            Subsequent
                Event





On
      January 23, 2008, the Company declared a quarterly cash dividend of $.09 per
      share, totaling $88,575, payable February 15, 2008 to shareholders of record
      as
      of February 1, 2008.




44





24)
            Disclosures
                About the Fair Value of Financial
                Instruments





The
      following methods and assumptions were used to estimate the fair value of each
      class of financial instruments for which it is practicable to estimate that
      value:





Cash
      and cash equivalents :
      For
      cash and interest-bearing deposits, the carrying amount is a reasonable estimate
      of fair value.





Investment
      securities :
      Fair
      values for securities held to maturity, available for sale or held for trade
      are
      based on quoted market prices as published in financial publications or on
      quotes from third-party brokers.





Mortgage-backed
      securities :
      Fair
      values for mortgage-backed securities are based on the lower of quotes received
      from various third-party brokers.





Loans
      receivable :
      The
      fair values of fixed-rate one-to-four family residential mortgage loans are
      based on quoted market prices of similar loans sold in conjunction with
      securitization transactions. The fair values for other fixed and adjustable
      rate
      mortgage loans are estimated using discounted cash flow analyses, using interest
      rates currently being offered for loans with similar terms and collateral to
      borrowers of similar credit quality.





Accrued
      interest receivable and payable :
      The
      carrying value of accrued interest receivable, net of the allowance for
      uncollected interest, and accrued interest payable approximates fair value
      due
      to the relatively short period of time between accrual and expected
      realization.





Deposit
      liabilities :
      The
      fair value of demand deposits, savings accounts and money market deposits is
      the
      amount payable on demand at the reporting date. The fair value of fixed maturity
      certificates of deposit is estimated by discounting the future cash flows using
      the rates currently offered for deposits of similar original maturities.





Borrowed
      money :
      Rates
      currently available to the Company for debt with similar terms and remaining
      maturities are used to estimate fair value of existing debt.





The
      estimated fair value of the Company's financial instruments as of December
      31,
      2007 and 2006 are as follows:


December
                  31, 2007Carrying
              
              FairFinancial
                  assets:
              
              Amount
              
              ValueCash
                  and cash equivalents
              
              $
              2,935,008
              
              
              2,935,008Investment
                  securities, available for sale
              
              
              1,718,634
              
              
              1,718,634Trading
                  securities
              
              
              306,566
              
              
              306,566Mortgage-backed
                  securities, available for sale
              
              
              857,988
              
              
              857,988Loans
                  receivable, gross
              
              
              150,983,044
              
              
              151,853,000Accrued
                  interest receivable
              
              
              741,272
              
              
              741,272Financial
                  liabilities:Deposits
              
              $
              118,881,547
              
              
              119,574,000Borrowed
                  money
              
              
              35,913,019
              
              
              36,755,000Accrued
                  interest payable
              
              
              95,920
              
              
              95,920
  December
                  31, 2006Carrying
              
              FairFinancial
                  assets:
              
              Amount
              
              ValueCash
                  and cash equivalents
              
              $
              9,727,842
              
              
              9,727,842Investment
                  securities, available for sale
              
              
              3,178,431
              
              
              3,178,431Trading
                  securities
              
              
              339,275
              
              
              339,275Mortgage-backed
                  securities, available for sale
              
              
              1,252,251
              
              
              1,252,251Loans
                  receivable, gross
              
              
              156,866,854
              
              
              156,883,000Accrued
                  interest receivable
              
              
              796,354
              
              
              796,354Financial
                  liabilities:Deposits
              
              $
              124,858,001
              
              
              124,790,000Borrowed
                  money
              
              
              34,317,589
              
              
              34,587,000Accrued
                  interest payable
              
              
              89,068
              
              
              89,068




45


25)
            Condensed
                Parent Company Only Financial
                Statements





The
      following condensed statement of financial condition, as of December 31, 2007
      and 2006 and condensed statements of income and cash flows for the years ended
      December 31, 2007, 2006 and 2005 for AMB Financial Corp. should be read in
      conjunction with the consolidated financial statements and the notes
      thereto.




Condensed
      Statements of Financial Condition


Years
                  Ended December 31,2007
              
              2006AssetsCash
                  and cash equivalents
              
              $
              22,989
              
              
              347,843Trading
                  securities
              
              
              306,566
              
              
              339,275Loans
                  receivable
              
              
              1,025,298
              
              
              1,257,693Real
                  estate held for development
              
              
              1,953,953
              
              
              1,881,551Investment
                  in American Savings, FSB
              
              
              14,421,176
              
              
              14,841,281Investment
                  in AMB Financial Statutory Trust I
              
              
              -
              
              
              155,000Investment
                  in AMB Financial Statutory Trust II
              
              
              93,000
              
              
              -Prepaid
                  expenses and other assets
              
              
              592,418
              
              
              605,820Total
                  assets
              
              
              18,415,400
              
              
              19,428,463Liabilities
                  and Stockholders' EquityLiabilities:Borrowed
                  money
              
