UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~[X] QUARTERLY REPORT~~FORM ~~UNDER SECTION 13 OR 15(d)~~10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2010

Commission file number 000-33405

AJS BANCORP, INC.

(Exact name of registrant specified in its charter)

Federal	36-4485429
(State of incorporation)	(IRS Employer Identification No.)

14757 S. Cicero Avenue, Midlothian, Illinois 60445

(Address of Principal Executive Offices)

(708) 687-7400

(Issuer's telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal year, if changed since last report)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ x No ¨o

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨o Accelerated filer ¨o Non-accelerated filer ¨o Smaller reporting company Tx (Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Yes ¨ o No T x

On ~~July 31~~October 21, 2010, the issuer had 2,023,~~182~~045 shares of common stock issued and outstanding, $0.01 per share par value.

AJS BANCORP, INC.

Form 10-Q Quarterly Report

Index

		Page	~~Page~~
PART I - Financial Information
Item 1.	~~Item~~Financial 1.Statements	~~Financial Statements~~1	1
Item 2.	~~Item~~Management's 2.Discussion and Analysis of Financial Condition and Results of Operations	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~12	12
Item 3.	~~Item~~Quantitative 3.and Qualitative Disclosures about Market Risk	~~Quantitative and Qualitative Disclosures about Market Risk~~22	22
Item 4T.	~~Item~~Controls ~~4T.~~and Procedures	~~Controls and Procedures~~22	23
PART II - Other Information
Item 1.	~~Item~~Legal 1.Proceedings	~~Legal Proceedings~~23	23
Item 1A.	~~Item~~Risk ~~1A.~~Factors	~~Risk Factors~~24	23
Item 2.	~~Item~~Unregistered 2.Sales of Equity Securities and Use of Proceeds	~~Unregistered Sales of Equity Securities and Use of Proceeds~~24	24
Item 3.	~~Item~~Defaults 3.Upon Senior Securities	~~Defaults Upon Senior Securities~~25	24
Item 4.	~~Item~~Removed 4.and Reserved	~~Removed and Reserved~~25	24
Item 5.	~~Item~~Other 5.Information	~~Other Information~~25	24
Item 6.	~~Item 6.~~Exhibits	~~Exhibits~~25	24
SIGNATURES		26	26

Index

ITEM 1. FINANCIAL STATEMENTS

AJS Bancorp, Inc.

Consolidated Statements of Financial Condition

(in thousands of dollars, except share data)

	(unaudited)
	(unaudited) September 30, 2010			December 31, 2009
	June 30,			December 31,
	2010			2009
ASSETS
Cash and cash equivalents
Cash and due from banks (interest-earning: 2010 –
$1,735; 2009 – $1,963)	$	7,041		$	6,484
$13,881; 2009 – $1,963)	$	15,173		$	6,484
Federal funds sold		-			-
Certificates of deposit		200			1,700
Total cash and cash equivalents		7,041			6,484
Trading securities		23			25
Certificates of deposit		500			1,700
Securities available-for-sale		98,575			92,167
Trading securities		19			25
Securities held-to-maturity (fair value: September 30, 2010 - $375;
Securities available-for-sale		103,298			92,167
December 31, 2009 - $365)		355			360
Securities held-to-maturity (fair value: June 30, 2010 - $371; -
Loans, net of allowance of $1,853 at September 30, 2010,
December 31, 2009 - $365)		357			360
$3,035 at December 31, 2009		123,007			127,456
Loans, net of allowance of $1,674 at June 30, 2010,
Other real estate owned		3,685			2,768
$3,035 at December 31, 2009		124,748			127,456
Other real estate owned		2,676			2,768
Federal Home Loan Bank stock, at cost		2,450			2,450
Premises and equipment		4,~~112~~049			4,181
Bank-owned life insurance		3,~~425~~463			3,351
Due from broker		-			4,727
Accrued interest receivable		1,~~074~~122			973
Other assets		1,~~741~~757			2,626
Total assets	$	~~251~~253,~~441~~859		$	249,268
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits	$	~~202~~205,~~767~~349		$	193,175
Federal Home Loan Bank advances		1718,300			25,300
Advance payments by borrowers for taxes and insurance		12,~~424~~019			1,566
Other liabilities and accrued interest payable		43,~~418~~280			5,381
Total liabilities		~~225~~228,~~909~~948			225,422
Stockholders' equity
Preferred stock, $.01 par value, 20,000,000 shares authorized;
none issued		-			-
Common stock, $.01 par value, 50,000,000 shares authorized;
2,444,521 shares issued at June 30, 2010 and at
2,444,521 shares issued at September 30, 2010 and at
December 31, 2009		24			24
Additional paid in capital		12,291			12,207
Treasury stock at cost (421,339 shares at June 30, 2010
Treasury stock at cost (421,476 shares at September 30, 2010
and 421,239 at December 31, 2009)		(9,~~825~~827	)		(9,824	)
Retained earnings		21,~~827~~597			20,979
Accumulated other comprehensive income		~~1,215~~826			460
Total stockholders' equity		2524,~~532~~911			23,846
Total liabilities and stockholders' equity	$	~~251~~253,~~441~~859		$	249,268

See notes to consolidated financial statements.

Index

AJS Bancorp, Inc.

Consolidated Statements of Income

(in thousands of dollars, except share data)

(unaudited)

	For the Three Months						For the Six Months Ended
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	Ended June 30,						June 30,
	2010			2009			2010		2009
Interest and dividend income
Loans	$	1,~~605~~607		$	1,~~764~~740		$	34,~~279~~886	$	35,~~464~~204
Securities		~~896~~845			~~822~~774			12,~~771~~616		12,~~785~~559
Interest-earning deposits and other		76			4439			1723		97135
Total interest income		2,508			2,630			5,067		5,346
Federal funds sold		-			-			-		1
Total interest income		2,458			2,553			7,525		7,899
Interest expense
Deposits		~~668~~647			~~828~~745			12,~~385~~032		12,~~732~~477
Federal Home Loan Bank
advances and other		~~151~~145			~~264~~219			~~315~~460		~~566~~785
Total interest expense		~~819~~792			~~1,092~~964			12,~~700~~492		23,~~298~~262
Net interest income		1,~~689~~666			1,~~538~~589			35,~~367~~033		34,~~048~~637
Provision for loan losses		61284			-246			~~101~~385		-246
Net interest income after provision for
loan losses		1,~~628~~382			1,~~538~~343			34,~~266~~648		34,~~048~~391
Noninterest income
Service fees		~~101~~99			~~106~~101			~~193~~292		~~223~~324
Rental income		26			2425			5076		4873
Earnings on bank-owned life insurance		37			37			74		74
Earnings on bank owned life insurance		38			38			112		111
Gain (loss) on security sales		327			(1	)		462		309
Gain on sale of securities available-for-sale		464			173			926		482
Other		42			54			78		92
Other-than-temporary impairment on
Total noninterest income		533			220			857		746
Investment (all credit)		-			(126	)		-		(126	)
Other		33			40			111		133
Total noninterest income		660			251			1,517		997
Noninterest expense
Compensation and employee benefits		~~727~~916			~~722~~678			12,~~420~~336		12,~~462~~140
Occupancy expense		~~233~~248			~~192~~245			~~457~~705		~~398~~643
Data processing expense		8586			8079			~~167~~253		~~176~~255
Advertising and promotion		72			5558			~~122~~194		~~102~~160
Professional fees		6889			8375			~~151~~240		~~154~~229
Postage and supplies		4338			35			85123		72107
Bank security		3340			3339			70110		74113
Federal deposit insurance		7985			~~175~~72			~~154~~239		~~229~~301
Other		241			141			473		296
Valuation allowance on other real estate owned		430			0			455		0
Total noninterest expense		1,581			1,516			3,099		2,963
Expenses on other real estate owned		76			120			238		120
Income before income taxes		580			242			1,024		831
Other		106			54			392		350
Income taxes		-			61			-		268
Total noninterest expense		2,186			1,455			5,285		4,418
Net income	$	580		$	181		$	1,024	$	563
Income (loss) before income taxes		(144	)		139			880		970
Earnings per share
Income taxes		-			22			-		290
Basic	$	0.29		$	0.09		$	0.51	$	0.28
Net income (loss)	$	(144	)	$	117		$	880	$	680
Diluted		0.29			0.09			0.51		0.28
Earnings (loss) per share
Weighted average shares - Diluted		2,023,182			2,023,809			2,023,229		2,024,628
Basic	$	(0.07	)	$	0.06		$	0.43	$	0.34
Comprehensive income (loss)	$	1,018		$	(182	)	$	1,779	$	133
Diluted		(0.07	)		0.06			0.43		0.34
Weighted average shares - Diluted		2,023,130			2,023,372			2,023,195		2,024,206
Comprehensive income (loss)	$	(533	)	$	572		$	1,246	$	705

See notes to consolidated financial statements.

Index

AJS Bancorp, Inc.

Consolidated Statements of Cash Flows

(in thousands of dollars)

(unaudited)

	Six Months Ended
	Nine Months Ended September 30,
	June 30,
	2010			2009
Cash flows from operating activities
Net income	$	~~1,024~~880		$	~~563~~680
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		~~158~~230			~~145~~218
Provision for loan losses		~~101~~385			-246
Valuation allowance on other real estate owned		25455			-
Deferred income taxes		~~353~~95			(495	)
Net amortization of securities		2830			4175
Earnings on bank owned life insurance		(74112	)		(74111	)
Gain on the sale of available securities for sale		(~~462~~926	)		(~~309~~482	)
Gain on the sale of other real estate owned		(43	)		-
Other-than-temporary impairment on investment		-			126
Changes in:
Fair value of trading securities		62			(47	)
Accrued interest receivable and other assets		~~4,679~~392			~~953~~1,703
Accrued interest payable and other liabilities		(~~880~~2,019	)		~~419~~169
Net cash from operating activities		~~4,958~~(631	)		12,~~239~~122
Cash flows from investing activities
Securities available-for-sale
Purchases		(4988,~~443~~351	)		(2141,~~201~~074	)
Sales		1124,~~898~~806			914,~~056~~641
Maturities and principal payments		2863,~~083~~361			2837,~~658~~418
Securities held-to-maturity
Maturities and principal payments		3			3
Purchases
Net change in certificates of deposit		1,200			2,399
Maturities and principal payments		5			6
Net change in loans		2,600			(6,680	)
Net change in certificates of deposit		1,500			3,998
Proceeds from the sale of OREO		74			-
Net change in loans		2,359			(7,731	)
Purchase of equipment		(89	)		(118	)
Proceeds from the sale of OREO		387			-
Net cash from investing activities		(5,674	)		12,117
Purchase of equipment		(98	)		(137	)
Net cash from investing activities		3,969			7,121
Cash from financing activities
Net change in deposits		912,~~592~~174			(51,~~479~~122	)
Net change in advance payments by borrowers for
taxes and insurance		~~(142~~442	)		4588
Net change in Federal Home Loan Bank advances		(87,000	)		(37,~~625~~875	)
Dividends paid		(~~176~~262	)		(~~176~~263	)
Purchase of treasury stock		(13	)		(2629	)
Net cash from financing activities		15,~~273~~351			(98,~~302~~701	)
Net change in cash and cash equivalents		~~557~~8,689			~~4,054~~542
Cash and cash equivalents at beginning of period		6,484			7,393
Cash and cash equivalents at end of period	$	715,~~041~~173		$	117,~~447~~935

(Continued)

Index

AJS Bancorp, Inc.

Consolidated Statements of Cash Flows

(in thousands of dollars)

(unaudited)

	Six Months Ended
	Nine Months Ended September 30,
	June 30,
	2010		2009
Supplemental disclosures of cash flow information
Loans and related escrow balances transferred to
other real estate owned	$	-1,716	$	23,~~957~~208
Supplemental non-cash disclosures
Due to broker	$	-	$	41,~~991~~000

See notes to consolidated financial statements.

Index

AJS Bancorp, Inc.

Consolidated Statements of Stockholders' Equity

~~Six~~ Nine months ended ~~June~~September 30, ~~2010 and~~ 2009

(in thousands of dollars)

(unaudited)

	Common Stock		Additional Paid-in Capital		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
Balance at December 31, 2008	$	24	$	11,728	$	(9,795	)	$	23,764		$	1,376		$	27,097
Purchase of 2,126 shares of treasury stock		-		-		(26	)		-			-			(26	)
Purchase of 2,351 shares of treasury stock		-		-		(29	)		-			-			(29	)
ESOP put option		-		~~414~~461		-			-			-			~~414~~461
Cash dividend ($0.22 per share)		-		-		-			(176	)		-			(176	)
Cash dividend ($0.33 per share)		-		-		-			(263	)		-			(263	)
Comprehensive income:
Net income		-		-		-			~~563~~680			-			~~563~~680
Change in unrealized loss on securities
Change in unrealized gain on securities
available for sale, net of taxes		-		-		-			-			~~(430~~25	)		~~(430~~25	)
Total comprehensive income															~~133~~705
Balance at June 30, 2009	$	24	$	12,142	$	(9,821	)	$	24,151		$	946		$	27,442
Balance at September 30, 2009	$	24	$	12,189	$	(9,824	)	$	24,181		$	1,401		$	27,971

(Continued)

Index

AJS Bancorp, Inc.

