10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012.

OR

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

For the transition period from _________ to __________.

Commission file number: 000-24611

CFS Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Indiana	35-2042093
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
707 Ridge Road, Munster, Indiana	46321
(Address of principal executive offices)	(Zip code)
(219) 836-2960
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 þ          NO o

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 þ          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 the 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 (Do not check if a smaller reporting company)	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o  NO þ

The Registrant had 10,866,613 shares of Common Stock issued and outstanding as of August 7, 2012.

CFS BANCORP, INC.

Form 10-Q

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Condition	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	77
Item 4.	Controls and Procedures	79
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	80
Item 1A.	Risk Factors	80
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	80
Item 5.	Other Information	81
Item 6.	Exhibits	81
Signature Page		82
Certifications of Principal Executive Officer and Principal Financial Officer
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.0

CFS BANCORP, INC.

Condensed Consolidated Statements of Condition

	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS	(Dollars in thousands)
Cash and amounts due from depository institutions	$	33,846		$	32,982
Interest-bearing deposits	51,687			59,090
Cash and cash equivalents	85,533			92,072
Investment securities available-for-sale, at fair value	226,625			234,381
Investment securities held-to-maturity, at cost	13,965			16,371
Federal Home Loan Bank stock, at cost	6,188			6,188
Loans receivable	713,596			711,226
Allowance for loan losses	(12,062		)	(12,424		)
Net loans	701,534			698,802
Loans held for sale	610			1,124
Bank-owned life insurance	36,435			36,275
Accrued interest receivable	2,801			3,011
Other real estate owned	19,223			19,091
Office properties and equipment	16,225			17,539
Net deferred tax assets	16,281			16,273
Other assets	6,674			7,823
Total assets	$	1,132,094		$	1,148,950
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	967,154		$	977,424
Borrowed funds	51,306			54,200
Advance payments by borrowers for taxes and insurance	4,243			4,275
Other liabilities	4,794			9,803
Total liabilities	1,027,497			1,045,702
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value; 15,000,000 shares authorized	—			—
Common stock, $.01 par value; 85,000,000 shares authorized; 23,423,306 shares issued; 10,867,357 and 10,874,668 shares outstanding	234			234
Additional paid-in capital	187,379			187,030
Retained earnings	74,420			72,683
Treasury stock, at cost; 12,555,949 and 12,548,638 shares	(154,824		)	(154,773		)
Accumulated other comprehensive loss, net of tax	(2,612		)	(1,926		)
Total shareholders’ equity	104,597			103,248
Total liabilities and shareholders’ equity	$	1,132,094		$	1,148,950

See accompanying notes to the unaudited condensed consolidated financial statements.

3

CFS BANCORP, INC.

Condensed Consolidated Statements of Income

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Unaudited)
	(Dollars in thousands, except share and per share data)
Interest income:
Loans receivable	$	8,243	$	9,016	$	16,629	$	17,827
Investment securities	2,186		2,040		4,316		4,085
Other interest-earning assets	103		164		196		321
Total interest income	10,532		11,220		21,141		22,233
Interest expense:
Deposits	1,294		1,777		2,684		3,670
Borrowed funds	294		256		590		519
Total interest expense	1,588		2,033		3,274		4,189
Net interest income	8,944		9,187		17,867		18,044
Provision for loan losses	1,150		996		2,200		1,899
Net interest income after provision for loan losses	7,794		8,191		15,667		16,145
Non-interest income:
Service charges and other fees	1,087		1,174		2,105		2,250
Card-based fees	577		520		1,110		995
Commission income	75		78		132		123
Net gain on sale of:
Investment securities	305		173		723		692
Loans held for sale	200		26		359		58
Other real estate owned	86		2,238		39		2,233
Income from bank-owned life insurance	162		210		702		416
Other income	151		119		297		222
Total non-interest income	2,643		4,538		5,467		6,989
Non-interest expense:
Compensation and employee benefits	4,467		5,047		9,180		10,286
Net occupancy expense	679		670		1,387		1,435
FDIC insurance premiums and regulatory assessments	490		504		978		1,157
Furniture and equipment expense	468		454		925		917
Data processing	445		441		883		883
Marketing	322		270		726		457
Professional fees	198		334		451		722
Other real estate owned related expense, net	316		2,011		934		2,603
Loan collection expense	119		233		237		353
Severance and early retirement expense	—		—		876		—
Other general and administrative expenses	1,038		1,107		2,172		2,225
Total non-interest expense	8,542		11,071		18,749		21,038
Income before income tax expense	1,895		1,658		2,385		2,096
Income tax expense	541		425		541		391
Net income	$	1,354	$	1,233	$	1,844	$	1,705
Per share data:
Basic earnings per share	.13		.12		.17		.16
Diluted earnings per share	.13		.11		.17		.16
Cash dividends declared per share	—		.01		.01		.02
Weighted-average common and common share equivalents outstanding:
Basic	10,750,313		10,691,424		10,724,103		10,671,196
Diluted	10,806,555		10,759,332		10,776,476		10,733,149

See accompanying notes to the unaudited condensed consolidated financial statements.

4

CFS BANCORP, INC.

Condensed Consolidated Statements of Comprehensive Income

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Unaudited)
	(Dollars in thousands)
Net income	$	1,354		$	1,233		$	1,844		$	1,705
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period:
Unrealized net gains (losses)	(291		)	1,859			(609		)	3,109
Related income tax (expense) benefit	90			(675		)	376			(1,124		)
Net unrealized gains (losses)	(201		)	1,184			(233		)	1,985
Less:  reclassification adjustment for net gains realized during the period:
Realized net gains	305			173			723			692
Related income tax expense	(119		)	(64		)	(270		)	(253		)
Net realized gains	186			109			453			439
Other comprehensive income (loss)	(387		)	1,075			(686		)	1,546
Comprehensive income	$	967		$	2,308		$	1,158		$	3,251

See accompanying notes to the unaudited condensed consolidated financial statements.

5

CFS BANCORP, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

	Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
	(Unaudited) (Dollars in thousands)
Balance at January 1, 2011	$	234	$	187,164		$	83,592		$	(155,112	)	$	(2,950	)	$	112,928
Net income	—		—			1,705			—			—			1,705
Other comprehensive income	—		—			—			—			1,546			1,546
Forfeiture of restricted stock awards	—		437			2			(437		)	—			2
Vesting of restricted stock awards	—		204			—			—			—			204
Grants of restricted stock awards	—		(672		)	—			672			—			—
Dividends declared on common stock ($.02 per share)	—		—			(219		)	—			—			(219		)
Balance at June 30, 2011	$	234	$	187,133		$	85,080		$	(154,877	)	$	(1,404	)	$	116,166
Balance at January 1, 2012	$	234	$	187,030		$	72,683		$	(154,773	)	$	(1,926	)	$	103,248
Net income	—		—			1,844			—			—			1,844
Other comprehensive loss	—		—			—			—			(686		)	(686		)
Amortization of stock based compensation	—		6			—			—			—			6
Forfeiture of restricted stock awards	—		615			2			(615		)	—			2
Vesting of restricted stock awards	—		318			—			(26		)	—			292
Grants of restricted stock awards	—		(590		)	—			590			—			—
Dividends declared on common stock ($.01 per share)	—		—			(109		)	—			—			(109		)
Balance at June 30, 2012	$	234	$	187,379		$	74,420		$	(154,824	)	$	(2,612	)	$	104,597

See accompanying notes to the unaudited condensed consolidated financial statements.

6

CFS BANCORP, INC.