              
              2,542,761
              
              
              242,761Junior
                  subordinated debentures
              
              
              3,093,000
              
              
              5,155,000Accrued
                  taxes and other liabilities
              
              
              72,976
              
              
              78,497Total
                  liabilities
              
              
              5,708,737
              
              
              5,476,258Stockholders'
                  Equity:Common
                  stock
              
              
              16,862
              
              
              16,862Additional
                  paid-in capital
              
              
              10,797,056
              
              
              10,785,555Retained
                  earnings
              
              
              9,653,588
              
              
              9,963,363Treasury
                  stock
              
              
              (7,760,843
              )
              
              (6,813,575
              )Total
                  stockholders' equity
              
              
              12,706,663
              
              
              13,952,205Total
                  liabilities and stockholders’ equity
              
              $
              18,415,400
              
              
              19,428,463






Condensed
      Statements of Income


Years
                  Ended December 31,2007
              
              2006
              
              2005Net
                  interest expense
              
              $
              (263,269
              )
              
              (285,019
              )
              
              (227,881
              )Gain
                  on sale of trading securities
              
              
              -
              
              
              -
              
              
              42,821Unrealized
                  (loss) gain on trading securities
              
              
              (32,709
              )
              
              10,230
              
              
              (50,993
              )Income
                  from real estate held for development
              
              
              34,256
              
              
              50,598
              
              
              -Other
                  non-interest income
              
              
              3,939
              
              
              49,000
              
              
              9,017Non-interest
                  expense
              
              
              (298,473
              )
              
              (336,954
              )
              
              (294,181
              )Net
                  loss before income taxes and equity in earnings of
                  subsidiaries
              
              
              (556,256
              )
              
              (512,145
              )
              
              (521,217
              )Benefit
                  from income taxes
              
              
              224,801
              
              
              213,353
              
              
              209,551Net
                  loss before equity in earnings of subsidiaries
              
              
              (331,455
              )
              
              (298,792
              )
              
              (311,666
              )Equity
                  in earnings of subsidiaries
              
              
              379,895
              
              
              947,060
              
              
              1,171,408Net
                  income
              
              $
              48,440
              
              
              648,268
              
              
              859,742
  46




25)
            Condensed
                Parent Company Only Financial Statements
                (continued)




Condensed
      Statements of Cash Flows


Years
                  Ended December 31,2007
              
              2006
              
              2005Operating
                  activities:Net
                  income
              
              $
              48,440
              
              
              648,268
              
              
              859,742Equity
                  in earnings of subsidiaries
              
              
              (379,895
              )
              
              (947,060
              )
              
              (1,171,408
              )Stock
                  option compensation
              
              
              11,501
              
              
              50,019
              
              
              -Gain
                  on sale of trading securities
              
              
              -
              
              
              -
              
              
              (42,821
              )Unrealized
                  loss (gain) on trading securities held for trade
              
              
              32,709
              
              
              (10,230
              )
              
              50,993Proceeds
                  from sale of trading securities
              
              
              -
              
              
              -
              
              
              177,736(Decrease)
                  increase in deferred income on loans
              
              
              (2,917
              )
              
              (6,595
              )
              
              9,512Income
                  from real estate held for development
              
              
              (34,256
              )
              
              (50,598
              )
              
              -Decrease
                  (increase) in prepaid taxes and other assets
              
              
              13,402
              
              
              83,755
              
              
              (25,705
              )(Decrease)
                  increase in other liabilities
              
              
              (5,521
              )
              
              22,378
              
              
              3,639Net
                  cash provided for operating activities
              
              
              (316,537
              )
              
              (210,063
              )
              
              (138,312
              )Investing
                  activities:Proceeds
                  from sale of real estate held for development
              
              
              476,691
              
              
              881,679
              
              
              -Purchase
                  of real estate held for development
              
              
              (514,837
              )
              
              (1,360,021
              )
              
              (1,352,611
              )Loan
                  disbursements
              
              
              (64,688
              )
              
              (37,837
              )
              
              (1,767,773
              )Loan
                  repayments
              
              
              300,000
              
              
              545,000
              
              
              89,930Net
                  cash provided by (for) investing activities
              
              
              197,166
              
              
              28,821
              
              
              (3,030,454
              )Financing
                  activities:Proceeds
                  from borrowed money
              
              
              2,300,000
              
              
              -
              
              
              442,761Repayment
                  of borrowed money
              
              
              -
              
              
              (200,000
              )
              
              -Proceeds
                  from issuance of capital trust securities
              
              
              3,000,000
              
              
              -
              
              
              -Repayment
                  of capital trust securities
              
              
              (5,000,000
              )
              
              -
              
              
              -Proceeds
                  from exercise of stock options
              
              
              -
              
              
              481,783
              
              
              71,434Purchase
                  of treasury stock
              
              
              (947,268
              )
              
              (420,505
              )
              