Consolidated Statements of Stockholders' Equity

~~Six~~ Nine months ended ~~June~~September 30, 2010 ~~and 2009~~

(in thousands of dollars)

(unaudited)

	Common Stock		Additional Paid-in Capital		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at December 31, 2009	$	24	$	12,207	$	(9,824	)	$	20,979		$	460	$	23,846
Purchase of 100 shares of treasury stock		-		-		(1	)		-			-		(1	)
Purchase of 237 shares of treasury stock		-		-		(3	)		-			-		(3	)
ESOP put option		-		84		-			-			-		84
Cash dividend ($0.22 per share)		-		-		-			(176	)		-		(176	)
Cash dividend ($0.33 per share)		-		-		-			(262	)		-		(262	)
Comprehensive income:
Net income		-		-		-			~~1,024~~880			-		~~1,024~~880
Change in unrealized gain on securities
available for sale, net of taxes		-		-		-			-			~~755~~366		~~755~~366
Total comprehensive income		-		-		-			-			-		1,~~779~~246
Balance at June 30, 2010	$	24	$	12,291	$	(9,825	)	$	21,827		$	1,215	$	25,532
Balance at September 30, 2010	$	24	$	12,291	$	(9,827	)	$	21,597		$	826	$	24,911

See notes to consolidated financial statements.

Index

AJS BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2010

Note 1 – Basis of Presentation

Principles of Consolidation: The accompanying consolidated interim financial statements include the accounts of AJS Bancorp, Inc. ("Company") and its wholly owned subsidiary, A. J. Smith Federal Savings Bank ("Bank"). All significant intercompany balances and transactions have been eliminated.

The accompanying interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures required by ~~U.S.~~ or generally accepted ~~accounting~~in ~~principles~~the United States (GAAP) and prevailing practices within the industry are not included herein. These interim statements should be read in conjunction with the Company's Annual Report on Form 10-K. The December 31, 2009 balance sheet presented herein has been derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K, but does not include all of the disclosures required by U. S. generally accepted accounting principles.

Interim statements are subject to possible adjustment in connection with the annual audit of the Company for the year ending December 31, 2010. In the opinion of the management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

Note 2 – Earnings (Loss) Per Share

Basic earnings (loss) per share for the three and ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 were computed by dividing net income (loss) by the weighted average number of shares outstanding. Diluted earnings (loss) per share for the three and ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 were computed by dividing net income (loss) by the weighted average number of shares outstanding, adjusted for the dilutive effect of the outstanding stock options and stock awards. Computations for basic and diluted earnings (loss) per share are provided below.

	For the					For the
	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	Three Months					Six Months
	Ended June 30,					Ended June 30,
	2010			2009		2010		2009
	(in thousands)					(in thousands)
	(in thousands) (Except per share amounts)					(in thousands) (Except per share amounts)
Basic
Net income	$	580		$	181	$	1,024	$	563
Net income (loss)	$	(144	)	$	117	$	880	$	680
Weighted average common shares
outstanding		2,023			2,~~024~~023		2,023		2,~~025~~024
Basic earnings per common share	$	0.29		$	0.09	$	0.51	$	0.28
Basic earnings (loss) per common share	$	(0.07	)	$	0.06	$	0.43	$	0.34

Index

	For the Three Months					For the Six Months
	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	Ended June 30,					Ended June 30,
	2010			2009		2010		2009
	(in thousands)					(in thousands)
	(in thousands) (Except per share amounts)					(in thousands) (Except per share amounts)
Diluted
Net income	$	580		$	181	$	1,024	$	563
Net income (loss)	$	144		$	117	$	880	$	680
Weighted average common shares
outstanding		2,023			2,~~024~~023		2,023		2,~~025~~024
Dilutive effect of stock awards		-			-		-		-
Dilutive effect of stock options		-			-		-		-
Diluted average common shares		2,023			2,~~024~~023		2,023		2,~~025~~024
Diluted earnings per common share	$	0.29		$	0.09	$	0.51	$	0.28
Diluted earnings (loss) per common share	$	(0.07	)	$	0.06	$	0.43	$	0.34

There were 90,485 options that were anti-dilutive for the three and ~~six~~nine months ended ~~June~~ September 30, 2010 and 2009.

Note 3 – Newly Issued But Not Yet Effective Accounting Standards

In July 2010, the FASB issued an additional disclosure requirement regarding credit quality and the allowance for credit losses. The new disclosures will require significantly more information about credit quality in a financial institution’s portfolio. Although this statement addresses only disclosures and does not seek to change recognition or measurement, the disclosure represents a meaningful change in practice. The new disclosure requirement affects loans, trade accounts receivable, notes receivable, credit cards, leveraged leases, direct financing leases, and sales-type leases. It requires two levels of disaggregation for disclosure: portfolio segment and class of financing receivable, such as commercial, consumer or residential loans. It will be effective for interim and annual reporting periods ending after December 15, 2010.

Note 4 – Securities

At ~~June~~ September 30, 2010 and December 31, 2009, the Company had equity trading securities carried at a fair value of $1923 and $25, respectively.

The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

			Gross		Gross
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(in thousands)
June 30, 2010
September 30, 2010
U.S. government-sponsored entities	$	8174,~~743~~753	$	~~963~~936	$	-(32	)	$	8275,~~706~~657
Residential agency mortgage-backed		1922,~~569~~470		~~1,023~~502		-(54	)		2022,~~592~~918
Total	$	~~101~~97,~~312~~223	$	1,~~986~~438	$	-(86	)	$	~~103~~98,~~298~~575
December 31, 2009
U.S. treasuries	$	1,968	$	-	$	(43	)	$	1,925
U.S. government-sponsored entities		55,379		50		(855	)		54,574
Residential agency mortgage-backed		34,069		1,599		-			35,668
Total	$	91,416	$	1,649	$	(898	)	$	92,167

The amortized cost, unrecognized gains and losses, and fair values of securities held to maturity were as follows:

Index

			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
June 30, 2010
Residential agency
mortgage-backed	$	37	$	2	$	-	$	39
State and municipal		320		12		-		332
Total	$	357	$	14	$	-	$	371
December 31, 2009
Residential mortgage-backed	$	40	$	2	$	-	$	42
State and municipal		320		3		-		323
Total	$	360	$	5	$	-	$	365

The amortized cost, unrecognized gains and losses, and fair values of securities held to maturity were as follows:

Contractual maturities of securities at June 30, 2010 were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
	(in thousands)
September 30, 2010
Residential agency
mortgage-backed	$	35	$	2	$	-	$	37
State and municipal		320		18		-		338

Total	$	355	$	20	$	-	$	375

December 31, 2009
Residential agency mortgage-backed	$	40	$	2	$	-	$	42
State and municipal		320		3		-		323

Total	$	360	$	5	$	-	$	365

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	1,000	$	1,010	$	-	$	-
Due after one year through five years		7,499		7,538		-		-
Due after five year through ten years		41,068		41,436		205		214
Due after ten years		32,176		32,722		115		118
Mortgage-backed securities		19,569		20,592		37		39
	$	101,312	$	103,298	$	357	$	371

Contractual maturities of securities at September 30, 2010 are set forth below. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Securities with a carrying value of approximately $11,734 and $15,473 at June 30, 2010 and December 31, 2009 were pledged to secure public deposits and for other purposes as required or permitted by law.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due in one year or less	$	1,000	$	1,007	$	-	$	-
Due after one year through five years		15,355		15,366		-		-
Due after five year through ten years		40,078		40,349		320		338
Due after ten years		18,320		18,935		-		-
Residential mortgage-backed securities		22,470		22,918		35		37

	$	97,223	$	98,575	$	355	$	375

~~Sales~~Securities ~~of available~~with ~~for~~a ~~sale~~carrying ~~securities~~value ~~for~~of ~~the~~approximately ~~six~~$16,141 ~~months~~and ~~ended~~$15,473 ~~June~~at September 30, 2010 and December 31, 2009 were pledged to secure public deposits and for other purposes as ~~follows:~~ required or permitted by law.

	2010		2009
Proceeds from sale of securities available for sale	$	11,898	$	9,056
Gross gains from sale of securities available for sale		462		309

Sales of available for sale securities for the nine months ended September 30 were as follows:

During the second quarter of 2009, the Company recognized a loss of $1 on security sales. The loss related to a security sold in the first quarter of 2009 but did not settle until the second quarter of 2009. On the trade date, the Company estimated the gain on the sale and upon settlement, due to a change in factoring of the mortgage-backed security; the actual gain was $1 less than the original estimate.

	2010		2009

Proceeds from sale of securities available for sale	$	20,079	$	14,641

Gross gains from sale of securities available for sale		926		482

There were no securities with unrealized losses at June 30, 2010. Securities with unrealized losses at December 31, 2009, not recognized in income, by length of time that individual securities have been in a continuous unrealized loss position, are as follows. Securities are available for sale unless otherwise noted.

Index

	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
December 31, 2009	(in thousands)
U.S. government-
sponsored entities	$	42,993	$	(855	)	$	-	$	-	$	42,993	$	(855	)
U.S. treasuries		1,925		(43	)		-		-		1,925		(43	)
Total temporarily
Impaired	$	44,918	$	(898	)	$	-	$	-	$	44,918	$	(898	)

Securities with unrealized losses at September 30, 2010 and December 31, 2009, not recognized in income, by length of time that individual securities have been in a continuous unrealized loss position, are as follows. Securities are available for sale unless otherwise noted.

	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2010	(in thousands)
U.S. government-
sponsored entities	$	13,544	$	(32	)	$	-	$	-	$	13,544	$	(32	)
Residential mortgage-
backed		12,606		(54	)		-		-		12,606		(54	)

Total temporarily
impaired	$	26,150	$	(86	)	$	-	$	-	$	26,150	$	(86	)

	Less Than 12 Months					12 Months or More				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
December 31, 2009	(in thousands)
U.S. government-
sponsored entities	$	42,993	$	(855	)	$	-	$	-	$	42,993	$	(855	)
U.S. treasuries		1,925		(43	)		-		-		1,925		(43	)

Total temporarily
impaired	$	44,918	$	(898	)	$	-	$	-	$	44,918	$	(898	)

Note 5 – Fair Value

Fair Value Measurement

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing ~~and~~an asset or liability.

The Company used the following methods and significant assumptions ~~used~~ to estimate the fair value of items:

Securities: The fair values of trading securities and securities available for sale are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

At June 30, 2010 and December 31, 2009, the Company had no liabilities measured at fair value. Assets measured at fair value on a recurring basis are summarized below:

Index

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2010:
Trading securities	$	19	$	19	$	-	$	-
Securities available-for-sale:
U.S. government-sponsored entities		82,706		-		82,706		-
Residential agency mortgage-backed		20,592		-		20,592		-
December 31, 2009:
Trading securities	$	25	$	25	$	-	$	-
Securities available-for-sale:
U.S. Treasuries		1,925		-		1,925		-
U.S. government-sponsored entities		54,574		-		54,574		-
Residential agency mortgage-backed		35,668		-		35,668		-

Other Real Estate Owned: The fair value of OREO is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

At September 30, 2010 and December 31, 2009, the Company had no liabilities measured at fair value. Assets measured at fair value on a recurring basis are summarized below:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2010:
Trading securities	$	23	$	23	$	-	$	-
Securities available-for-sale:
U.S. government- sponsored entities		75,657		-		75,657		-
Residential agency mortgage-backed		22,918		-		22,918		-

December 31, 2009:
Trading securities	$	25	$	25	$	-	$	-
Securities available-for-sale:
U.S. Treasuries		1,925		-		1,925		-
U.S. government-sponsored entities		54,574		-		54,574		-
Residential agency mortgage-backed		35,668		-		35,668		-

The following table sets forth the Company’s assets that were measured at fair value on a non-recurring basis:

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2010:
September 30, 2010:
Impaired loans	$	~~524~~1,802	$	-	$	-	$	~~524~~1,802
Other real estate owned		23,~~676~~685		-		-		23,~~676~~685
December 31, 2009:
Impaired loans	$	1,601	$	-	$	-	$	1,601
Other real estate owned		2,768		-		-		2,768

The Company had ~~four~~eight loans measured at fair value on a non-recurring basis at ~~June~~ September 30, 2010 and one impaired loan measured at fair value on a non-recurring basis at December 31, 2009. The impaired loans measured for impairment using the fair value of the collateral dependent loans had a carrying amount of $~~718,000~~2.2 million with a specific reserve allocation of $~~194~~395,000 at ~~June~~September 30, 2010. At December 31, 2009 the impaired loan had a carrying amount of $2.9 million, with a specific reserve allocation of $1.3 million. There was $~~194~~395,000 in additional provisions recognized on impaired loans measured at fair value on a non-recurring basis during the ~~six~~ nine months ended ~~June~~September 30, 2010 and no additional provision for 2009.