Condensed Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2012			2011
	(Unaudited) (Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	1,844		$	1,705
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,200			1,899
Depreciation and amortization	760			755
Net discount accretion on investment securities available-for-sale	(881		)	(52		)
Net premium amortization on investment securities held-to-maturity	66			81
Net gain on sale of:
Loans held for sale	(359		)	(58		)
Investment securities	(723		)	(692		)
Other real estate owned	(39		)	(2,233		)
Properties and equipment	(8		)	—
Writedowns on other real estate owned	684			1,785
Writedowns on transfer of future branch sites to other real estate owned	—			396
Writedown on construction in process	—			106
Deferred income tax expense	554			334
Proceeds from sale of loans held for sale	20,790			2,434
Origination of loans held for sale	(19,689		)	(2,299		)
Increase in cash surrender value of bank-owned life insurance	(702		)	(416		)
Decrease in other assets	1,525			2,879
Increase (decrease) in other liabilities	(4,694		)	109
Net cash flows provided by operating activities	1,328			6,733
INVESTING ACTIVITIES:
Proceeds from sale of:
Investment securities, available-for-sale	22,343			19,463
Other real estate owned	1,950			6,130
Properties and equipment	26			—
Proceeds from maturities and paydowns of:
Investment securities, available-for-sale	31,715			29,644
Investment securities, held-to-maturity	2,340			2,283
Purchases of:
Investment securities, available-for-sale	(46,032		)	(82,965		)
Properties and equipment	(423		)	(67		)
Redemption of Federal Home Loan Bank stock	—			11,645
Increase in loans receivable	(6,854		)	(10,550		)
Proceeds from bank-owned life insurance	542			—
Net cash flows provided by (used in) investing activities	5,607			(24,417		)
FINANCING ACTIVITIES:
Net increase (decrease) in:
Deposit accounts	(10,330		)	18,593
Advance payments by borrowers for taxes and insurance	(32		)	(231		)
Short-term borrowed funds	(2,794		)	378
Repayments of Federal Home Loan Bank advances	(100		)	(15,093		)
Dividends paid on common stock	(218		)	(219		)
Net cash flows provided by (used in) financing activities	(13,474		)	3,428
Decrease in cash and cash equivalents	(6,539		)	(14,256		)
Cash and cash equivalents at beginning of period	92,072			61,754
Cash and cash equivalents at end of period	$	85,533		$	47,498

7

CFS BANCORP, INC.

Condensed Consolidated Statements of Cash Flows (continued)

	Six Months Ended June 30,
	2012		2011
	(Unaudited) (Dollars in thousands)
Supplemental disclosures:
Loans and land transferred to other real estate owned	$	2,719	$	4,522
Cash paid for interest on deposits	2,687		3,670
Cash paid for interest on borrowed funds	594		549

See accompanying notes to the unaudited condensed consolidated financial statements.

8

CFS BANCORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, or cash flows in accordance with U.S. generally accepted accounting principles.  In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included.  The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results expected for the year ending December 31, 2012.  The June 30, 2012 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K.

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities.  These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided.  The determination of the allowance for loan losses, valuations and impairments of investment securities, and the accounting for income tax expense are highly dependent on management’s estimates, judgments, and assumptions where changes in any of these could have a significant impact on the financial statements.

The condensed consolidated financial statements include the accounts of CFS Bancorp, Inc. (the Company), its wholly-owned subsidiary, Citizens Financial Bank (the Bank), and its wholly-owned subsidiaries, CFS Holdings, LTD and WHCC, LLC.  All material intercompany balances and transactions have been eliminated in consolidation.

Certain items in the condensed consolidated financial statements of prior periods have been reclassified to conform to the current period’s presentation.

2. Earnings Per Share

Basic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the year.  Restricted stock shares which have not vested and shares held in Rabbi Trust accounts are not considered to be outstanding for purposes of calculating basic EPS.  Diluted EPS is computed by dividing net income by the average number of common shares outstanding during the year and includes the dilutive effect of stock options, unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts pursuant to deferred compensation plans.  The dilutive common stock equivalents are computed based on the treasury stock method using the average market price for the period.

9

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Dollars in thousands, except per share data)
Net income	$	1,354	$	1,233	$	1,844	$	1,705
Weighted-average common shares:
Outstanding	10,750,313		10,691,424		10,724,103		10,671,196
Equivalents (1)	56,242		67,908		52,373		61,953
Total	10,806,555		10,759,332		10,776,476		10,733,149
Earnings per share:
Basic	$	.13	$	.12	$	.17	$	.16
Diluted	.13		.11		.17		.16
Number of anti-dilutive stock options excluded from the diluted earnings per share calculation	399,795		516,495		425,895		581,882
Weighted-average exercise price of anti-dilutive option shares	$	14.06	$	14.01	$	14.06	$	13.71

(1) Assumes exercise of dilutive stock options, a portion of the unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts.

3. Investment Securities

The amortized cost of investment securities and their fair values are as follows for the periods indicated:

	June 30, 2012
	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	14,500	$	14,469	$	436	$	—		$	14,905
Government sponsored entity (GSE) securities	37,800		37,826		939		—			38,765
Corporate bonds	5,420		5,069		100		—			5,169
Collateralized mortgage obligations	96,052		86,071		1,937		(884		)	87,124
Commercial mortgage-backed securities	58,969		60,155		1,340		—			61,495
Asset backed securities	4,599		4,226		—		(9		)	4,217
Pooled trust preferred securities	25,588		23,257		—		(8,311		)	14,946
GSE preferred stock	200		—		4		—			4
Total available-for-sale investment securities	$	243,128	$	231,073	$	4,756	$	(9,204	)	$	226,625
Held-to-maturity investment securities:
Asset backed securities	$	7,331	$	7,525	$	183	$	—		$	7,708
Municipal securities	6,440		6,440		46		—			6,486
Total held-to-maturity investment securities	$	13,771	$	13,965	$	229	$	—		$	14,194

10

	December 31, 2011
	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	15,000	$	14,967	$	447	$	—		$	15,414
Government sponsored entity (GSE) securities	46,800		46,967		1,415		—			48,382
Corporate bonds	5,420		5,022		9		(4		)	5,027
Collateralized mortgage obligations	79,006		71,073		1,178		(1,367		)	70,884
Commercial mortgage-backed securities	72,885		74,664		1,520		(66		)	76,118
Pooled trust preferred securities	27,398		24,804		—		(6,249		)	18,555
GSE preferred stock	200		—		1		—			1
Total available-for-sale investment securities	$	246,709	$	237,497	$	4,570	$	(7,686	)	$	234,381
Held-to-maturity investment securities:
Asset backed securities	$	8,201	$	8,461	$	285	$	—		$	8,746
Municipal securities	7,910		7,910		47		—			7,957
Total held-to-maturity investment securities	$	16,111	$	16,371	$	332	$	—		$	16,703

The Company’s investments in residential collateralized mortgage obligations consisted of $4.6 million and $5.2 million, respectively, of GSE issued investment securities and $82.5 million and $65.7 million, respectively, of non-agency (private issued) residential investment securities at June 30, 2012 and December 31, 2011.

Investment securities with unrealized losses aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position are presented in the following tables for the dates indicated.

	June 30, 2012
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Collateralized mortgage obligations	$	37,501	$	(791	)	$	2,286	$	(93	)	$	39,787	$	(884	)
Asset backed securities	4,186		(1		)	31		(8		)	4,217		(9		)
Pooled trust preferred securities	—		—			14,946		(8,311		)	14,946		(8,311		)
	$	41,687	$	(792	)	$	17,263	$	(8,412	)	$	58,950	$	(9,204	)

11

	December 31, 2011
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Corporate bonds	$	3,969	$	(4	)	$	—	$	—		$	3,969	$	(4	)
Collateralized mortgage obligations	34,504		(983		)	3,428		(384		)	37,932		(1,367		)
Commercial mortgage-backed securities	89		(1		)	4,154		(65		)	4,243		(66		)
Pooled trust preferred securities	—		—			18,555		(6,249		)	18,555		(6,249		)
	$	38,562	$	(988	)	$	26,137	$	(6,698	)	$	64,699	$	(7,686	)

We evaluate all investment securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in the Financial Accounting Standards Board Accounting Standards Codification (ASC) 320-10, Investments - Debt and Equity Securities.  Current accounting guidance generally provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the investment securities must assess whether the impairment is other-than-temporary.