              (166,187
              )Dividends
                  received from Bank
              
              
              800,000
              
              
              800,000
              
              
              -Dividends
                  paid on common stock
              
              
              (358,215
              )
              
              (315,315
              )
              
              (259,197
              )Net
                  cash provided (for) by investing activities
              
              
              (205,483
              )
              
              345,963
              
              
              88,811Net
                  (decrease) increase in cash and cash equivalents
              
              
              (324,854
              )
              
              164,721
              
              
              (3,079,955
              )Cash
                  and cash equivalents at beginning of year
              
              
              347,843
              
              
              183,122
              
              
              3,263,077Cash
                  and cash equivalents at end of year
              
              $
              22,989
              
              
              347,843
              
              
              183,122
  47
 
 **AMB
            Financial Corp.**
 **Stockholder
            Information**
 
 **Annual
            Meeting**
 
 The
            annual meeting of stockholders will be held at 10:30 a.m., on April 23,
            2008, at
            the Company’s corporate office, located at 8230 Hohman Avenue, Munster,
            Indiana.
 
 **Stock
            Listing**
 
 The
            Company’s stock is traded on the OTC Bulletin Board under the symbol
“AMFC.OB”.
 
 **Price
            Range of Common Stock and Dividends**
 
 The
            table
            below shows the range of high and low sale prices and dividends paid
            in fiscal
            2007.
 
 Quarter
                      Ended
                  
                  High
                  
                  Low
                  
                  DividendsMarch
                      31, 2007
                  
                  15.75
                  
                  15.20
                  
                  $0.08June
                      30, 2007
                  
                  15.75
                  
                  15.00
                  
                  $0.09September
                      30, 2007
                  
                  15.50
                  
                  13.25
                  
                  $0.09December
                      31, 2007
                  
                  14.95
                  
                  13.05
                  
                  $0.09
 
 The
            Board
            of Directors will consider the payment of future cash dividends and the
            amount
            of such dividends based on the results of operations and the financial
            condition
            of the Company, tax considerations, industry standards, economic conditions,
            regulatory restrictions, general business practices and other factors.
            See Note
            19 of the Notes to the Consolidated Financial Statements for information
            regarding limitations of the Bank’s ability to pay dividends to the
            Company.
 
 As
            of
            December 31, 2007, the Company had 984,166 outstanding shares of common
            stock.
 
 **Shareholder
                      General Inquiries**
                  **Transfer
                      Agent**Michael
                      Mellon, President
                  Registrar
                      & Transfer Co.AMB
                      Financial Corp.
                  10
                      Commerce Drive8230
                      Hohman Ave.
                  Cranford,
                      New Jersey 07016Munster,
                      Indiana 46321
                  (800)
                      456-0596(219)
                      836-5870
 
 48
  **AMB
            Financial Corp.**
 **Corporate
            Information**
  **Corporate
                      Office**AMB
                      Financial Corp.
                  
                  Telephone
                      (219) 836-58708230
                      Hohman Avenue
                  
                  Fax
                      (219) 836-5883Munster,
                      IN 46321
                  
                  Web
                      site ambfinancial.com**Directors
                      of the Board**
                  
                  **Officers
                      of AMB Financial Corp.**Clement
                      B. Knapp, Jr.
                  
                  Michael
                      MellonChairman
                      of the Board
                  
                  President
                      Since 1977Ronald
                      W. Borto
                  
                  Steven
                      A. BohnDirector
                      since 1986
                  
                  Vice-President,
                      Chief Financial OfficerThomas
                      Corsiglia
                  
                  Denise
                      L. KnappDirector
                      since 2007
                  
                  Corporate
                      SecretaryDonald
                      L. Harle
                  
                  Robert
                      B. RossaDirector
                      since 1995
                  
                  Vice
                      PresidentMichael
                      Mellon
                  
                  Todd
                      WilliamsDirector
                      since 2004
                  
                  Vice
                      PresidentRobert
                      E. TolleyDirector
                      since 1987Louis
                      A. GreenDirector
                      since 2008**Independent
                      Auditors**
                  
                  **Corporate
                      Counsel / Local**Cobitz,
                      VandenBerg & Fennessy
                  
                  Abrahamson
                      & Reed9944
                      S. Roberts Road Suite 202
                  
                  Attorneys
                      at LawPalos
                      Hills, IL 60465
                  
                  200
                      Russell StreetHammond,
                      IN 46320**Corporate
                      Counsel / Washington DC**Luse,
                      Gorman, Pomerenk & Schick, P.C.5335
                      Wisconsin Avenue, N.W.Suite
                      400Washington,
                      D.C. 20015
  **Annual
            and Other Report**
 
 The
            Company is required to file an annual report on Form 10-KSB with the
            Securities
            and Exchange Commission. Copies of the Form 10-KSB, annual report and
            the
            Company’s quarterly reports may be obtained without charge by
            contacting:
 
 Tricia
            Boss
 AMB
            Financial Corp.
 8230
            Hohman Avenue
 Munster,
            Indiana 46321
 (219)
            836-5870
  49