At June 30, 2010, other real estate owned (OREO) carried at fair value approximates $2.7 million, net of a valuation allowance of $675,000. There was $25,000 in additional valuation allowances on OREO recognized through income during the three and six months ended June 30, 2010. At December 31, 2009, other real estate owned carried at fair value approximates $2.8 million with a valuation allowance of $649,000. There was no valuation allowance as of June 30, 2009.

Index

At September 30, 2010, other real estate owned (OREO) carried at fair value approximates $3.7 million, net of a valuation allowance of $1.0 million. There was $430,000 and $455,000 in additional valuation allowances on OREO recognized through income during the three months and nine months ended September 30, 2010, respectively. At December 31, 2009, other real estate owned carried at fair value approximates $2.8 million with a valuation allowance of $649,000. There was a valuation allowance of $71,000 as of September 30, 2009.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse affect on the operations and future prospects of the Company and its wholly owned subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company's market area; and accounting principles, policies, and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.

Critical Accounting ~~policies~~Policies

For further information with respect to significant accounting policies followed by the Company in the preparation of its consolidated financial statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Recent Events

Nationwide and locally, the banking industry continues to be under significant stress due to continuing deterioration of the real estate market, asset impairment, and higher unemployment levels resulting in a greater number of delinquencies and deteriorating asset quality, and tightening liquidity. The impact of these trends is briefly discussed below.

· Real Estate Trends and Loan Quality: Non-performing loans in our single family and home equity loan mortgage portfolio increased ~~$77,000~~ to $~~124,000~~1.4 million as of ~~June~~September 30, 2010, compared to $47,000 as of December 31, 2009 and $124,000 at June 30, 2010. ~~Our~~The ~~single~~increase ~~family~~in both number and ~~home~~dollar ~~equity~~amount ~~loan~~of non-performing mortgage ~~portfolio~~loans, ~~makes~~both upon ~~80.2%~~a year-over-year basis and from the previous quarter, is the result of ~~our~~on-going ~~total~~economic ~~loan~~stress ~~portfolio~~in the Chicago-land marketplace. ~~Net~~While increased provisions have been recorded on these loans, principally related to reserves on loans accounted for as troubled debt restructurings, net charge-offs on single family and home equity loans over the last four quarters have ~~increased~~decreased $431,000 compared to the prior four quarters. Non-performing loans in our commercial mortgage portfolio decreased $~~387,000~~1.0 million to $65.14 million as of ~~June~~September 30, 2010, compared to $6.4 million as of December 31, 2009, due to transfers to OREO. Net charge-offs on commercial loans over the last four quarters were $3.70 million compared to net charge-offs on commercial loans of $3.4.1 million over the preceding four quarters.

· Securities Portfolio: Our securities portfolio primarily consists of Fannie Mae and Freddie Mac bonds and mortgage backed securities. At June 30, 2010, there were no unrealized losses within our securities portfolio.

· Capital Levels: As detailed in the Capital Resources section of the Form 10-Q, the Bank's capital levels exceed regulatory capital requirements. As of June 30, 2010, the Bank is categorized as well capitalized under the regulatory framework for prompt corrective action. The Company’s core capital was $23.4 million or 9.3%, exceeding its required capital amount by $13.4 million or 5.3%.

Index

· ~~Liquidity~~Securities Portfolio: ~~During~~Our ~~the~~securities ~~credit~~portfolio ~~crisis,~~primarily ~~certain~~consists ~~banking~~of ~~institutions~~Fannie ~~have~~Mae ~~encountered~~and ~~liquidity~~Freddie ~~issues~~Mac bonds and mortgage backed securities. ToAt ~~address~~September ~~industry~~30, ~~trends~~2010, ~~the~~total ~~Company~~unrealized ~~has~~losses ~~shifted~~on ~~the~~our ~~composition~~securities ofportfolio ~~its~~were ~~assets~~less tothan ~~increase~~one ~~its~~percent ~~level~~ of ~~shorter~~total ~~term~~investment ~~liquid~~securities. ~~assets~~As ~~that~~of ifSeptember ~~needed~~30, ~~could~~2010, bemanagement ~~sold~~has tonot ~~meet~~identified ~~short~~any ~~term~~available ~~liquidity~~for ~~needs.~~sale Weor ~~refer~~held ~~your~~to ~~attention~~maturity tosecurities ~~the~~that ~~Liquidity~~we ~~section~~believe ~~for~~would ~~additional~~be ~~details~~classified as other than temporarily impaired.

· ~~Enactment~~Capital ~~of Dodd-Frank Legislation~~Levels: ~~Subsequent~~As todetailed ~~quarter~~in ~~end, congress has recently enacted~~ the ~~Dodd-Frank~~Capital ~~Wall~~Resources ~~Street~~section ~~Reform and Consumer Protection Act which will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities~~ of ~~financial institutions and their holding companies. The Dodd-Frank Act will eliminate our current primary federal regulator,~~ the ~~Office~~Form ~~of Thrift Supervision. The Dodd~~10-~~Frank Act also authorizes the Board of Governors of the Federal Reserve System to supervise and regulate all savings and loan holding companies like the Company~~Q, ~~in addition to bank holding companies which it currently regulates. As a result,~~ the ~~Federal Reserve Board’~~Bank's ~~current~~capital ~~regulations~~levels ~~applicable~~exceed toregulatory ~~bank holding companies, including holding company~~ capital requirements~~, will apply to savings and loan holding companies like the Company~~. ~~These~~As ~~capital~~of ~~requirements~~September ~~are substantially similar to the capital requirements currently applicable to the Bank~~30, ~~as described in the December 31~~2010, ~~2009 10-K under “Regulation—Capital Requirements” and referenced below under “Capital Resources.” The Dodd-Frank Act also requires~~ the ~~Federal~~Bank ~~Reserve~~is ~~Board~~categorized ~~to set minimum capital levels for bank holding companies that are~~ as ~~stringent~~well ascapitalized ~~those~~under ~~required for~~ the ~~insured~~regulatory ~~depository~~framework ~~subsidiaries, and the components of Tier 1 capital would be restricted to capital instruments that are currently considered to be Tier 1 capital~~ for ~~insured~~prompt ~~depository~~corrective ~~institutions~~action. ~~Bank~~The ~~holding~~Company’s ~~companies~~core ~~with~~capital ~~assets~~was ~~of less than~~ $~~500~~23.2 million ~~are~~or ~~exempt from these capital requirements~~9. ~~Under the Dodd-Frank Act~~2%, ~~the~~exceeding ~~proceeds~~its ofrequired ~~trust preferred securities are excluded from Tier 1~~ capital ~~unless~~amount ~~such securities were issued prior to May 19, 2010~~ by ~~bank or savings and loan holding companies with less than~~ $~~15 billion of assets~~13.1 ~~The~~million ~~legislation~~or also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the federal banking regulators to implement new leverage and capital requirements within 18 months that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives5.3%.

~~The Dodd-Frank~~· ~~Act~~Liquidity: ~~also~~During ~~creates~~the acredit ~~new~~crisis, ~~Consumer~~certain ~~Financial~~banking ~~Protection~~institutions ~~Bureau~~encountered ~~with broad~~liquidity ~~powers~~issues. toTo ~~supervise~~address ~~and~~industry ~~enforce~~trends, ~~consumer~~the ~~protection~~Company ~~laws. The Consumer Financial Protection Bureau~~ has ~~broad~~shifted ~~rule-making~~the ~~authority~~composition ~~for a wide range~~ of ~~consumer~~its ~~protection~~assets ~~laws~~to ~~that~~increase ~~apply~~its tolevel ~~all~~of ~~banks~~shorter ~~and~~term ~~savings institutions~~liquid ~~such~~assets asthat ~~the~~if ~~Bank~~needed, ~~including~~could ~~the~~be ~~authority~~sold to ~~prohibit~~meet ~~“unfair, deceptive~~short orterm ~~abusive”~~liquidity ~~acts and practices~~needs. ~~The~~ ~~Consumer~~We ~~Financial Protection~~refer ~~Bureau~~your ~~has~~attention ~~examination~~to and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The new legislation also weakens the ~~federal~~Liquidity ~~preemption~~section ~~available~~ for ~~national~~additional ~~banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws~~details.

~~The legislation~~· ~~also~~Enactment ~~broadens~~of Dodd-Frank Legislation: Congress recently enacted the ~~base~~Dodd-Frank ~~for~~Wall ~~Federal~~Street ~~Deposit~~Reform ~~Insurance~~and ~~Corporation insurance~~Consumer ~~assessments~~Protection Act which will significantly change the current bank regulatory structure and affect the lending, investment, trading and operating activities of financial institutions and their holding companies. ~~Assessments~~ The Dodd-Frank Act will ~~now~~eliminate our current primary federal regulator, the Office of Thrift Supervision. The Bank will be ~~based~~regulated onby the ~~average consolidated~~Office ~~total~~of ~~assets~~the ~~less~~Comptroller ~~tangible~~of ~~equity~~the ~~capital~~Currency after the Office of aThrift ~~financial institution~~Supervision is eliminated. The Dodd-Frank Act also ~~permanently~~authorizes ~~increases~~ the ~~maximum~~ ~~amount~~Board of ~~deposit~~Governors ~~insurance~~of ~~for~~the ~~banks,~~Federal ~~savings~~Reserve ~~institutions~~System to supervise and ~~credit unions~~regulate toall ~~$250,000~~savings ~~per~~and ~~depositor~~loan holding companies like the Company, ~~retroactive~~in addition to ~~January~~bank 1,holding ~~2009~~companies which it currently regulates. As a result, ~~and non-interest~~the ~~bearing~~Federal ~~transaction~~Reserve ~~accounts~~Board’s ~~have~~current ~~unlimited~~regulations ~~deposit~~applicable ~~insurance through~~to ~~December~~bank ~~31,~~holding ~~2013. Lastly~~companies, will apply to savings and loan holding companies like the Company. The Dodd-Frank Act ~~will~~also ~~increase stockholder~~requires ~~influence~~the ~~over~~Federal ~~boards~~Reserve ofBoard ~~directors~~to byset ~~requiring~~minimum capital levels for bank holding companies tothat ~~give stockholders~~are aas ~~non-binding~~stringent ~~vote~~as onthose ~~executive~~required ~~compensation~~for ~~and~~the ~~so-called~~insured ~~“golden parachute”~~depository ~~payments~~subsidiaries, and ~~authorizing~~ the ~~Securities~~components ~~and~~of ~~Exchange~~Tier ~~Commission~~1 capital would be restricted to ~~promulgate~~ ~~rules~~capital instruments that ~~would~~are ~~allow~~currently ~~stockholders~~considered to ~~nominate~~be ~~their~~Tier ~~own~~1 ~~candidates using~~capital afor ~~company’s~~insured ~~proxy~~depository ~~materials~~institutions. Bank holding companies with assets of less than $500 million are exempt from these capital requirements. Under the Dodd-Frank Act, the proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. We do not have any outstanding trust preferred securities. The ~~legislation~~Dodd Frank Act also establishes a floor for capital of insured depository institutions that cannot be lower than the standards in effect today, and directs the ~~Federal~~ ~~Reserve~~federal ~~Board~~banking regulators to ~~promulgate~~implement ~~rules~~new ~~prohibiting~~leverage ~~excessive~~and ~~compensation paid~~capital torequirements ~~bank~~within ~~holding~~18 ~~company~~months ~~executives~~that take into account off-balance sheet activities and other risks, ~~regardless~~including risks relating to securitized products and derivatives.

The Dodd-Frank Act also creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as the Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets will be examined by their applicable bank regulators. The Act also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws.

The Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2013. Lastly, the Dodd-Frank Act will increase stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizing the Securities

Index

~~Many~~and ~~of these~~Exchange ~~provisions~~Commission ~~are subject~~ to ~~rule~~promulgate ~~making~~rules ~~procedures and studies~~ that ~~will~~would ~~be conducted~~allow instockholders ~~the future and the full effects of the legislation on the Company cannot yet be determined. However, these provisions, or any other aspects of current proposed regulatory or legislative changes~~ to ~~laws~~nominate ~~applicable to~~their ~~the~~own ~~financial~~candidates ~~industry,~~using ifa ~~enacted~~company’s orproxy adopted, may impact the profitability of our business activities or change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose the Company to additional costs, including increased compliance costsmaterials. ~~These~~The ~~changes~~Act also ~~may~~directs ~~require~~ the ~~Company~~Federal toReserve ~~invest significant~~Board ~~management attention and resources~~ to ~~make~~promulgate ~~any~~rules ~~necessary~~prohibiting ~~changes~~excessive ~~to our~~compensation ~~operations~~paid ~~in order~~ to ~~comply,~~bank ~~and~~holding ~~could~~company ~~therefore also materially adversely affect our business~~executives, ~~financial condition, and results of operations~~regardless.