In management’s belief, the decline in value of the Company’s investment in collateralized mortgage obligations is minimal and primarily attributable to changes in market interest rates and macroeconomic conditions affecting liquidity and not necessarily the expected cash flows of the individual investment securities.  The fair value of these investment securities is expected to recover as macroeconomic conditions improve, interest rates rise, and the investment securities approach their maturity date.

At June 30, 2012, the Company’s pooled trust preferred investment securities consisted of “Super Senior” securities backed by senior securities issued mainly by bank and thrift holding companies.  Due to the structure of the securities, as deferrals and defaults on the underlying collateral increase, cash flows are increasingly diverted from mezzanine and subordinate tranches to pay down principal for the “Super Senior” tranches.  In management’s belief, the continued decline in value is primarily attributable to macroeconomic conditions affecting the liquidity of these securities and not necessarily the expected cash flows of the individual securities. The fair value of these securities is expected to recover as the securities approach their maturity date.

Unrealized losses on collateralized mortgage obligations and pooled trust preferred investment securities have not been recognized in income because management does not have the intent to sell these securities and has the ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, which may be at maturity.  We may, from time to time, dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds could be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.  The Company concluded that the unrealized losses that existed at June 30, 2012 did not constitute other-than-temporary impairments.

12

The amortized cost and fair value of investment securities at June 30, 2012, by contractual maturity, are shown in the following tables.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.  Investment securities not due at a single maturity date are shown separately.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
U.S. Treasury securities:
Due in one year or less	$	2,500	$	2,500
Due after one year through five years	11,969		12,405
GSE securities:
Due in one year or less	800		805
Due after one year through five years	37,026		37,960
Corporate bonds — Due after one year through five years	5,069		5,169
Collateralized mortgage obligations:
Due after five years through ten years	8,940		9,423
Due after ten years	77,131		77,701
Commercial mortgage-backed securities — Due after ten years	60,155		61,495
Asset backed securities — Due after ten years	4,226		4,217
Pooled trust preferred securities — Due after ten years	23,257		14,946
GSE preferred stock	—		4
	$	231,073	$	226,625

	Held-to-Maturity
	Amortized Cost		Fair Value
	(Dollars in thousands)
Asset backed securities — Due after five years through ten years	$	7,525	$	7,708
Municipal securities:
Due in one year or less	2,500		2,512
Due after one year through five years	3,940		3,974
	$	13,965	$	14,194

The Company realized gross gains on the sale of available-for-sale investment securities for the three months ended June 30, 2012 and 2011 totaling $305,000 and $173,000, respectively. Gross gains realized for the six months ended June 30, 2012 and 2011 totaled $723,000 and $692,000, respectively.

The carrying value of investment securities pledged as collateral to secure public deposits and for other purposes at June 30, 2012 and December 31, 2011 was $40.3 million and $54.4 million, respectively.  

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At June 30, 2012, other than the U.S. Government, its agencies, and GSEs, the Company had holdings of investment securities from three separate issuers in an amount greater than 10% of shareholders’ equity as identified in the table below.

Issuer	Book Value		Market Value		# of Underlying Pools
	(Dollars in thousands)
Homestar Mortgage Acceptance Corp	$	14,001	$	14,278	4
IMPAC CMB Trust	10,989		10,987		3
JP Morgan Chase Commercial Mortgage Securities Corp	18,398		18,811		5

There are seven different pools of collateral backing eight collateralized mortgage obligation securities issued by Homestar Mortgage Acceptance Corp and IMPAC CMB Trust. These pools consist primarily of floating-rate, first lien mortgages originated prior to 2005 on single-family properties in multiple states. There are five different collateral pools of geographically diversified commercial real estate loans backing five commercial mortgage-backed securities issued by JP Morgan Chase Commercial Mortgage Securities Corp. Four of the five collateral pools consist of commercial real estate loans originated prior to 2006 and one collateral pool consists of loans originated in 2010.

4.   Loans Receivable

Loans receivable are summarized as follows:

	June 30, 2012			December 31, 2011
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	89,479		$	85,160
Commercial real estate:
Owner occupied	102,149			93,833
Non-owner occupied	184,284			188,293
Multifamily	76,647			71,876
Commercial construction and land development	23,353			22,045
Commercial participations	6,453			12,053
Total commercial loans	482,365			473,260
Retail loans:
One-to-four family residential	177,830			181,698
Home equity lines of credit	49,476			52,873
Retail construction	1,518			1,022
Other	2,724			2,771
Total retail loans	231,548			238,364
Total loans receivable	713,913			711,624
Net deferred loan fees	(317		)	(398		)
Total loans receivable, net of deferred loan fees	$	713,596		$	711,226

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5.   Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level management believes is appropriate in relation to the estimated risk inherent in the loan portfolio.  The allowance for loan losses represents the Company’s estimate of probable incurred losses in our loan portfolio at each statement of condition date and is based on the review of available and relevant information.

The first component of the allowance for loan losses contains allocations for probable incurred losses that we have identified relating to impaired loans pursuant to ASC 310-10, Receivables.  The Company individually evaluates for impairment all loans classified substandard and over $375,000, which decreased from $750,000 during the second quarter of 2012, to enable management to proactively identify potential losses over a larger cross section of the loan portfolio.  We also individually evaluate for impairment all loans for which we have initiated foreclosure proceedings. For all portfolio segments, loans are considered impaired when, based on current information and events, it is probable that the borrower will not be able to fulfill its obligation according to the contractual terms of the loan agreement.  The impairment loss, if any, is generally measured based on the present value of expected cash flows discounted at the loan’s effective interest rate.  As a practical expedient, impairment may be measured based on the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.  A loan is considered collateral-dependent when the repayment of the loan will be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.  If management determines a loan is collateral-dependent, management will charge-off any identified collateral shortfall against the allowance for loan losses.

If foreclosure is probable, the Company is required to measure the impairment based on the fair value of the collateral.  The fair value of the collateral is generally obtained from the evaluation of the collateral, and one of the methods of evaluation is an independent third-party appraisal. When current appraisals are not available, management utilizes other evaluation methods to estimate the fair value of the collateral giving consideration to several factors including the price at which individual unit(s) could be sold in the current market, the period of time over which the unit(s) could be sold, the estimated cost to complete the unit(s), the risks associated with completing and selling the unit(s), the required return on the investment a potential acquirer may have, and the current market interest rates.  The analysis of each loan involves a high degree of judgment in estimating the amount of the loss associated with the loan, including the estimation of the amount and timing of future cash flows and collateral values.

The second component of the Company’s allowance for loan losses contains allocations for probable incurred losses within various pools of loans with similar characteristics pursuant to ASC 450-10, Contingencies.  This component is based in part on certain loss factors applied to various stratified loan pools excluding loans evaluated individually for impairment.  In determining the appropriate loss factors for all portfolio segments, management considers historical charge-offs and recoveries; levels of and trends in delinquencies, impaired loans, and other classified loans; concentrations of credit within the commercial loan portfolios; volume and type of lending; and current and anticipated economic conditions.

Loan losses for all portfolio segments are charged-off against the allowance when the loan balance or a portion of the loan balance is no longer covered by the repayment capacity of the borrower based on an evaluation of available and projected cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance.  The Company assesses the appropriateness of the allowance for loan losses on a quarterly basis and adjusts the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at a level deemed appropriate by management.  The evaluation of the appropriateness of

15

the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as additional information becomes available or as future events occur.  To the extent that actual outcomes differ from management’s estimates, an additional provision for loan losses could be required which could adversely affect earnings or the Company’s financial position in future periods.

The risk characteristics of each loan portfolio segment are as follows:

Commercial and Industrial Loans (C&I)

C&I loans are primarily based on the identified historic and/or the projected cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, do fluctuate based on changes in the company’s internal and external environment including management, human and capital resources, economic conditions, competition, regulation, and product innovation/obsolescence.  The collateral securing these loans may also fluctuate in value and generally has advance rates between 50-80% of the collateral value.  Most C&I loans are secured by business assets being financed such as equipment, accounts receivable, and/or inventory and generally incorporate a secured or unsecured personal guarantee.  Occasionally, some loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable and/or inventory, the collateral securing the advances is generally monitored through a borrowing base certificate submitted by the borrower which may identify deterioration in collateral value.  The ability of the borrower to collect amounts due from its customers may be affected by its customers’ economic and financial condition.  The availability of funds for the repayment of these loans may be substantially dependent on each of the factors described above.

Commercial Real Estate – Owner Occupied, Non-Owner Occupied, and Multifamily

These types of commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent upon the cash flows from the successful operation of the property securing the loan or the cash flows from the owner occupied business conducted on the property securing the loan.  A borrower’s business and/or the property securing the loan may be adversely affected by business conditions generally, and fluctuations in the real estate markets or in the general economy, which if adverse, can negatively affect the borrowers’ ability to repay the loan.  The value and cash flow of the property can be influenced by changes in market rental rates, changes in interest rates or investors’ required rates of return, the condition of the property, zoning, or environmental issues.  The properties securing the commercial real estate portfolio are diverse in terms of type and are generally located in the Chicagoland/Northwest Indiana market.  Owner occupied loans are generally a borrower purchased building where the borrower occupies at least 51% of the space with the primary source of repayment dependent on sources other than the underlying collateral.  Non-owner occupied and single tenant properties may have higher risk than owner occupied loans since the primary source of repayment is dependent upon the ability to lease out the collateral as well as the financial stability of the businesses occupying the collateral.  Multifamily loans can also be impacted by vacancy/collection losses and tenant turnover due to generally shorter term leases or even month-to-month leases.  Management monitors and evaluates commercial real estate loan portfolio concentrations based upon cash flow, collateral, geography, and risk grade criteria.  As a general rule, management avoids financing single purpose projects unless other underwriting factors mitigate the credit risk to an acceptable level.  The Company’s loan policy generally requires lower loan-to-value ratios against these types of properties.

16

Commercial Construction and Land Development Loans

Construction loans are underwritten utilizing feasibility studies, independent appraisals, sensitivity analysis of absorption and lease rates, presale or prelease/Letters of Intent analysis, and financial analysis of the developers and property owners.  Construction loans are generally based on the estimated cost to construct and cash flows associated with the completed project or stabilized value.  These estimates are subjective in nature and if erroneous, may preclude the borrower from being able to repay the loan.  Construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the completed project.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, the ability to sell the property, and the availability of long-term financing.

Commercial Participation Loans

Participation loans generally have larger principal balances, portions of which are sold to multiple participant banks in order to spread credit risk.  The collateral securing these loans is often real estate and is often located outside of the Company’s geographic footprint.  Loans outside of the Company’s geographical footprint pose additional risk due to the lack of knowledge of general economic conditions where the project is located along with various project specific risks regarding buyer demand and project specific risks regarding project competition risks.  The participant banks are required to underwrite these credits utilizing their own internal analysis techniques

and their own credit standards.  However, the participant banks are reliant upon the information about the borrowers and the collateral provided by the lead bank.  These loans carry higher levels of risk due to the participant banks being dependent on the lead bank for monitoring and managing the credit relationship, including the workout and/or foreclosure process should the borrower default.

Retail Loans

The Company’s retail loans include one-to-four family residential mortgage loans, home equity loans and lines of credit, retail construction, and other consumer loans.  Management has established a maximum loan-to-value ratio (LTV) of 80% for one-to-four family residential mortgages and home equity loans and lines of credit that are secured by a first or second mortgage on owner and non-owner occupied residences.  Loan applications exceeding 80% LTV require private mortgage insurance (PMI) from a mortgage insurance company deemed acceptable by management.  Residential construction loans are underwritten to the same standards and generally require an end loan financing commitment either from the Company or another financial institution acceptable to the Company.  Other consumer loans are generally small dollar auto and personal loans based on the credit score and income of the applicant.  These loans are homogeneous in nature and are rated in pools based on similar characteristics.

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The following tables present the activity in the allowance for loan losses for the three and six months ended June 30, 2012 and 2011.

	Three Months Ended June 30, 2012
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied		Non-Owner Occupied			Multifamily		Construction and Land Development		Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction		Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,063		$	2,196	$	3,697		$	600	$	1,313	$	951		$	1,459		$	374		$	4	$	111		$	11,768
Provision for loan losses	645			151		163			—		129		(275		)	(43		)	334			—		46			1,150
Loans charged-off:
Current period charge-offs	(436		)	—		(75		)	—		—		(25		)	(70		)	(243		)	—		(43		)	(892		)
Previously established specific reserves	—			—		—			—		—		—			—			—			—		—			—
Total loans charged-off	(436		)	—		(75		)	—		—		(25		)	(70		)	(243		)	—		(43		)	(892		)
Recoveries	12			—		14			—		—		—			2			3			—		5			36
Balance at end of period	$	1,284		$	2,347	$	3,799		$	600	$	1,442	$	651		$	1,348		$	468		$	4	$	119		$	12,062

	Six Months Ended June 30, 2012
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied		Non-Owner Occupied			Multifamily			Construction and Land Development		Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction		Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,236		$	2,129	$	3,935		$	370		$	1,198	$	1,467		$	1,521		$	442		$	3	$	123		$	12,424
Provision for loan losses	578			218		981			608			244		(791		)	1			317			1		43			2,200
Loans charged-off:
Current period charge-offs	(555		)	—		(436		)	(378		)	—		(25		)	(184		)	(295		)	—		(60		)	(1,933		)
Previously established specific reserves	—			—		(718		)	—			—		—			—			—			—		—			(718		)
Total loans charged-off	(555		)	—		(1,154		)	(378		)	—		(25		)	(184		)	(295		)	—		(60		)	(2,651		)
Recoveries	25			—		37			—			—		—			10			4			—		13			89
Balance at end of period	$	1,284		$	2,347	$	3,799		$	600		$	1,442	$	651		$	1,348		$	468		$	4	$	119		$	12,062

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	Three Month Ended June 30, 2011
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction			Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,268		$	1,012		$	6,717		$	461		$	154		$	4,719		$	1,323		$	1,327		$	9		$	105		$	17,095
Provision for loan losses	435			(58		)	(208		)	(20		)	(61		)	673			230			(44		)	(4		)	53			996
Loans charged-off:
Current period charge-offs	(153		)	(125		)	—			—			—			(605		)	(168		)	—			—			(22		)	(1,073		)
Previously established specific reserves	—			—			—			—			—			—			—			—			—			—			—
Total loans charged-off	(153		)	(125		)	—			—			—			(605		)	(168		)	—			—			(22		)	(1,073		)
Recoveries	4			—			6			—			—			—			2			1			—			8			21
Balance at end of period	$	1,554		$	829		$	6,515		$	441		$	93		$	4,787		$	1,387		$	1,284		$	5		$	144		$	17,039

	Six Months Ended June 30, 2011
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to-four Family Residential			HELOC			Retail Construction			Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,279		$	1,090		$	6,906		$	350		$	188		$	4,559		$	1,356		$	1,309		$	7		$	135		$	17,179
Provision for loan losses	422			(136		)	(405		)	295			(91		)	1,536			219			21			(2		)	40			1,899
Loans charged-off:
Current period charge-offs	(153		)	(125		)	—			(204		)	(4		)	(1,308		)	(191		)	(52		)	—			(50		)	(2,087		)
Previously established specific reserves	—			—			—			—			—			—			—			—			—			—			—
Total loans charged-off	(153		)	(125		)	—			(204		)	(4		)	(1,308		)	(191		)	(52		)	—			(50		)	(2,087		)
Recoveries	6			—			14			—			—			—			3			6			—			19			48
Balance at end of period	$	1,554		$	829		$	6,515		$	441		$	93		$	4,787		$	1,387		$	1,284		$	5		$	144		$	17,039

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The following tables provide other information regarding the allowance for loan and lease losses and balances by portfolio segment and impairment method at the dates indicated.