~~The following~~Many ~~discussion~~of ~~compares~~these provisions are subject to rule making procedures and studies that will be conducted in the ~~financial~~future ~~condition~~and the full effects of the Act on the Company atcannot ~~June~~yet 30be determined. However, ~~2010~~ these provisions, or any other aspects of current proposed regulatory or legislative changes to ~~its~~laws applicable to the financial ~~condition~~industry, atif ~~December~~enacted 31or adopted, ~~2009~~may ~~and~~impact the ~~results~~profitability of ~~operations~~ ~~for~~our ~~the~~business ~~three-~~activities ~~and~~or ~~six-month~~change ~~periods~~certain ~~ended~~of ~~June 30~~our business practices, ~~2010~~including our ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose the ~~same~~ ~~periods~~Company into ~~2009~~additional costs, including increased compliance costs. ~~This~~These ~~discussion~~changes ~~should~~also bemay ~~read~~require the Company to invest significant management attention and resources to make any necessary changes to our operations in ~~conjunction with~~order ~~the~~to ~~interim~~comply, and could therefore also materially adversely affect our business, financial ~~statements~~condition, and ~~footnotes~~results ~~included herein~~of operations.

Departure of President and Chief Operating Officer: On September 17, 2010 the Company announced that Lyn Rupich, the Company’s President and Chief Operating Officer, would resign from her positions with the Company, its mutual holding company parent and subsidiary bank, effective October 8, 2010 in order to pursue other endeavors. The Board of Directors has appointed Thomas R. Butkus, the Company’s Chief Executive Officer as President effective October 8, 2010. Mr. Butkus previously served as President and Chief Executive Officer from 1983 to 2002 and remained Chief Executive Officer during Ms. Rupich’s tenure as President.

The following discussion compares the financial condition of the Company at September 30, 2010 to its financial condition at December 31, 2009 and the results of operations for the three- and nine-month periods ended September 30, 2010 to the same periods in 2009. This discussion should be read in conjunction with the interim financial statements and footnotes included herein.

FINANCIAL CONDITION

Total assets at ~~June~~September 30, 2010 were $~~251~~253.49 million, an increase of $24.16 million or 01.8% from $249.3 million at December 31, 2009. The increase in total assets primarily reflects an increase in securities, cash and cash equivalents and OREO, partially offset by decreases in loans receivable, certificates of deposit at other financial institutions, ~~loans~~ and due from broker. Securities increased $116.14 million or 126.09% to $~~103~~99.70 million at ~~June~~September 30, 2010 from $92.6 million at December 31, 2009 primarily due to purchases of government-sponsored agency notes and bonds with call features partially offset by security sales, calls, principal repayments, and maturities within the portfolio. ~~Certificates~~OREO ofincreased ~~deposit decreased~~ $~~1.2~~917,000 ~~million~~ or 7033.61% to $~~500,000~~3.7 million at ~~June~~September 30, 2010 ~~compared~~from to $12.7 8 million at December 31, 2009, primarily due to ~~certificates~~the ~~maturing~~repossession of the collateral securing non-performing commercial mortgage loans partially offset by sales of OREO and further reductions in the fair value of the assets of $430,000 during the quarter ended September 30, 2010. Net loans receivable decreased $24.85 million or 23.15% to $~~124~~123.70 million at ~~June~~September 30, 2010 from $127.5 million at December 31, 2009. The decrease in loans was due to loan repayments exceeding demand in all segments of the loan portfolio. ~~Due~~Certificates ~~from~~of ~~broker~~deposit decreased $41.75 million or 88.2% to ~~zero~~$200,000 asat ofSeptember ~~June~~ 30, 2010 ascompared ~~securities~~to ~~sold~~$1.7 ~~during~~million ~~the~~at ~~fourth~~December ~~quarter~~31, of 2009, ~~settled~~due into ~~the first~~certificates ~~quarter of 2010~~maturing. ~~Other~~Due ~~real~~from ~~estate~~broker ~~owned~~ decreased $~~92,000 or 3~~4.~~3% to $2.~~7 million ~~at June 20, 2010 compared~~ to $~~2.8~~0 ~~million~~as atof ~~December~~September 3130, ~~2009.The~~ ~~decrease~~2010 ~~was~~as ~~due~~securities tosold during the ~~sale~~fourth quarter of ~~one~~2009 ~~OREO~~settled ~~property as well as further reductions~~ in the ~~fair~~first ~~value~~quarter of ~~the assets~~2010.

~~The Company~~At ~~had~~September ~~non-performing assets of $8.9 million at June 30, 2010 and $9.3 million at December~~ 31, ~~2009, non-performing loans were $6.2 million at June 30,~~ 2010 and ~~$6.5 million at~~ December 31, ~~2009. The allowance for loan losses was $1.7 million at June 30,~~ 2010 ~~and $3.0 million at December 31~~, ~~2009. This~~ represents a ratio of allowance for loan losses to gross loans receivable of 1.3% and 2.3%, respectively at June 30, 2010 and at December 31, 2009. The allowance for loan losses to non-performing loans was 27.1% as of June 30, 2010 compared to 46.6% as of December 31, 2009. The decrease in the ~~allowance~~Company’s ~~for~~ loan ~~losses~~portfolio ~~was~~composition ~~primarily due to a $1.1 million specific reserve allocation that~~ was ~~charged off~~ as ~~a result of a commercial loan troubled debt restructure.~~follows:

	2010			2009
Mortgage:
Secured by one-to-four-family residences	$	90,042		$	91,731
Secured by multi-family and commercial
properties		21,067			25,152
Home equity		13,426			13,154
Consumer and other		288			375
		124,823			130,412
Allowance for loan losses		(1,853	)		(3,035	)
Net deferred costs and other		37			79

Loans, net	$	123,007		$	127,456

Index

The ~~decrease~~ inCompany’s ~~non-performing~~September ~~assets~~30, ~~primarily~~2010, ~~reflects~~allowance ~~the~~consists of $395,000 of specific reserves on impaired loans and $1.15 million ~~reduction~~ of ~~principal~~general onreserves. aAt ~~commercial~~December ~~loan~~31, ~~negotiated~~2009, the specific reserves totaled $1.3 million and the general reserves totaled $1.7 million. The decrease in ~~conjunction~~the specific reserves primarily relates to charge-offs recorded during the first nine months of 2010 on loans with aspecific ~~troubled~~reserves ~~debt restructure~~as of December 31, 2010. The ~~following~~decrease ~~table~~in ~~sets~~the ~~forth~~general reserves primarily relates to lower loan balances across the ~~number~~Company’s loan portfolio and ~~dollar amount~~more ofspecifically ~~non-performing~~lower ~~assets~~loan ~~for~~balances ~~the~~in ~~periods~~higher ~~presented~~risk asset classes, specifically commercial loans.

	June 30, 2010				December 31, 2009
	Number		Amount		Number		Amount
	(in thousands)				(in thousands)
Single-family		8	$	124		4	$	47
Commercial		10		6,056		10		6,443
OREO		8		2,676		9		2,768
Total non-performing assets		26	$	8,856		23	$	9,258

The Company had non-performing assets of $10.6 million at September 30, 2010 compared to $9.3 million at December 31, 2009 and $8.9 million at June 30, 2010. Included in the increase since June 30, 2010, are four loans, totaling $1.5 million that are in the process of troubled debt restructurings. The Company has recorded an allowance of $207,000 on these loans during the third quarter of 2010. The allowance for loan losses was $1.9 million at September 30, 2010 and $3.0 million at December 31, 2009. This represents a ratio of allowance for loan losses to gross loans receivable of 1.5% and 2.3%, respectively at September 30, 2010 and at December 31, 2009. The allowance for loan losses to non-performing loans was 27.0% as of September 30, 2010 compared to 46.6% as of December 31, 2009. The decrease in the allowance for loan losses was primarily due to a $ 1.1 million specific reserve allocation that was charged-off as a result of a commercial loan troubled debt restructure.

~~For~~The increase in non-performing assets primarily reflects additional loans that have been or are in the ~~three~~ ~~and~~process ~~six~~of ~~months~~troubled ~~ending~~debt ~~June~~restructurings. 30When a borrower has demonstrated financial strain but has the ability to make continued payments, ~~2010~~though ~~and~~at ~~2009~~a lesser amount than contractually required, ~~activity~~the inCompany may choose to restructure these loans so that the ultimate cash flows to the Company can be maximized. In many cases, loan modifications maximize long-term cash flows to the Company as compared to collateral liquidation. In the event of a troubled debt restructure, the Company will record an allowance for loan losses ~~was~~on the loan, calculated as ~~follows:~~the difference between the discounted cash flows (discounted using the effective rate of the prior note) of the modified loan and the contractual balance. The following table sets forth the number and dollar amount of non-performing assets for the periods presented.

	For the Three Months						For the Six Months
	September 30, 2010						December 31, 2009
	Ended June 30,						Ended June 30,
	Number			Amount			Number			Amount
	2010			2009			2010			2009
	(in thousands)						(in thousands)
Beginning balance	$	3,060		$	2,592		$	3,035		$	2,734
Single-family		17		$	1,444			4		$	47
Provision for loan losses		61			-			101			-
Commercial		11			5,424			10			6,443
Charge-offs		(1,447	)		( 229	)		(1,469	)		(371	)
OREO		7			3,685			9			2,768
Recoveries		-			10			7			10
Total non-performing assets		35		$	10,553			23		$	9,258
Ending balance at June 30	$	1,674		$	2,373		$	1,674		$	2,373

~~Impaired loans~~For atthe ~~June~~three and nine months ending September 30, 2010 ~~compared~~and to2009, ~~December~~activity ~~31,~~in ~~2009~~the ~~were~~allowance for loan losses was as follows:

	2010			2009
	For the Three Months Ended September 30,						For the Nine Months September 30,
Impaired loans with allocated allowance for
	2010			2009			2010			2009
loan losses	$	718		$	2,914
	(in thousands)						(in thousands)
Impaired loans with no allocated allowance
Beginning balance	$	1,674		$	2,373		$	3,035		$	2,734
for loan losses		6,270			3,688
Provision for loan losses		284			246			385			246
Total	$	6,988		$	6,602
Charge-offs		(105	)		(771	)		(1,574	)		(1,132	)
Amount of the allowance for loan losses allocated	$	194		$	1,313
Recoveries		-			-			7			-
Ending balance at September 30	$	1,853		$	1,848		$	1,853		$	1,848

The Company monitors the performance of our loan portfolio and gives significant attention to the review and analysis of impaired credits. Reserves on impaired loans are adjusted as new information becomes available. Information such as the receipt of an updated appraisal, updated financial statements, results of physical inspections and results of litigation are examples of events that would require the Company to reassess the ultimate collectibility of impaired loans.

At June 30, 2010, the Company has three large (in excess of $500,000) impaired loan relationships, of which one is a troubled debt restructure, totaling $4.7 million (after previous charge-offs and specific allocations totaling $5.1 million). In addition, the Company had two loan relationships totaling $718,000 that are currently performing according to the terms of troubled debt restructure agreements and are included in the impaired loan totals above as of June 30, 2010. The Company had one loan relationship totaling $2.9 million that was performing according to the terms of its troubled debt restructure agreement included in the impaired loan totals above as of December 31, 2009. The Company continues to monitor these loans and as conditions change, specific reserves on these loans are adjusted or additional charge-offs are recorded. Due to the size of these credits as information becomes available, additional provisions may be necessary on these loans.

Index

~~Total liabilities~~Impaired ~~comprised~~loans ~~almost entirely of deposits and borrowings increased $487,000 or 0.2% to $225.9 million~~ at ~~June~~September 30, 2010 ~~from~~compared ~~$225.4 million at December 31, 2009. Total deposits increased $9.6 million or 5.0%~~ to ~~$202.8~~ ~~million at June 30, 2010 from $193.2 million at~~ December ~~31, 2009. FHLB~~ ~~borrowings decreased $8.0 million to $17.3 million at June 30, 2010 from $25.3 million at December~~ 31, 2009~~. Advance~~ ~~payments~~were ~~by borrowers for taxes and insurance decreased $142,000 or 9.1% to $1.4 million from $1.6 at December 31, 2009. Other liabilities decreased primarily~~ as ~~a result of the repayment to broker for securities purchased totaling $1.0 million. The decrease is the result of timing differences between trade and settlement dates for securities purchased.~~follows:

Total stockholders’ equity increased $1.7 million to $25.5 million at June 30, 2010 from $23.8 million at December 31, 2009. The increase reflects net income of $1.0 million for the six months ended June 30, 2010 and a $755,000 increase in other comprehensive income, partially offset by dividends paid of $176,000.