	At June 30, 2012
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to- four Family Residential		HELOC		Retail Construction		Other		Total
	(Dollars in thousands)
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	195	$	—	$	148	$	—	$	—	$	—	$	—	$	—	$	343
Collectively evaluated for impairment	1,284		2,347		3,604		600		1,294		651		1,348		468		4		119		11,719
Total evaluated for impairment	$	1,284	$	2,347	$	3,799	$	600	$	1,442	$	651	$	1,348	$	468	$	4	$	119	$	12,062
Loans receivable:
Individually evaluated for impairment	$	1,240	$	11,783	$	31,032	$	3,691	$	4,766	$	2,330	$	2,890	$	483	$	169	$	—	$	58,384
Collectively evaluated for impairment	88,239		90,366		153,252		72,956		18,587		4,123		174,940		48,993		1,349		2,724		655,529
Total loans receivable	$	89,479	$	102,149	$	184,284	$	76,647	$	23,353	$	6,453	$	177,830	$	49,476	$	1,518	$	2,724	$	713,913

	At December 31, 2011
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to- four Family Residential		HELOC		Retail Construction		Other		Total
	(Dollars in thousands)
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	718	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	718
Collectively evaluated for impairment	1,236		2,129		3,217		370		1,198		1,467		1,521		442		3		123		11,706
Total evaluated for impairment	$	1,236	$	2,129	$	3,935	$	370	$	1,198	$	1,467	$	1,521	$	442	$	3	$	123	$	12,424
Loans receivable:
Individually evaluated for impairment	$	2,479	$	11,203	$	25,518	$	673	$	2,781	$	2,355	$	—	$	—	$	—	$	—	$	45,009
Collectively evaluated for impairment	82,681		82,630		162,775		71,203		19,264		9,698		181,698		52,873		1,022		2,771		666,615
Total loans receivable	$	85,160	$	93,833	$	188,293	$	71,876	$	22,045	$	12,053	$	181,698	$	52,873	$	1,022	$	2,771	$	711,624

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The Company, as a matter of good risk management practices, utilizes objective loan grading matrices to assign risk ratings to all commercial loans.  The risk rating criteria is supported by core credit attributes that emphasize debt service coverage, operating trends, collateral, and guarantor liquidity, and further removes subjective criteria and bias from the analysis.  Retail loans are rated pass until they become 90 days or more delinquent, put on non-accrual status, and generally rated substandard.  The Company uses the following definitions for risk ratings:

• Pass.  Loans that meet the conservative underwriting guidelines that include core credit attributes noted above as measured by the loan grading matrices at levels that are in excess of the minimum amounts required to adequately service the loans.

• Pass Watch.  Loans which are performing per their contractual terms and are not necessarily demonstrating signs of credit or operational weakness, including but not limited to delinquency.  Loans in this category are monitored by management for timely payments.  Current financial information may be pending or, based upon the most recent analysis of the loan, possess credit attributes that are sufficient to adequately service the loan, but are less than the parameters required for a pass risk rating.  This rating is considered transitional because management does not have current financial information to determine the appropriate risk grade or the quality of the loan appears to be changing.  Loans may be graded as pass watch when a single event may have occurred that could be indicative of an emerging issue or indicate trending that would warrant a change in the risk rating.

• Special Mention.  Loans that have a potential weakness that will be closely monitored by management.  A credit graded special mention does not expose the Company to elevated risk that would warrant an adverse classification.

• Substandard.  Loans that are inadequately protected by the current net worth and paying capacity of the borrower, guarantor, or the collateral pledged.  Loans classified as substandard have a well-defined weakness or weaknesses, characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

• Doubtful.  Loans that have the same weaknesses as those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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The Company’s loans receivable portfolio is summarized by risk rating category as follows:

	Risk Rating at June 30, 2012
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	75,420	$	7,692	$	5,857	$	510	$	—	$	89,479
Commercial real estate:
Owner occupied	76,866		11,760		1,727		11,796		—		102,149
Non-owner occupied	131,996		5,643		17,916		28,585		144		184,284
Multifamily	69,340		3,184		599		3,524		—		76,647
Commercial construction and land development	17,296		1,290		—		4,160		607		23,353
Commercial participations	4,114		9		—		2,330		—		6,453
Total commercial loans	375,032		29,578		26,099		50,905		751		482,365
Retail loans:
One-to-four family residential	172,267		—		—		5,563		—		177,830
Home equity lines of credit	48,927		—		—		549		—		49,476
Retail construction	1,199		—		—		319		—		1,518
Other	2,724		—		—		—		—		2,724
Total retail loans	225,117		—		—		6,431		—		231,548
Total loans	$	600,149	$	29,578	$	26,099	$	57,336	$	751	$	713,913

	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	595,119	$	25,384	$	25,199	$	1,739	$	607	$	648,048
Delinquent:
30-59 days	3,685		2,182		900		1,183		—		7,950
60-89 days	1,345		1,157		—		2,717		—		5,219
90 days or more	—		846		—		—		—		846
Non-accrual	—		9		—		51,697		144		51,850
Total loans	$	600,149	$	29,578	$	26,099	$	57,336	$	751	$	713,913

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	Risk Rating at December 31, 2011
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	76,554	$	6,534	$	1,476	$	596	$	—	$	85,160
Commercial real estate:
Owner occupied	69,029		12,036		1,540		11,228		—		93,833
Non-owner occupied	147,678		9,219		7,347		24,049		—		188,293
Multifamily	65,920		3,119		2,331		506		—		71,876
Commercial construction and land development	16,412		805		1,450		3,378		—		22,045
Commercial participations	9,698		—		—		2,355		—		12,053
Total commercial loans	385,291		31,713		14,144		42,112		—		473,260
Retail loans:
One-to-four family residential	176,763		—		—		4,935		—		181,698
Home equity lines of credit	52,332		—		—		541		—		52,873
Retail construction	853		—		—		169		—		1,022
Other	2,771		—		—		—		—		2,771
Total retail loans	232,719		—		—		5,645		—		238,364
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624

	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	610,127	$	29,528	$	11,670	$	1,568	$	—	$	652,893
Delinquent:
30-59 days	6,083		1,285		93		597		—		8,058
60-89 days	1,800		900		2,381		—		—		5,081
90 days or more	—		—		—		5		—		5
Non-accrual	—		—		—		45,587		—		45,587
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624

For all loan categories, past due status is based on the contractual terms of the loan.  Interest income is generally not accrued on loans which are delinquent 90 days or more, or for loans which management believes, after giving consideration to a number of factors, including economic and business conditions and collection efforts, collection of interest is doubtful.  In all cases, loans are placed on non-accrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued but not received for loans placed on non-accrual is reversed against interest income.  Interest subsequently received on non-accrual loans is accounted for using the cost-recovery basis for commercial loans and the cash-basis for retail loans until qualifying for return to accrual status.

23

Commercial loans are generally placed on non-accrual once they become 90 days past due.  Management reviews all current financial information of the borrower and guarantor(s) and action plans to bring the loan current before determining if the loan should be placed on non-accrual.  Management requires appropriate justification to maintain a commercial loan on accrual status once 90 days past due.  Occasionally commercial loans are placed on non-accrual status before the loan becomes significantly past due if current information indicates that future repayment of principal and interest may be doubtful.

Commercial loans are returned to accrual status when management, based on a thorough analysis of the borrower, can expect the full repayment of principal and interest. The analysis will reflect the borrower’s capacity to service the debt and/or the guarantor’s ability and willingness to make the required debt service payments, either under the original note agreement and terms, or, in the case of an A/B note structure, under the terms of the new A note. Analysis may also include the proceeds from the disposition of the collateral as a potential repayment source based upon the net realizable value of the property.

In addition, a note may be considered for return to accrual status when payments (equal to or greater than those required in the final A note structure) have been made by the borrower for a minimum of six months and the borrower is in compliance with all other terms of the applicable agreement.