	2010		2009
Impaired loans with allocated allowance for
loan losses	$	2,198	$	2,914
Impaired loans with no allocated allowance
for loan losses		5,478		3,688

Total	$	7,676	$	6,602

Amount of the allowance for loan losses allocated	$	395	$	1,313

The Company ~~paid~~monitors athe ~~quarterly~~performance ~~dividend~~ of ~~$0.11~~our ~~cents~~loan ~~per~~portfolio ~~share~~and ongives ~~May~~significant ~~21,~~attention ~~2010~~ to ~~stockholders~~ ~~of record as of May 7, 2010. In addition,~~ the ~~Company’s Board~~review ofand ~~Directors~~analysis ~~announced that it has declared a quarterly dividend~~ of $0impaired credits.~~11 cents~~ ~~per~~Reserves ~~share payable~~ on ~~August~~impaired ~~20,~~loans ~~2010,~~are toadjusted ~~stockholders~~as ofnew ~~record~~information onbecomes ~~August 6, 2010~~available. ~~AJS~~Information ~~Bancorp,~~such ~~MHC~~as (the ~~"MHC")~~receipt ~~waived 100%~~ of ~~the~~an ~~May~~updated ~~cash dividend. As~~appraisal, ofupdated ~~June 30,~~financial ~~2010~~statements, ~~the~~results ~~Company~~of ~~held~~physical ~~cash~~inspections ~~totaling $7.0~~and ~~million. At~~results ~~June~~of ~~30,~~litigation ~~2010~~are ~~the~~examples ~~Bank’s~~of ~~tier~~events 1that ~~capital~~would asrequire ~~well~~the ~~as its~~Company ~~tangible~~to ~~capital~~reassess ~~ratio~~the ~~was~~ultimate ~~9.3%,~~collectability ~~and~~of ~~its~~impaired ~~risk-based capital ratio was 21~~loans.~~9%.~~

~~RESULTS OF~~At ~~OPERATIONS~~September ~~FOR~~30, ~~THE~~2010, ~~THREE~~the ~~MONTHS~~Company ~~ENDED~~has ~~JUNE~~three large (in excess of $500,000) impaired loan relationships, of which two are considered troubled debt restructurings, totaling $3.9 million (after previous charge-offs and specific allocations totaling $3.6 million). In addition, the Company had two loan relationships totaling $718,000 that are currently performing according to the terms of troubled debt restructure agreements and are included in the impaired loan totals above as of September 30, 2010. The ~~AND~~Company ~~JUNE 30~~had one loan relationship totaling $2.9 million that was performing according to the terms of its troubled debt restructure agreement included in the impaired loan totals above as of December 31, 2009. The Company continues to monitor these loans and as conditions change, specific reserves on these loans are adjusted or additional charge-offs are recorded.

~~Net income~~Total liabilities comprised almost entirely of deposits and borrowings increased $~~399,000~~3.5 million or 1.6% to $~~580,000~~228.9 ~~for~~million ~~the~~at ~~quarter~~September ~~ended June~~ 30, 2010 ~~compared~~ tofrom ~~the~~$225.4 ~~same~~million ~~period~~at inDecember 31, 2009. ~~The~~Total ~~annualized~~deposits ~~return~~increased on$12.2 ~~average assets~~million ~~increased~~or ~~to 0~~6.933% ~~for~~to ~~the~~$205.3 ~~quarter~~million ~~ended~~at ~~June~~ September 30, 2010 from $193.2 million at December 31, 2009. FHLB borrowings decreased $7.0 million or 27.307% ~~for~~ ~~the~~to ~~same~~$18.3 ~~period~~million inat September 30, 2010 from $25.3 million at December 31, 2009. ~~The~~Advance ~~increase~~payments inby ~~net~~borrowers ~~income~~for ~~primarily resulted~~taxes and insurance increased $453,000 or 28.9% to $2.0 million from an$1.6 ~~increase~~million inat ~~non-interest~~December ~~income~~31, ~~specifically~~2009. Other liabilities decreased as a ~~gain~~result ~~on available~~of ~~for~~the ~~sale~~termination and distribution of the inside directors’ retirement plan totaling $1.3 million as well as the repayment to broker for securities purchased totaling $1.0 million. The Board of Directors of A. J. Smith Federal Savings Bank terminated the A. J. Smith Federal Savings Bank Retirement Plan for Inside Directors (the “Plan”) effective as of August 17, an2010, ~~increase~~and indistributed ~~net~~the ~~interest~~benefits ~~income~~under the Plan. The Plan was fully accrued and ~~recovery~~ vested as of aDecember ~~portion~~31, of2002 and the ~~deferred~~only ~~tax~~increases ~~asset~~in ~~valuation~~the ~~allowance~~Plan assets after December 31, 2002 were earnings on the account. ~~The deferred~~Since ~~tax~~no ~~asset~~contributions ~~valuation~~or ~~allowance~~accruals, ~~was~~other ~~recorded~~than ~~during~~earnings on the ~~year~~Plan ~~ended~~ assets, have been credited after December 31, ~~2009~~2004, the Plan is “grandfathered” and is ~~explained~~not insubject ~~more~~to ~~detail~~the ~~below~~requirements of Section 409A of the Internal Revenue Code.

~~Net~~ ~~interest~~ Total ~~income~~stockholders’ equity increased $~~151,000~~1.1 million or 94.85% to $124.79 million ~~for~~at ~~the~~September ~~quarter ended June~~ 30, 2010 from $123.5 8 million ~~for~~at ~~the~~December 31, ~~same period in~~ 2009. ~~Average interest~~The ~~earning~~increase ~~assets~~reflects ~~were~~net ~~$232.2~~income ~~million~~of ~~and~~ $~~223.8~~880,000 ~~million~~for ~~during~~ the ~~comparative~~ ~~2010~~nine ~~and~~months ~~2009~~ended ~~quarters~~September ~~while~~30, ~~the~~2010 ~~average yield was 4.32%~~ and ~~4.70%, respectively. Average~~a ~~interest-bearing liabilities were~~ $~~221.0 million~~366,000 ~~and~~increase ~~$204.5~~in ~~million~~other ~~during~~comprehensive ~~the~~income, ~~comparative~~partially ~~2010~~offset ~~and~~by ~~2009~~dividends ~~quarters while the average rate~~ paid ~~was~~of ~~1.48% and 2.14%~~$262, ~~respectively~~000.

The ~~increase~~ inCompany ~~net~~paid ~~interest~~a ~~income~~quarterly ~~was~~dividend ~~primarily~~of ~~due~~$0.11 cents per share on August 20, 2010 to ~~lower~~stockholders ~~interest~~of ~~expense~~record ~~for the~~as ~~comparable~~of ~~periods~~August 6, 2010. ~~Total~~In ~~interest~~addition, ~~expense~~the ~~decreased~~Company’s ~~$273,000~~Board ~~or 25.0%~~of toDirectors ~~$819,000~~announced ~~compared~~that toit ~~interest~~has ~~expense~~declared a quarterly dividend of $10.111 ~~million~~cents ~~for~~per ~~the~~share ~~same period~~payable inon ~~2009~~November 26, 2010, to stockholders of record on November 12, 2010. ~~The~~AJS ~~decrease~~Bancorp, inMHC ~~interest~~(the ~~expense~~"MHC") ~~was~~waived ~~partially~~100% ~~offset by~~of athe ~~decrease~~August incash ~~interest~~dividend, ~~income~~and ~~for~~intends to waive 100% of the ~~comparable~~November ~~periods~~dividend. ~~Total interest~~As ~~income~~of ~~decreased~~September 30, ~~$122~~2010,~~000~~ orthe ~~4.6%~~Company toheld cash totaling $215.52 million. ~~for~~At ~~the~~September ~~quarter ended June~~ 30, 2010 ~~compared~~the toBank’s $2tier 1 capital as well as its tangible capital ratio was 9.62%, ~~million~~and ~~for~~its ~~the~~risk-based ~~same~~capital ~~period~~ratio inwas ~~2009~~20.4%.

Index

~~The decrease~~RESULTS inOF ~~interest~~OPERATIONS ~~income~~FOR ~~was~~THE ~~primarily~~THREE ~~due~~MONTHS toENDED ~~decreases~~SEPTEMBER ~~in yield in each interest earning category as well as reductions in average balances in loan receivables and interest-earning deposits. The average balance for loans for the three months ended June~~ 30, 2010 ~~was $127.7 million with an average yield of 5.03% compared to $135.4~~ ~~million~~AND with an average yield of 5.21% for the same quarter in 2009. The average balance of securities increased to $96.0 million for the three months ended June 30, 2010 from $75.5 million for the same period last year. The average yield decreased to 3.74% on securities while for the same quarter last year the average yield was 4.36%. The average balance of interest-earning deposits for the three months ended JuneSEPTEMBER 30, ~~2010 decreased to $8.5 million with an average yield of 0.33% compared to an average balance of $12.8 million with an average yield of 1.38% for the same quarter in~~ 2009.

~~The decrease~~For ~~in interest expense was primarily due to decreased cost of deposits, as well as a decrease in~~ the ~~average~~quarter ~~balance of FHLB advances, offset by increases in the average deposit balances for the comparable periods. The average deposit balances were $203.7 million for the three months~~ ended ~~June~~September 30, 2010, ~~compared to $176.0 million for~~ the ~~same~~Company ~~period~~had ~~last~~a ~~year. The average~~net ~~cost~~loss of ~~deposits for the three months ended June 30~~$144,000 ~~2010 was 1.31%~~ as compared to ~~1.88%~~net ~~for~~income ~~the~~of ~~same quarter in 2009. Average FHLB advances balances fell to~~ $~~17.3 million for the three months ended June 30~~117,000 ~~2010 compared to $28.6 million~~ for the ~~same~~third ~~period~~quarter ~~last~~of ~~year~~2009. The ~~average cost~~decrease ~~for FHLB advances was 3.49% for the second quarter~~ in ~~2010~~operating ~~compared~~performance ~~to 3.70%~~primarily ~~for~~resulted ~~the~~from ~~same~~an ~~period~~increase in ~~2009. The average cost of interest~~non-~~bearing~~interest ~~liabilities~~expenses ~~decreased~~and tohigher ~~1.48%~~loan ~~for~~loss ~~the three months ended June 30~~provisions, ~~2010~~offset ~~from~~by ~~2.14%~~an ~~for~~increase ~~the~~in ~~same~~non-interest ~~period ended 2009~~income.

~~Our~~Net ~~net~~ interest ~~rate~~income ~~spread~~ increased 27$77,000 ~~basis~~or ~~points~~4.9% to 2$1.~~84%~~7 million for the quarter ended ~~June~~ September 30, 2010 from 2$1.~~57%~~6 million for the same period in 2009,. Average ~~while our net~~ interest ~~margin~~earning ~~increased~~assets 16were ~~basis~~$234.9 million ~~points~~and ~~to 2~~$218.~~91%~~3 ~~for~~million during the ~~quarter~~comparative ~~ended June 30,~~ 2010 ~~from~~and ~~2.75%~~2009 ~~for~~quarters while the ~~same~~average ~~period~~yield ~~ended~~was ~~June 30, 2009~~4. ~~The~~19% ~~ratio~~and of4.68%, ~~average~~respectively. Average interest-~~earning assets to average interest-~~bearing liabilities ~~decreased~~were ~~to 105~~$220.~~07%~~7 ~~for~~million ~~the~~and ~~three~~$201.9 million ~~months~~during ~~ended June 30,~~the comparative 2010 ~~from~~and ~~109.41%~~2009 ~~for~~quarters while the ~~same~~average ~~period~~rate inpaid ~~2009~~was 1.44% and 1.91%, respectively.

The ~~Company~~ ~~recorded~~increase ain ~~$61,000~~net ~~provision~~interest ~~for~~income ~~loan~~was ~~losses~~primarily ~~for~~due ~~the~~to ~~three~~lower ~~months~~interest ~~ended June~~expense ~~30, 2010 and no provision~~ for the ~~three~~comparable ~~months ended June 30, 2009~~periods. ~~The~~ Total ~~Company’s~~interest ~~allowance~~expense ~~for loan losses~~ decreased $~~1.4~~172,000 ~~million~~ or 4617.78% to $~~1.7 million at June 30~~792,000 ~~2010~~compared ~~from~~to ~~$3.0~~interest ~~million~~expense ~~at March~~of 31$964,000 ~~2010. The~~for ~~decrease~~the ~~was~~same ~~primarily~~period ~~due to $1.5 million~~ in ~~charge-offs~~ ~~that occurred during the three months ended June 30, 2010~~2009. AsThe ~~discussed~~decrease in ~~the~~interest ~~non-performing~~expense ~~paragraph~~was ~~above,~~partially ~~the charge-offs~~offset ~~included~~by a ~~$1.1~~decrease ~~million~~in ~~reduction~~interest toincome ~~the~~for ~~specific allocation. The Company restructured a commercial mortgage loan reducing principal to allow~~ the ~~property’s~~comparable ~~cash flows to cover its debt service expense~~periods. WeTotal ~~will~~interest ~~continue~~income todecreased ~~monitor the loan portfolio and should market conditions deteriorate further~~$95,000 ~~management~~or ~~may need to make additional provisions for loan losses in the future~~3. ~~The allowance for loan loss was 1.33~~7% ofto ~~total loans and~~ $2.~~33%~~5 ofmillion ~~total~~for ~~loans~~the atquarter ~~June~~ended September 30, 2010 ~~and~~compared ~~December 31,~~to ~~2009, respectively~~$2. ~~Non-performing~~6 ~~assets~~million asfor athe ~~percentage~~same ~~of total~~period ~~assets~~in ~~were 3.52% and 3.72% at June 30, 2010 and December 31,~~ 2009~~, respectively~~.

~~Non-~~The decrease in interest income ~~increased~~was ~~$313,000,~~primarily ordue ~~142~~to decreases in yield in each interest earning category as well as reductions in average balances in loan receivables and interest-earning deposits.3% The toaverage ~~$533,000~~balance for loans for the ~~quarter~~three months ended ~~June~~ September 30, 2010 ~~from~~was $~~220,000~~125.8 ~~for~~million ~~the~~with ~~comparable~~an ~~quarter~~average ~~in 2009. The~~yield ~~increase~~of in5.11% ~~non-interest~~compared ~~income~~to is$132.8 million ~~primarily~~with ~~the~~an ~~result~~average yield of ~~gains~~ on5.24% for the ~~sale~~same quarter in 2009. The average balance of securities ~~that~~increased ~~were~~to ~~recorded~~$99.6 ~~during~~million for the ~~quarter~~three months ended ~~June~~ September 30, 2010, ~~offset~~from by$74.5 amillion ~~$12,000~~for ~~reduction~~the insame ~~other~~period ~~non-interest income~~last year. The ~~gain~~average ~~was~~yield ~~recorded~~decreased to 3.39% on securities while for the ~~sale~~same ofquarter ~~available~~last ~~for~~year ~~sale residential~~the ~~agency~~average ~~mortgage~~yield was 4.16%. The average balance of interest-~~backed~~earning ~~securities~~deposits ~~during~~for the three months ended ~~June~~ September 30, 2010 decreased to $9.5 million with an average yield of 0.25% compared to an average balance of $10.9 million with an average yield of 1.44% for the same quarter in 2009.

~~Non-interest expense increased $65,000 or 4.3% to $1.6 million for the quarter ended June 30, 2010 compared to $1.5 million for the quarter ended June 30, 2009.~~ The ~~increase~~decrease in ~~non-~~interest expense iswas primarily due to ~~increases~~ indecreased ~~occupancy~~cost ~~expense~~of deposits, ~~advertising~~as ~~and~~well ~~promotion~~as ~~costs,~~a ~~postage~~decrease ~~and supplies~~in ~~expense~~the ~~and~~average ~~other~~balance ~~non-interest~~of ~~expense~~FHLB ~~items~~advances, ~~partially~~ offset by ~~decreases~~ increases in ~~federal~~the average deposit ~~insurance~~balances ~~premiums and professional fees. Salaries and employee benefits remained relatively stable~~ for the comparable ~~three month~~ periods. ~~Occupancy~~The ~~costs~~average ~~increased~~deposit ~~$41,000 or~~balances ~~21.4%~~were to $~~233,000~~202.2 million for the three months ended ~~June~~ September 30, 2010 compared to $~~192,000~~177.7 million for the same period inlast ~~2009~~year. The ~~increase~~average ~~reflects~~cost ~~the lower occupancy costs in 2009 due to the Company’s successful appeal~~ of adeposits ~~real~~for ~~estate tax assessment and~~ the ~~resulting~~three ~~refund~~months ~~of real estate taxes received during the quarter~~ ended ~~June~~ September 30, ~~2009. Advertising~~2010 ~~and~~was ~~promotion costs increased $17,000 or 30~~1.928% toas ~~$72,000 for the quarter ended June 30, 2010~~ compared to ~~$55,000~~1.67% for the same ~~period~~quarter in 2009. ~~The~~Average ~~increase~~FHLB ~~was~~advances ~~due to~~balances ~~promotional~~fell ~~activities designed~~ to ~~retain some of the bank’s best customers held during the quarter ended June 30, 2010. Postage and supplies increased~~ $~~8,000 or 22~~18.9%5 tomillion ~~$43,000~~ for the ~~six~~three months ended ~~June~~September 30, 2010 compared to $~~35,000~~24.2 million for the same period inlast ~~2009~~year. The ~~increase~~average ~~was primarily~~cost ~~due~~for toFHLB ~~office~~advances ~~supplies~~was ~~used in the production of promotional printed materials~~3. ~~Other non-interest expense items increased $100,000 or 70.9~~14% ~~to $241,000~~ for the third quarter ~~ended~~in ~~June 30,~~ 2010 compared to ~~$141,000~~3.62% for the same period ~~last~~in ~~year~~2009. The ~~increase~~average incost ~~non-~~of interest-bearing ~~expense~~liabilities ~~for the~~decreased ~~comparable~~to ~~quarters~~1.44% ~~was~~for ~~primarily~~the ~~due~~three tomonths ~~real~~ended ~~estate taxes~~September 30, ~~association assessments,~~2010 ~~insurance~~from ~~premiums~~1.91% ~~and~~for ~~fair value adjustments incurred in conjunction with OREO assets that have been held by~~ the ~~Company~~same ~~during~~period ~~the three months~~ ended ~~June 30, 2010~~2009.

Our net interest rate spread decreased 2 basis points to 2.75% for the quarter ended September 30, 2010 from 2.77% for the same period in 2009, while our net interest margin decreased 7 basis points to 2.84% for the quarter ended September 30, 2010 from 2.91% for the same period ended September 30, 2009. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 106.45% for the three months ended September 30, 2010 from 108.13% for the same period in 2009.

The Company recorded a provision of $284,000 for the three months ended September 30, 2010 and $246,000 provision for the three months ended September 30, 2009. The majority, $207,000, of the provision recognized during the third quarter of 2010 relates to reserves recorded on loans classified as troubled debt restructurings. The Company’s allowance for loan loss balance remained principally unchanged from September 31, 2009. We will continue to monitor the loan portfolio and should market conditions deteriorate further, management may need to make additional provisions for loan losses in the future. Non-performing assets as a percentage of total assets were 4.16% and 3.72% at September 30, 2010 and December 31, 2009, respectively.

Index

~~Federal deposit~~Non-interest ~~insurance~~income ~~premiums~~increased ~~decreased~~ $96409,000 or 54163.90% to $79660,000 for the quarter ended ~~June~~ September 30, 2010 ~~compared~~from to $~~175~~251,000 for the ~~same~~comparable ~~period~~quarter in 2009. The ~~decrease~~increase ~~was~~in ~~primarily~~non-interest ~~due~~income tois aprimarily ~~special assessment imposed upon every insured institution at June 30, 2009 to replenish~~ the ~~FDIC fund. Professional~~result ~~fees~~of ~~decreased~~gains ~~$15,000~~on ~~or 18.1% to $68,000 for~~ the ~~three~~ ~~months~~sale ~~ended~~of ~~June~~securities ~~30,~~that ~~2010~~were ~~compared~~sold ~~to $83,000 for the same period in 2009. The decrease was primarily related to lower costs associated with compliance with Sarbanes-Oxley (“S-Ox”) section 404 incurred~~ during the ~~three~~ ~~months~~quarter ended ~~June~~September 30, 2010 ~~compared to the same period last year~~. Professional fees increased during the three months ended June 30, 2009 in conjunction with auditor oversight portion of the S-Ox 404 provision that was in effect for smaller reporting companies at June 30, 2009. The auditor oversight portion of S-Ox was later suspended for smaller reporting companies in October of 2009 and then permanently suspended for smaller reporting companies as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

~~Income tax~~Non-interest expense ~~netted~~increased $731,000 or 50.2% to ~~zero~~$2.2 million for the ~~three~~quarter ~~months~~ ended ~~June~~ September 30, 2010 compared to ~~tax~~ ~~expense of~~ $~~61,000~~1.5 million for the quarter ended ~~June~~September 30, 2009. The ~~decrease~~ ~~was~~increase ~~the~~in ~~result~~non-interest ofexpense ~~the~~is ~~recovery~~primarily ofdue to increases in OREO valuation reserves and salaries and employee benefits. Salaries and employee benefits increased $~~203~~238,000 ofor ~~the~~35.1% ~~Company’s~~to ~~deferred tax~~$916,000 ~~asset reserve~~ for the three months ended ~~June~~September 30, 2010~~. The Company~~ ~~recorded~~compared ato $~~1.5~~678,000 ~~million~~for ~~valuation allowance against~~ the ~~Company’s deferred~~same ~~tax~~period ~~asset~~ in ~~the fourth quarter of~~ 2009. The ~~Company’s deferred~~increase ~~tax~~reflects ~~asset~~the ~~consists~~$141,000 ~~primarily~~compensation ofassociated ~~timing~~with ~~differences in~~ the ~~tax deductibility~~resignation of ~~bad~~the ~~debt~~Company’s ~~expense~~President and ~~deferred~~Chief ~~compensation. Future realization~~Operating ofOfficer and a ~~deferred~~$30,000 ~~tax~~discretionary ~~asset~~employee ~~ultimately~~bonus ~~depends~~paid onduring the ~~existence~~quarter ~~of sufficient~~ended ~~taxable~~September ~~income~~30, ~~of the appropriate character within the carry-back and carry-forward periods available under the tax law~~2010.

~~RESULTS OF~~Income ~~OPERATIONS~~tax ~~FOR~~expense ~~THE~~netted ~~SIX~~to ~~MONTHS~~zero ~~ENDED~~for ~~JUNE~~the three months ended September 30, 2010 ~~AND~~compared ~~JUNE~~ to tax expense of $22,000 for the quarter ended September 30, 2009. The Company’s reduction of its previously recorded deferred tax valuation allowance based on performance for the nine months ended September 30, 2010 resulted in no tax expense for the quarter ended September 30, 2010. The Company recorded a $1.5 million valuation allowance against the Company’s deferred tax asset in the fourth quarter of 2009. The Company’s deferred tax asset consists primarily of timing differences in the tax deductibility of bad debt expense and deferred compensation. Future realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income of the appropriate character within the carry-back and carry-forward periods available under the tax law.

Net income increased by $461,000 or 81.9% to $1.0 for the six months ended June 30, 2010, compared to net income of $563,000 for the same period in 2009. The Company’s return on average assets increased to 0.82% for the six months ended June 30, 2010 from 0.47% for the comparable period in 2009. The increase in net income resulted from increases in net interest income, non-interest income, and a recovery of a portion of the deferred tax asset valuation allowance discussed in more detail above, offset by an increase in non-interest expense and provision for loan losses.

Net interest income increased by $319,000 or 10.5% to $3.4 million for the six months ended June 30, 2010 from $3.0 million for the same period in 2009. The increase in net interest income primarily reflects lower interest expense for the comparable periods as interest rates on interest-bearing liabilities fell at a faster pace than the yields fell on interest-earning assets. Average interest earning assets were $228.3 million and $223.9 million during the comparative 2010 and 2009 periods while the average yield was 4.44% and 4.77%, respectively. Average interest-bearing liabilities increased to $217.4 million for the six months ended June 30, 2010 compared to $205.9 million for the comparable 2009 period, while the average cost of interest-bearing liabilities decreased to 1.56% from 2.23% for the comparable periods. Our net interest rate spread increased 33 basis points to 2.87% from 2.54% while our net interest margin increased 23 basis points to 2.95% from 2.72%. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 105.00% for the six months ended June 30, 2010 from 108.76% for the same period in 2009.

Index

~~There~~RESULTS ~~was a~~OF ~~$101,000~~OPERATIONS ~~provision~~FOR ~~for~~THE ~~loan~~NINE ~~losses~~MONTHS ~~for~~ENDED ~~the~~SEPTEMBER ~~six months ended June~~ 30, 2010 ~~and no~~AND SEPTEMBER ~~provision for loan losses for the six months ended June~~ 30, ~~2009. Any~~ loan loss provisions are made to maintain an allowance that is reflective of management’s estimate of losses incurred in our loan portfolio. We will continue to monitor the loan portfolio and should market conditions deteriorate further, management may need to make additional provisions for loan losses in the future. Although the Company believes that the allowance for loan losses is adequate to absorb probable incurred losses on existing loans that may become uncollectible, given the conditions of the real estate markets and economy in general there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. In addition, regulatory agencies, as an integral part of their examination process, periodically review the quality of loans and the adequacy of the allowance for loan losses and may require the Company to make additional provisions to the allowance based upon their judgments about information available to them at the time of their examinations. These additional provisions may be material. See the “Financial Condition” section for more information.2009

~~Non-interest~~ Net income increased by $~~111~~200,000 or 1429.94% to $~~857~~880,000 for the ~~six~~nine months ended ~~June~~ September 30, ~~2010~~ ~~from $746~~2010,~~000~~ ~~for~~compared ~~the~~to ~~comparable~~net ~~period in 2009. The increase in non-interest~~ income ~~is primarily the result~~ of ~~an increase in the gain on securities sales, offset by decreases in service charges on accounts and other non-interest income items. Gain on securities sales increased~~ $~~153~~680,000 ~~or 49.5%~~ for the ~~comparable~~same ~~six~~period ~~month~~in ~~periods due to the sale of available for sale mortgage-backed securities during the six months ended June 30, 2010~~2009. The Company’s ~~recorded~~return ~~$462,000 in gains~~ on ~~the sale~~average ofassets ~~securities~~increased ~~during the six months ended June 30, 2010 compared~~ to ~~$309,000~~ ~~in gains recorded during the six months ended June 30, 2009~~. ~~Service charges on accounts decreased $30,000 or 13.5~~47% ~~to $193,000~~ for the ~~six~~nine months ended ~~June~~September 30, 2010 ~~compared~~from to.38% ~~$223,000~~ for the ~~same~~ comparable period in 2009. The ~~decrease~~increase ~~was~~in ~~primarily~~net ~~due~~income toresulted ~~lower~~from ~~loan closing~~increases ~~fees as the volume of loan originations declined~~ in ~~2010~~net ~~compared~~interest ~~to 2009. Other~~income, non-interest income ~~decreased $14~~,~~000~~ orand ~~15.2%~~a torecovery ~~$78,000 for~~of ~~the~~a ~~six~~portion ~~months~~of ~~ended~~the ~~June~~deferred ~~30,~~tax ~~2010~~asset ~~compared~~valuation toallowance ~~$92,000~~discussed ~~for~~in ~~the~~more ~~six~~detail ~~months ended~~above ~~June~~offset ~~30,~~by ~~2009. The~~an ~~decrease~~increase in ~~other~~ non-interest ~~income~~expense ~~was primarily due to a decrease in insurance commissions for the comparable periods reflecting a decrease in the sale of fixed~~ and ~~variable rate annuities for~~ the ~~comparable~~ ~~periods~~loan asloss ~~investors avoided most non-insured financial market instruments~~provision.