Retail loans are returned to accrual status primarily based on the payment status of the loan.  A retail loan is automatically placed on non-accrual status immediately upon becoming 90 days past due.  The loan remains on non-accrual status, with interest income recognized on a cash basis when a payment is made, until the loan is paid current.  Once current, the loan is automatically returned to accrual status.  If management identifies other information to indicate that future repayment of the loan balance may still be questionable, the loan may be manually moved to non-accrual status until management determines otherwise.

24

The Company’s loan portfolio delinquency status and its non-accrual loans are presented in the tables below at the dates indicated. The Company’s loans that are current and in non-accrual status include loans that have been restructured as troubled debt restructurings (TDRs) and have not yet met the required six months of payments under the restructured terms to be returned to accrual status.

	Delinquency at June 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable		Current Non-accrual Loans
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	300	$	917	$	130	$	510	$	1,857	$	87,622	$	89,479	$	264
Commercial real estate:
Owner occupied	1,894		553		716		11,492		14,655		87,494		102,149		779
Non-owner occupied	1,903		1,423		—		24,791		28,117		156,167		184,284		9,687
Multifamily	312		1,590		—		1,521		3,423		73,224		76,647		—
Commercial construction and land development	827		—		—		4,766		5,593		17,760		23,353		1,450
Commercial participations	—		—		—		2,339		2,339		4,114		6,453		—
Total commercial loans	5,236		4,483		846		45,419		55,984		426,381		482,365		12,180
Retail loans:
One-to-four family residential	2,572		736		—		5,562		8,870		168,960		177,830		1,516
Home equity lines of credit	141		—		—		550		691		48,785		49,476		214
Retail construction	—		—		—		319		319		1,199		1,518		—
Other	1		—		—		—		1		2,723		2,724		—
Total retail loans	2,714		736		—		6,431		9,881		221,667		231,548		1,730
Total loans receivable	$	7,950	$	5,219	$	846	$	51,850	$	65,865	$	648,048	$	713,913	$	13,910

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	Delinquency at December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable		Current Non-accrual Loans
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	369	$	24	$	—	$	596	$	989	$	84,171	$	85,160	$	262
Commercial real estate:
Owner occupied	551		—		—		11,228		11,779		82,054		93,833		569
Non-owner occupied	1,622		1,173		5		22,294		25,094		163,199		188,293		6,122
Multifamily	1,856		1,732		—		91		3,679		68,197		71,876		—
Commercial construction and land development	—		502		—		3,378		3,880		18,165		22,045		—
Commercial participations	—		—		—		2,355		2,355		9,698		12,053		—
Total commercial loans	4,398		3,431		5		39,942		47,776		425,484		473,260		6,953
Retail loans:
One-to-four family residential	3,439		1,501		—		4,935		9,875		171,823		181,698		741
Home equity lines of credit	221		149		—		541		911		51,962		52,873		50
Retail construction	—		—		—		169		169		853		1,022		—
Other	—		—		—		—		—		2,771		2,771		—
Total retail loans	3,660		1,650		—		5,645		10,955		227,409		238,364		791
Total loans receivable	$	8,058	$	5,081	$	5	$	45,587	$	58,731	$	652,893	$	711,624	$	7,744

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The Company’s impaired loans are summarized as follows with the majority of the interest income recognized on a cash basis at the time the payment is received. The below tables include impaired loans that are individually reviewed for impairment as well as $4.3 million of impaired retail loans at June 30, 2012 that have not had foreclosure proceedings initiated and are below management’s scope for individual impairment review due to immateriality.

	At June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	1,240	$	2,116	$	855	$	—
Commercial real estate:
Owner occupied	11,783		15,488		2,977		—
Non-owner occupied	28,441		35,564		5,901		—
Multifamily	3,691		4,092		377		—
Commercial construction and land development	3,316		3,316		—		—
Commercial participations	2,330		7,239		4,768		—
Retail loans:
One-to-four family residential	7,013		7,236		222		—
Home equity lines of credit	550		639		90		—
Retail construction	319		319		—		—
Total	$	58,683	$	76,009	$	15,190	$	—
Loans with a specific valuation allowance:
Commercial real estate - non-owner occupied	$	2,591	$	2,591	$	—	$	195
Commercial construction and land development	1,450		1,450		—		148
Total	$	4,041	$	4,041	$	—	$	343
Total impaired loans:
Commercial	$	54,842	$	71,856	$	14,878	$	343
Retail	7,882		8,194		312		—
Total	$	62,724	$	80,050	$	15,190	$	343

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	At December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	2,479	$	2,700	$	216	$	—
Commercial real estate:
Owner occupied	11,203		14,557		2,694		—
Non-owner occupied	20,532		34,130		10,553		—
Multifamily	673		673		—		—
Commercial construction and land development	2,781		2,781		—		—
Commercial participations	2,355		1,796		1,189		—
Retail loans:
One-to-four family residential	7,202		7,504		302		—
Home equity lines of credit	540		630		89		—
Retail construction	169		169		—		—
Total	$	47,934	$	64,940	$	15,043	$	—
Loans with a specific valuation allowance:
Commercial real estate - non-owner occupied	4,986		4,986		—		718
Total	$	4,986	$	4,986	$	—	$	718
Total impaired loans:
Commercial	$	45,009	$	61,623	$	14,652	$	718
Retail	7,911		8,303		391		—
Total	$	52,920	$	69,926	$	15,043	$	718

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The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the periods indicated.

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	1,835	$	20	$	3,208	$	44	$	2,066	$	47	$	3,574	$	90
Commercial real estate:
Owner occupied	11,811		13		13,092		—		11,792		21		13,130		—
Non-owner occupied	28,547		113		7,557		98		29,179		182		7,695		145
Multifamily	3,703		10		678		13		3,890		21		678		17
Commercial construction and land development	3,316		—		7,171		—		3,316		—		7,171		—
Commercial participations	2,450		—		3,487		—		2,515		—		3,833		—
Retail loans:
One-to-four family residential	7,086		79		6,892		60		7,103		118		6,905		105
Home equity lines of credit	550		5		589		1		550		7		589		1
Retail construction	320		—		169		—		321		—		169		—
Other	—		—		4		—		—		—		4		—
Total	$	59,618	$	240	$	42,847	$	216	$	60,732	$	396	$	43,748	$	358
Loans with a specific valuation allowance:
Commercial real estate:
Owner occupied	$	—	$	—	$	2,639	$	—	$	—	$	—	$	2,709	$	—
Non-owner occupied	2,592		—		17,102		—		2,593		—		17,172		—
Commercial construction and land development	1,450		—		—		—		1,450		—		—		—
Commercial participations	—		—		5,302		—		—		—		5,302		—
Total	$	4,042	$	—	$	25,043	$	—	$	4,043	$	—	$	25,183	$	—
Total impaired loans:
Commercial	$	55,704	$	156	$	60,236	$	155	$	56,801	$	271	$	61,264	$	252
Retail	7,956		84		7,654		61		7,974		125		7,667		106
Total	$	63,660	$	240	$	67,890	$	216	$	64,775	$	396	$	68,931	$	358

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The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a TDR.  The Company may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations.  Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.  TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports.  Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

For one-to-four family residential loans and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure.  There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

When considering a loan restructure, management will determine if:  (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

When a loan is restructured, the new terms often require a reduced monthly debt service payment. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt.  If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status.  To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.

For retail loans, an analysis of the individual’s ability to service the new required payments is performed.  If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status.  The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status.  Retail TDRs remain on non-accrual status until sufficient payments have been made to bring the past due principal and interest current, at which point the loan would be transferred to accrual status.

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The following table summarizes the loans that have been restructured as TDRs during the three and six months ended June 30, 2012:

	Three Months Ended June 30, 2012					Six Months Ended  June 30, 2012
	Count	Balance prior to TDR		Balance after TDR		Count	Balance prior to TDR		Balance after TDR
	(Dollars in thousands)
Commercial loans:
Commercial real estate:
Owner occupied	—	$	—	$	—	2	$	259	$	305
Non-owner occupied	—	—		—		1	66		83
Total commercial loans	—	—		—		3	325		388
Retail loans – one-to-four family residential	2	386		389		8	872		906
Total loans	2	$	386	$	389	11	$	1,197	$	1,294

Default occurs when a TDR is 90 days or more past due, transferred to non-accrual status, or transferred to other real estate owned within twelve months of restructuring.  The Company had a one-to-four family residential TDR totaling $69,000 that defaulted during the three and six months ended June 30, 2012.

The tables below summarize the Company’s TDRs by loan category and accrual status at the dates indicated:

	June 30, 2012						December 31, 2011
	Accruing		Non-accruing		Total		Accruing		Non-accruing		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	946	$	242	$	1,188	$	2,167	$	259	$	2,426
Commercial real estate:
Owner occupied	665		2,242		2,907		369		2,272		2,641
Non-owner occupied	3,879		10,718		14,597		3,814		11,095		14,909
Multifamily	256		—		256		259		—		259
Commercial participations	—		1,748		1,748		—		1,748		1,748
Total commercial	5,746		14,950		20,696		6,609		15,374		21,983
Retail loans – one-to-four family residential	1,451		3,021		4,472		2,266		1,600		3,866
Total troubled debt restructurings	$	7,197	$	17,971	$	25,168	$	8,875	$	16,974	$	25,849

At June 30, 2012, TDRs totaled $25.2 million, of which $11.1 million were performing in accordance with their agreements and on non-accrual status.

Management monitors the TDRs based on the type of modification or concession granted to the borrower.  These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions.  Of the various noted concessions, management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of

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principal.  Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure. The following tables set forth the Company’s TDRs by portfolio segment to quantify the type of modification or concession provided: 

	June 30, 2012
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	1,181	$	1,181
Payment extension	1,188		2,268		2,221		—		—		772		6,449
Rate reduction and payment extension	—		304		619		256		—		2,265		3,444
Rate reduction and interest only	—		—		3,018		—		—		254		3,272
Payment extension and interest only	—		289		—		—		—		—		289
Forbearance	—		—		2,879		—		1,748		—		4,627
Rate reduction, payment extension, interest only, and forbearance	—		46		—		—		—		—		46
A/B note structure	—		—		5,860		—		—		—		5,860
Total troubled debt restructurings	$	1,188	$	2,907	$	14,597	$	256	$	1,748	$	4,472	$	25,168

	December 31, 2011
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	805	$	805
Payment extension	2,426		2,297		2,210		—		—		948		7,881
Rate reduction and payment extension	—		—		542		259		—		1,858		2,659
Rate reduction and interest only	—		—		9,054		—		—		255		9,309
Payment extension and interest only	—		297		—		—		—		—		297
Forbearance	—		—		3,103		—		1,748		—		4,851
Rate reduction, payment extension, interest only, and forbearance	—		47		—		—		—		—		47
Total troubled debt restructurings	$	2,426	$	2,641	$	14,909	$	259	$	1,748	$	3,866	$	25,849

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At June 30, 2012, TDRs were relatively stable at $25.2 million compared to $25.8 million at December 31, 2011. The activity related to the Company’s TDRs is presented in the following table:

	Three Months Ended  June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning balance	$	25,883		$	39,708		$	25,849		$	39,581
Restructured loans identified as TDRs	389			—			1,294			1,307
Protective advances and miscellaneous	10			101			459			158
Repayments and payoffs	(1,067		)	(990		)	(2,387		)	(2,227		)
Charge-offs	(47		)	(42		)	(47		)	(42		)
Transfers to other real estate owned	—			(2,326		)	—			(2,326		)
Ending balance	$	25,168		$	36,451		$	25,168		$	36,451

6.   Fair Value Measurements

The Company measures fair value according to ASC 820-10: Fair Value Measurements and Disclosures.  ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques, but not the valuation techniques themselves.  The fair value hierarchy is designed to indicate the relative reliability of the fair value measure.  The highest priority is given to quoted prices in active markets and the lowest to unobservable data such as the Company’s internal information.  ASC 820-10 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  There are three levels of inputs into the fair value hierarchy (Level 1 being the highest priority and Level 3 being the lowest priority):

Level 1 – Unadjusted quoted prices for identical instruments in active markets;

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable; and

Level 3 – Instruments whose significant value drivers or assumptions are unobservable and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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The following tables set forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis at the dates indicated.

			Fair Value Measurements at  June 30, 2012
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
	(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury securities	$	14,905	$	—	$	14,905	$	—
GSE securities	38,765		—		38,765		—
Corporate bonds	5,169		—		5,169		—
Collateralized mortgage obligations	87,124		—		87,124		—
Commercial mortgage-backed securities	61,495		—		61,495		—
Asset backed securities	4,217		—		4,217		—
Pooled trust preferred securities	14,946		—		—		14,946
GSE preferred stock	4		4		—		—

			Fair Value Measurements at  December 31, 2011
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
	(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury securities	$	15,414	$	—	$	15,414	$	—
GSE securities	48,382		—		48,382		—
Corporate bonds	5,027		—		5,027		—
Collateralized mortgage obligations	70,884		—		70,884		—
Commercial mortgage-backed securities	76,118		—		76,118		—
Pooled trust preferred securities	18,555		—		—		18,555
GSE preferred stock	1		1		—		—

Level 1 investment securities are valued using quoted prices in active markets for identical assets.  The Company uses Level 1 prices for its GSE preferred stock.

Level 2 investment securities are valued by a third-party pricing service commonly used in the banking industry utilizing observable inputs.  The pricing provider utilizes evaluated pricing models that vary based on asset class.  These models incorporate available market information including quoted prices of investment securities with similar characteristics and, because many fixed-income investment securities do not trade on a daily basis, apply available information through processes such as benchmark yield curves, benchmarking of like investment

34

securities, sector groupings, and matrix pricing.  In addition, model processes, such as an option adjusted spread model, are used to develop prepayment estimates and interest rate scenarios for investment securities with prepayment features.

Management uses a recognized third-party pricing service to obtain market values for the Company’s fixed-income securities portfolio.  Documentation is maintained as to the methodology and summary of inputs used by the pricing service for the various types of securities, and management notes that the servicer maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs.  Management does not have access to all of the individual specific assumptions and inputs used for each security.  The significant observable inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

Management validates the market values against fair market curves and other available pricing sources. Bloomberg pricing is used to compare the reasonableness of the third-party pricing service prices for U.S. Treasury securities and GSE bonds.  For all securities, the Company’s Investment Officer, who is in the market on a regular basis, monitors the market and is familiar with where similar securities are trading and where specific bonds in specific sectors should be priced.  All monthly output from the third-party provider is reviewed against expectations as to pricing based on fair market curves, ratings, coupon, structure, and recent trade reports or offerings.

Based on management’s review of the methodology and summary of inputs used, management has concluded these assets are properly classified as Level 2 assets.

Fair value determinations for Level 3 measurements of securities are the responsibility of the Company’s Investment Officer with review and approval by the Asset/Liability Management Committee. Level 3 models are utilized when quoted prices are not available for certain investment securities or in markets where trading activity has slowed or ceased.  When quoted prices are not available and are not provided by third-party pricing services, management judgment is necessary to determine fair value.  As such, fair value is determined using discounted cash flow analysis models, incorporating default rate assumptions, estimations of prepayment characteristics, and implied volatilities.

The Company determined that Level 3 pricing models should be utilized for valuing its pooled trust preferred investment securities.  The markets for these securities and for similar securities at June 30, 2012 were illiquid.  There have been a limited number of observable transactions in the secondary market, however, a new issue market does not exist.  Management has determined a valuation approach that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is more representative of fair value than the market approach valuation technique.

For its Level 3 pricing model, the Company uses externally produced fair values provided by a third-party pricing service and compares them to other external pricing sources. Other external sources provided similar prices, both higher and lower, than those used by the Company.  The external model uses observed prices from limited transactions on similar securities to estimate liquidation values.