~~Non-~~Net interest ~~expense~~ income increased by $~~136~~396,000 or 48.65% to $35.10 million for the ~~six-month~~nine ~~period~~ months ended ~~June~~ September 30, 2010 from $34.06 million for the ~~comparable~~same period in 2009. The increase in ~~non-~~net interest ~~expense~~income is primarily ~~due~~reflects ~~to increases~~lower ~~in other non-~~interest expense items, occupancy costs, advertising and promotion expenses, and postage and supplies costs, partially offset by a decrease in federal deposit insurance premiums. Salaries and employee benefits remained relatively stable for the comparable periods~~. Other non-interest~~ ~~expense~~as ~~items~~interest ~~increased~~rates ~~$177,000~~on orinterest-bearing ~~59.8%~~liabilities tofell ~~$473,000~~at ~~for~~a ~~the~~faster ~~six months~~pace ~~ended~~than ~~June 30, 2010 compared to $296,000 for~~ the ~~six~~yields ~~months~~fell ~~ended June 30,~~on ~~2009~~interest-earning assets. ~~The~~Average ~~increase in non-~~interest ~~expense~~earning ~~for the comparable quarters was primarily due to real estate taxes, association assessments, insurance premiums and fair value adjustments incurred in conjunction with OREO~~ assets ~~that~~were ~~have been held by the Company during the six months ended June 30, 2010~~$230. ~~The~~5 ~~Company~~million ~~held~~and $2221.7 million induring ~~OREO throughout majority of~~ the ~~six~~comparative ~~months ended June 30,~~ 2010, ~~compared~~and to2009 ~~OREO~~periods ~~of $3.0~~while ~~million held for less than one month during~~ the ~~six~~average ~~month~~yield ~~period~~was ~~ended~~4.35% ~~June 30~~and 4.75%, ~~2009~~respectively. ~~Occupancy~~Average ~~costs~~interest-bearing liabilities increased ~~$59,000 or 14.8%~~ to $~~457,000~~218.5 million for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to $~~398,000~~204.6 million for the ~~same~~comparable ~~period in~~ 2009~~. The~~ ~~increase~~period, ~~primarily~~while ~~reflects lower occupancy costs in 2009 reflecting~~ the ~~Company’s~~average ~~successful~~cost ~~appeal~~ of ainterest-bearing ~~real~~liabilities ~~estate~~decreased ~~tax~~to ~~assessment and the resulting refund of real estate taxes received during the six months ended June 30, 2009~~1. ~~Advertising~~52% ~~and~~from ~~promotion costs increased $20,000 or 19~~2.613% ~~to $122,000~~ for the ~~quarter~~comparable ~~ended~~periods. ~~June~~Our ~~30,~~net ~~2010~~interest ~~compared~~rate tospread ~~$102,000~~increased ~~for the~~21 ~~same~~basis ~~period~~points ~~in 2009. The increase was due~~ to ~~promotional activities designed to retain some of the bank’s best customers held during the six months ended June 30, 2010~~2. ~~Postage~~83% ~~and~~from ~~supplies increased $13,000 or 18~~2.162% towhile ~~$85,000~~our ~~for~~net ~~the~~interest ~~six~~margin ~~months~~increased ~~ended~~12 ~~June~~basis ~~30,~~points ~~2010 compared~~ to ~~$72,000~~ ~~for~~2.91% ~~the~~from ~~same period in 2009~~2.79%. The ~~increase~~ratio ~~was~~of ~~primarily~~average ~~due to~~interest-earning ~~office~~assets ~~supplies~~to ~~used~~average ininterest-bearing ~~the~~liabilities ~~production of promotional printed materials. Federal deposit insurance premiums~~ decreased ~~$75,000~~to ~~or 32~~105.849% ~~to $154,000~~ for the ~~six~~nine months ended ~~June~~ September 30, 2010 ~~compared~~from ~~to $229,000~~108.39% for the same period in ~~2010. The decrease was primarily due to a special assessment imposed upon every insured financial institution at June 30,~~ 2009 ~~to replenish the FDIC fund~~.

There was a $385,000 provision for loan losses for the nine months ended September 30, 2010 and $246,000 provision for loan losses for the nine months ended September 30, 2009. Any loan loss provisions are made to maintain an allowance that is reflective of management’s estimate of losses incurred in our loan portfolio. We will continue to monitor the loan portfolio and should market conditions deteriorate further, management may need to make additional provisions for loan losses in the future. Although the Company believes that the allowance for loan losses is adequate to absorb probable incurred losses on existing loans that may become uncollectible, given the conditions of the real estate markets and economy in general there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. In addition, regulatory agencies, as an integral part of their examination process, periodically review the quality of loans and the adequacy of the allowance for loan losses and may require the Company to make additional provisions to the allowance based upon their judgments about information available to them at the time of their examinations. See the “Financial Condition” section for more information.

Non-interest income increased $520,000 or 52.2% to $1.5 million for the nine months ended September 30, 2010 from $997,000 for the comparable period in 2009. The increase in non-interest income is primarily the result of an increase in the gain on available for sale securities and a decrease in other than temporary impairment on investment, offset by a decrease in other non-interest income items. Gain on securities sales increased $444,000 or 92.1% to $926,000 for the nine months ended September 30, 2010 compared to $482,000 for the same period in 2009 due to the sale of available for sale mortgage-backed securities. During the nine months ended September 30, 2009, the Company recorded a $126,000 other than temporary impairment charge on stock held in another financial institution (“banker’s bank”). Due to the banker’s bank inability to project a recovery in the value of the investment equal to the Company’s investment, the Company recognized other than temporary impairment in the amount of $126,000 during the third quarter of 2009. Other non-interest income decreased $21,000 or 15.9% to $111,000 for the nine months ended September 30, 2010 compared to $132,000 for the nine months ended September 30, 2009. The decrease in other non-interest income was primarily due to a $11,000 decrease in insurance commissions for the comparable periods reflecting a decrease in the sale of fixed and variable rate annuities for the comparable periods as investors avoided most non-insured financial market instruments, as well as a $9,000 decrease in correspondent fee income on mortgage loans for the comparable periods.

Non-interest expense increased $867,000 or 19.6% to $5.3 million for the nine-month period ended September 30, 2010 from $4.4 million for the comparable period in 2009. The increase in non-interest expense is primarily due to increases in OREO expenses and valuation reserves, salaries and employee benefits, occupancy costs and advertising and promotion expenses, partially offset by a decrease in federal deposit insurance premiums. Valuation allowances on OREO increased $384,000 to $455,000 for the nine month period ended September 30, 2010 from $71,000 for the comparable period in 2009. Expenses on

Index

~~Income tax~~OREO ~~expense~~increased ~~netted~~$193,000 to ~~zero~~$225,000 for the ~~six~~nine ~~months~~month period ended ~~June~~September 30, 2010 ~~compared~~from $32,000 for the comparable period in 2009. The increase in expenses on OREO was primarily due to ~~tax~~ real estate taxes, association assessments, and insurance premiums. Other non-interest expense ofitems increased $~~268~~38,000 to $405,000 for the ~~six~~nine ~~months~~month period ended ~~June~~September 30, 2010 from $367,000 for the comparable period in 2009. ~~The decrease~~Salaries ~~was~~and employee benefits increased $196,000 or 9.2% to $2.3 million for the ~~result~~nine ofmonth period ended September 30, 2010 from $2.1 million for the ~~recovery~~same ofperiod in 2009. The increase reflects the $~~378~~141,000 compensation associated with the resignation of the Company’s ~~deferred tax~~President ~~asset~~and ~~reserve~~Chief ~~for~~Operating ~~the~~Officer ~~six~~and ~~months~~a $30,000 discretionary employee bonus paid during the quarter ended ~~June~~September 30, 2010. ~~Please reference~~ ~~the~~Occupancy ~~quarterly~~costs ~~income~~increased ~~tax~~$62,000 ~~expense~~or ~~information~~9.6% ~~above~~to ~~regarding~~$705,000 for the ~~Company’s~~ nine months ended September 30, 2010 compared to $1643,000 for the same period in 2009.5 The ~~million~~increase ~~valuation~~primarily ~~allowance~~reflects ~~which~~lower ~~was~~occupancy ~~recorded~~costs ~~against~~in 2009 reflecting the Company’s ~~deferred~~successful appeal of a real estate tax ~~asset~~assessment inand the ~~fourth~~resulting ~~quarter~~refund of real estate taxes received during the nine months ended September 30, 2009. AsAdvertising ~~of June~~and ~~30,~~promotion ~~2010~~costs increased $34,000 ~~the~~or ~~Company~~21.3% ~~recorded~~to $~~1.0~~194,000 ~~million~~for inthe ~~pre-tax~~quarter ~~income~~ended ~~and~~September 30, ~~offset~~ 2010 compared to $~~378~~160,000 offor ~~federal~~the ~~and~~same ~~state~~period ~~income~~in ~~tax~~2009. The ~~expense~~increase ~~with~~was adue ~~recovery~~to ofpromotional aactivities ~~portion~~designed to retain some of the ~~deferred~~Bank’s ~~tax~~customers ~~asset~~held ~~reserve~~during ~~recorded~~the innine ~~2009~~months ~~which~~ended ~~resulted~~September in30, no2010. Federal ~~tax~~deposit ~~expense~~ insurance premiums decreased $62,000 or 20.6% to $239,000 for the ~~period. As~~nine ofmonths ~~June~~ended September 30, 2010 compared to $301,000 for the ~~Company~~same ~~has~~period $1in 2010.2 The ~~million deferred~~decrease ~~tax~~was ~~asset~~primarily ~~reserve~~due to a special assessment imposed upon every insured financial institution at June 30, 2009 to replenish the FDIC deposit insurance fund.

Income tax expense netted to zero for the nine months ended September 30, 2010 compared to tax expense of $290,000 for the nine months ended September 30, 2009. The decrease was the result of the recovery of $281,000 of the Company’s deferred tax asset valuation allowance for the nine months ended September 30, 2010. Please reference the quarterly income tax expense information above regarding the Company’s $1.5 million valuation allowance which was recorded against the Company’s deferred tax asset in the fourth quarter of 2009. As of September 30, 2010, the Company recorded $0.9 million in pre-tax income and offset $281,000 of federal and state income tax expense with a recovery of a portion of the deferred tax asset reserve recorded in 2009 which resulted in no tax expense for the period. As of September 30, 2010 the Company has a $1.1 million deferred tax asset reserve.

LIQUIDITY

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund loan originations and deposit withdrawals, to satisfy other financial commitments, and to take advantage of investment opportunities. The Bank invests excess funds in overnight deposits and other short-term interest-earning assets to provide liquidity to meet these needs. At ~~June~~September 30, 2010, cash and cash equivalents totaled $715.0 2 million. At ~~June~~September 30, 2010, the Bank had commitments to fund loans of $16.7 4 million, available lines of credit of $12.98 million, and standby letters of credit of $~~205~~195,000. At ~~June~~ September 30, 2010, certificates of deposit represented 5655.802% of total deposits. The Bank has historically retained these deposit accounts. In addition, the Bank has borrowing capacity for an additional $4845.09 million from the FHLB without having to provide additional collateral. The Bank considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term capital needs.

Index

CAPITAL RESOURCES

The Bank is subject to capital-to-asset requirements in accordance with bank regulations. The following table summarizes the Bank's regulatory capital requirements versus actual capital for the periods presented:

											To Be Well
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
											Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2010
As of September 30, 2010
Total risk-based capital to
risk-weighted assets	$	24,~~822~~723		21.9163	%	$	9,~~061~~143		8.0	%	$	11,~~326~~428		10.0	%
Tier I (core) capital to risk-
weighted assets		23,~~404~~242		20.6638	%		4,~~531~~571		4.0			6,~~796~~857		6.0
Tier I (core) capital to
adjusted total assets		23,~~404~~242		9.3418	%		10,~~022~~150		4.0			12,~~528~~687		5.0
As of December 31, 2009
Total risk-based capital to
risk-weighted assets	$	23,355		19.64	%	$	9,508		8.0	%	$	11,886		10.0	%
Tier I (core) capital to risk-
weighted assets		21,849		18.38			4,754		4.0			7,132		6.0
Tier I (core) capital to
adjusted total assets		21,849		8.75			9,986		4.0			12,482		5.0

MANAGEMENT OF MARKET RISK

The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives; and for managing this risk consistent with the guidelines approved by the Board of Directors. Senior management monitors the level of interest rate risk on a regular basis, and the Asset/ Liability Management Committee, which consists of senior management operating under a policy adopted by the Board of Directors, meets as needed to review our asset/liability policies and interest rate risk position.

We have sought to manage our interest rate risk by more closely matching the maturities of our interest rate sensitive assets and liabilities. In the current low interest rate environment we have kept the majority of our purchases of investments in fixed rate notes and bonds to maturities within two to three years. In addition, we may emphasize fixed rate mortgages that mature in fifteen years or less by offering very competitive interest rates on those products while not being as aggressive in pricing those mortgages that mature in greater than fifteen years. We also offer one-, three-, five-, and seven-year adjustable rate mortgage loans, and three- and five-year balloon loans. However, in a low interest rate environment, borrowers typically prefer fixed-rate loans rather than adjustable-rate mortgages. We may sell some of our originations of longer-term fixed-rate loans into the secondary market. We do not solicit high-rate jumbo certificates of deposit or brokered funds.

The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution's cash flow from assets, liabilities, and off-balance-sheet items (the institution's net portfolio value or "NPV") would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of net portfolio value. The Office of Thrift Supervision model estimates the economic value of each type of asset, liability, and off-balance-sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 50 to 300 basis points in 50 or 100 basis point increments. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 7% to 8% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.

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~~The following~~100 ~~table~~basis ~~sets~~points ~~forth~~equals asone ofpercent. An ~~March~~increase ~~31,~~in ~~2010~~interest ~~(the~~rates ~~latest~~from ~~date~~7% ~~for~~to ~~which information~~8% iswould ~~available)~~mean, ~~the~~for ~~estimated~~example, ~~changes~~a in100 ~~our~~basis ~~net~~point ~~portfolio~~increase ~~value~~in ~~that would~~the ~~result~~"Change ~~from~~in ~~the~~Interest ~~designated~~Rates" ~~instantaneous~~column ~~changes~~below. The inOffice ~~the~~of ~~United~~Thrift ~~States Treasury~~Supervision ~~yield~~provides ~~curve. The~~us ~~Company~~the ~~anticipates~~results ~~that~~of the ~~June 30~~interest rate sensitivity model, ~~2010~~ ~~Net~~which ~~Portfolio~~is ~~Value~~based ~~will~~on beinformation ~~similar~~we provide to the ~~March~~Office ~~31,~~of ~~2010~~Thrift ~~table~~Supervision ~~shown below~~to estimate the sensitivity of our net portfolio value.

Change in										NPV as % of
Interest Rates										Portfolio Value of Assets
in Basis Points		Net Portfolio Value								NPV			Basis Point
(Rate Shock)		Amount		$ Change			% Change			Ratio			Change
		(Dollars in thousands)
	300	$	15,860	$	(15,801	)		(50	)%		6.70	%		(562	)
	200		21,493		(10,168	)		(32	)		8.82			(350	)
	100		27,095		(4,566	)		(14	)		10.80			(152	)
	50		28,852		(2,809	)		(9	)		11.39			(93	)
Static			31,661		-			-			12.32			-
	-50		32,328		667			2			12.51			19
	-100		33,560		1,899			(6	)		12.90			58

The following table sets forth as of June 30, 2010 (the latest date for which information is available), the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve. The Company anticipates that the September 30, 2010 Net Portfolio Value will be similar to the June 30, 2010 table shown below.

The table above indicates that at March 31, 2010, in the event of a 200 basis point increase in interest rates, we would experience a 32.0% decrease in net portfolio value. A 100 basis point decrease in interest rates would result in a 6.0% decrease in net portfolio value. All model outputs associated with the -200 or -300 basis point scenarios are not utilized because of the low prevailing interest rate environment.

Change in Interest Rates	Net Portfolio Value								NPV as % of Portfolio Value of Assets
in Basis Points (Rate Shock)	Amount		$ Change			% Change			NPV Ratio			Basis Point Change
	(Dollars in thousands)

300	$	18,389	$	(15,093	)		(45	)%		7.54	%		(518	)
200		24,473		(9,009	)		(27	)		9.74			(298	)
100		30,070		(3,412	)		(10	)		11.64			(108	)
50		30,683		(2,799	)		(8	)		11.81			(91	)
Static		33,482		-			-			12.72			-
-50		33,405		(77	)		0			12.66			(6	)
-100		33,425		(57	)		0			12.64			(8	)

~~Certain shortcomings~~The ~~are~~table ~~inherent~~above inindicates ~~the~~that ~~methodology~~at ~~used~~June in30, ~~the~~2010, ~~above interest rate risk measurement. Modeling changes~~ in ~~net~~the ~~portfolio~~event ~~value~~of ~~require making~~a ~~certain~~200 ~~assumptions~~basis ~~that~~point ~~may~~increase ~~or may not reflect the manner~~ in ~~which actual~~interest ~~yields~~rates, ~~and~~we ~~costs~~would ~~respond~~experience toa ~~changes in market interest rates~~27. In0% ~~this~~decrease ~~regard,~~in ~~the~~ net portfolio value. A ~~table~~100 ~~presented assumes~~basis ~~that~~point ~~the~~decrease ~~composition~~in ~~of our~~ interest~~-sensitive~~ ~~assets~~rates ~~and~~would ~~liabilities existing~~result atin ~~the beginning of~~ a ~~period~~less ~~remains~~than ~~constant~~1% ~~over the period being measured and assumes that a particular~~ change in ~~interest~~net ~~rates~~portfolio isvalue. All ~~reflected uniformly~~model ~~across~~outputs ~~the~~associated ~~yield~~with ~~curve regardless of~~ the ~~duration~~-200 or ~~repricing~~-300 ~~of specific~~basis ~~assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular~~ point inscenarios ~~time, such measurements~~ are not ~~intended~~utilized tobecause ~~and do not provide a precise forecast~~ of the ~~effect~~low ofprevailing ~~changes in market~~ interest ~~rates~~rate ~~on its net interest income, and will differ from actual results~~environment.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or re-pricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on its net interest income, and will differ from actual results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is set forth under ITEM 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Market Risk”.

ITEM 4T. CONTROLS AND PROCEDURES

During the third quarter of 2010, the Company’s independent registered public accounting firm identified a material weakness in our internal controls over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Specifically, during the Company’s independent registered public accounting firm review of file maintenance change reports, they indentified certain loans that had maintenance changes of due dates that were outside of Company policy and generally accepted banking practices. These loans had the due dates advanced, although, the full contractual payments were not received. In these instances a partial payment was received and Company personnel did not understand that the procedure of due date maintenance was a violation

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~~ITEM 4T~~of policies and practices. ~~CONTROLS~~ ~~AND~~As ~~PROCEDURES~~a result of this finding, our non-performing loans increased by $1.9 million and additional provisions for loan losses of $207,000 were recorded. Because partial payments (generally including all interest) were being received from the borrowers, in each case, the loans are not believed to be collateral dependent. The Company is actively working with the borrowers to restructure the loans (i.e., troubled debt restructures) so that borrowers can satisfy the contractual obligations of the loan.

~~Under~~As ~~the supervision~~part ~~and with the participation~~ of the Company'’s ~~management,~~determination ~~including the Chief Executive Officer, President and Chief Financial Officer, the Company has evaluated the effectiveness~~ of the ~~design~~financial ~~and~~statement operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluationimpact, the ~~Chief Executive Officer, President and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the~~ Company's ~~disclosure~~took ~~controls and procedures are effective to ensure that information required to be disclosed in~~ the ~~reports~~following that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange commission's rules and forms. There has been no change in the Company's internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.actions:

Ensured all employees understand the loan policies and procedures and that loan maintenance of due dates in these instances are a violation of Company policies and practices.

Established appropriate internal controls to ensure such matters do not reoccur.

Performed appropriate reviews to ensure all loans affected were identified and properly reported.

Evaluated necessary changes to the third quarter of 2010 financial reporting to ensure proper reporting was completed.

Evaluated whether prior period reporting was impacted, and if so assess the need to restate prior period(s).

This Form 10Q filing includes the financial reporting of the additional non-performing loans. We have evaluated prior filings and determined that the identified loans became impaired during the third quarter of 2010 and as such, non-performing loan and allowance balances in prior quarters were not materially affected by the identified deficiency.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with the accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with the authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies and procedures may deteriorate.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon, and as of the date of that evaluation, and because of the material weakness noted above, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2010. As noted above, management has taken actions it believes appropriate to remediate the material weakness. However, management believes additional time is warranted to evaluate as to whether the material weakness has been fully remediated.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which the Company holds security interest, claims involving the making and servicing of real property loans, and other issues incident to the Company's business. In the opinion of management, after consultation with the Company's legal counsel, no significant loss is expected from any such pending claims or lawsuits. The Company is not a party to any material pending legal proceedings.

ITEM 1A. RISK FACTORS

In addition to the risk factors set forth in our annual report on Form 10-K, we have these additional risk factors.

If Economic Conditions Deteriorate in our Primary Market, Our Results of Operations and Financial Condition could be Adversely Impacted as Borrowers’ Ability to Repay Loans Declines and the Value of the Collateral Securing Loans Decreases.

Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events. Decreases in real estate values could potentially adversely affect the value of property used as collateral for our mortgage loans. In the event that we are required to foreclose on a property securing a mortgage loan, there can be no assurance that we will recover funds in an amount equal to any remaining loan balance as a result of prevailing general economic conditions, real estate values and other factors associated with the ownership of real property. As a result, the market value of the real estate underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans. Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss expense. Adverse changes in the economy may also have a negative effect on of the ability of borrowers to make timely repayments of their loans, which could have an adverse impact on earnings.

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Our Securities Portfolio may be Negatively Impacted by Fluctuations in Market Value.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by decreases in interest rates, lower market prices for securities and lower investor demand. Our securities portfolio is evaluated for other-than-temporary impairment on at least a quarterly basis. If this evaluation shows an impairment to cash flow connected with one or more securities, a potential loss to earnings may occur.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Company's second repurchase plan was announced on May 18, 2004 and allows for the repurchase of 117,000 shares of the Company's stock, which represented approximately 5% of the Company's outstanding shares. Increases to the Company's second repurchase plan were announced on March 22, 2005, October 18, 2005, August 21, 2007 and February 26, 2008. They allow for the purchase of an additional 100,000, 50,000, 50,000 and 50,000 shares respectively, to be added to the current stock repurchase program.

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Issuer purchases of equity securities during the prior three months:

							Maximum
	Total Number Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased Under Publicly Announced Plan		Maximum Number of Shares That May Be Purchased Under the Repurchase Plan
					Total Number		Number of
July 1 – July 31		-	$	-		316,149		367,000
					of Shares		Shares That May
August 1 – August 31		125		12.00		316,274		367,000
					Purchased		Be Purchased
September 1 – September 30		12		12.50		316,286		367,000
	Total		Average		Under Publicly		Under the
	Number Shares		Price Paid		Announced		Repurchase
	Purchased		Per Share		Plan		Plan
April 1 – April 30		-	$	-		316,149		367,000
May 1 – May 31		-		-		316,149		367,000
June 1 – June 30		-		-		316,149		367,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. REMOVED AND RESERVED.

ITEM 5. OTHER INFORMATION.

(a)

None

(b)

There have been no changes to the procedures by which security holders may recommend nominees to the Company’s board of directors from that which is set forth in the Company’s annual meeting proxy statement.

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ITEM 6. EXHIBITS.

(a)

Exhibits

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of ~~President~~Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AJS BANCORP, INC.
Date: August 10, 2010	/s/ Thomas R. Butkus
Date: November 19, 2010	/s/ Thomas R. Butkus
	Thomas R. Butkus
	Chief Executive Officer and Chairman of the Board
Date: August 10, 2010	/s/ Lyn G. Rupich
Date: November 19, 2010	/s/ Pamela Favero
	Lyn G. Rupich
	Pamela Favero
	President and Chief Operating Officer
	Vice President and CFO

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