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The following is a reconciliation of the beginning and ending balances for the periods indicated of recurring fair value measurements recognized in the accompanying consolidated statements of condition using Level 3 inputs:

	Pooled Trust Preferred Securities
	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning balance	$	15,467		$	19,262		$	18,555		$	18,125
Total realized and unrealized gains and losses:
Included in accumulated other comprehensive income (loss)	469			99			(2,062		)	1,322
Principal repayments	(1,141		)	(1,126		)	(1,810		)	(1,250		)
Discount accretion	151			136			263			174
Ending balance	$	14,946		$	18,371		$	14,946		$	18,371

The following table sets forth the Company’s financial and non-financial assets by level within the fair value hierarchy that were measured at fair value on a non-recurring basis at the dates indicated.

			Fair Value Measurements at  June 30, 2012
	Fair  Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans (collateral-dependent)	$	11,836	$	—	$	—	$	11,836
Other real estate owned	2,356		—		—		2,356

			Fair Value Measurements at  December 31, 2011
	Fair  Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans (collateral-dependent)	$	17,180	$	—	$	—	$	17,180
Other real estate owned	2,462		—		—		2,462

Loans for which it is probable that the Bank will not collect all principal and interest due according to their contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.  If the impaired loan is identified as collateral-dependent, then the fair value method of measuring the amount of impairment is utilized. Impaired loans that are collateral-dependent are classified within Level 3 of the fair value hierarchy.

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When the Bank determines a loan is collateral-dependent, the Bank’s Asset Management Committee (AMC) obtains appraisals on the underlying collateral securing the loan. The Senior Credit Officer (SCO) reviews the appraisals for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by the SCO with input from the Bank’s Loan Committee. For purchased participation loans, management is dependent upon the lead bank to order and provide appraisals, which occasionally are broker’s opinions.

In determining the estimated fair value of the real estate, senior liens such as unpaid and current real estate taxes and any perfected liens are subtracted from the appraised value.  In addition, the Company generally applies a 10% discount to the current appraisal to allow for reasonable selling expenses, including sales commissions and closing costs.  

Fair value measurements for impaired loans are performed pursuant to ASC 310-10, Receivables, and are measured on a non-recurring basis.  Certain impaired loans were partially charged-off or re-evaluated during the second quarter of 2012.  These impaired loans were carried at fair value as estimated using current and prior appraisals, discounting factors, the borrowers’ financial results, estimated cash flows generated from the property, and other factors.  The change in the fair value of impaired loans that were valued based upon Level 3 inputs was approximately $880,000 and $771,000 for the three months ended June 30, 2012 and 2011, respectively, and $1.7 million and $1.6 million for the six months ended June 30, 2012 and 2011, respectively.  These losses are not recorded directly as an adjustment to current earnings or other comprehensive income (loss), but rather as a component in determining the overall adequacy of the allowance for loan losses.  These adjustments to the estimated fair value of impaired loans may result in increases or decreases to the provision for loan losses recorded in future earnings.

The estimated fair value of other real estate owned is based on current or prior appraisals, less estimated costs to sell of 10%. Other real estate owned is classified within Level 3 of the fair value hierarchy. Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by the AMC. The SCO reviews the appraisals for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by the SCO with input from the Bank’s Loan Committee. The reduction in fair value of other real estate owned was $199,000 and $1.8 million, respectively, for the three months ended June 30, 2012 and 2011 and $684,000 and $2.2 million, respectively, for the six months ended June 30, 2012 and 2011.  The changes were recorded as adjustments to current earnings through other real estate owned related expenses.

The following table sets forth quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at June 30, 2012 (dollars in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Averages)
Pooled trust preferred securities	$	14,946	Consensus pricing	Weighting of pricing	Varies by security 42.4% - 83.4% (57.9%)
Impaired loans (collateral-dependent)	11,836		Market comparable properties	Marketability discount	10%
Other real estate owned	2,356		Market comparable properties	Marketability discount	10%

The value of the pooled trust preferred securities is determined using multiple pricing models or similar techniques from third-party sources as well as significant unobservable inputs such as judgment or estimations by the Company in the weighting of the models. The unobservable inputs used in the fair value measurement of the

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Company’s investment in pooled trust preferred securities are offered quotes and comparability adjustments. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, changes in either of those inputs will not affect the other input.

The Company has the option to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the Fair Value Option) according to ASC 825-10, Financial Instruments.  The Company is not currently engaged in any hedging activities and, as a result, did not elect to measure any financial instruments at fair value under ASC 825-10.

Disclosure of fair value information about financial instruments for which it is practicable to estimate their value, whether or not recognized in the condensed consolidated statements of condition, is summarized below and identified within the fair value hierarchy at the dates indicated.  The aggregate fair value amounts presented do not represent the underlying value of the Company.

	June 30, 2012
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	85,533	$	85,533	$	—	$	—
Investment securities, available-for-sale	226,625		4		211,675		14,946
Investment securities, held-to-maturity	13,965		—		14,194		—
Federal Home Loan Bank stock	6,188		6,188		—		—
Loans receivable, net of allowance for loan losses	701,534		—		—		707,434
Loans held for sale	610		—		610		—
Interest receivable	2,801		—		2,801		—
Total financial assets	$	1,037,256	$	91,725	$	229,280	$	722,380
Financial Liabilities:
Deposits	$	967,154	$	604,504	$	—	$	364,325
Borrowed funds	51,306		—		54,270		—
Advance payments by borrowers	4,243		—		4,243		—
Interest payable	84		—		84		—
Total financial liabilities	$	1,022,787	$	604,504	$	58,597	$	364,325

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	December 31, 2011
	Carrying Amount		Fair Value
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	92,072	$	92,072
Investment securities, available-for-sale	234,381		234,381
Investment securities, held-to-maturity	16,371		16,703
Federal Home Loan Bank stock	6,188		6,188
Loans receivable, net of allowance for loan losses	698,802		702,987
Loans held for sale	1,124		1,124
Interest receivable	3,011		3,011
Total financial assets	$	1,051,949	$	1,056,466
Financial Liabilities:
Deposits	$	977,424	$	979,483
Borrowed funds	54,200		57,241
Advance payments by borrowers	4,275		4,275
Interest payable	90		90
Total financial liabilities	$	1,035,989	$	1,041,089

The carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, and advance payments by borrowers.  Investment securities fair values are based on quotes received from a third-party pricing source and discounted cash flow analysis models.  The fair value of Federal Home Loan Bank stock is based on its redemption value.  The fair values for loans receivable are estimated using discounted cash flow analyses. Cash flows are adjusted for estimated prepayments, where appropriate, and are discounted using interest rates currently being offered by the Bank for loans with similar terms and collateral to borrowers of similar credit quality. The carrying amount of loans held for sale is the amount funded and approximates fair value due to the insignificant time between origination and date of sale.

The fair value of core deposits (checking, savings, and money market accounts) is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered by the Bank for deposits of similar remaining maturities.  The fair value of borrowed funds is estimated based on rates currently available to the Company for debt with similar terms and remaining maturities.  The fair value of the Company’s off-balance sheet instruments, including lending commitments, letters of credit, and credit enhancements, approximates their book value and is not included in the above table.

7. Share-Based Compensation

The Company accounts for its share-based compensation in accordance with ASC 718-10, Compensation – Stock Based Compensation.  ASC 718-10 addresses all forms of share-based payment awards, including shares under employee stock purchase plans, stock options, restricted stock, and stock appreciation rights.  ASC 718-10 requires all share-based payments to be recognized as expense, based upon their fair values, in the financial statements over the service period of the awards.

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For additional details on the Company’s share-based compensation plans and related disclosures, see “Note 9.  Share-Based Compensation” in the consolidated financial statements as presented in the Company’s 2011 Annual Report on Form 10-K.

Omnibus Equity Incentive Plan

The Company’s 2008 Omnibus Equity Incentive Plan (Equity Incentive Plan) authorized the issuance of 270,000 shares of its common stock.  In addition, there were 64,500 shares that had not yet been issued or were forfeited, canceled, or unexercised at the end of the option term under the 2003 Stock Option Plan when it was frozen.  These shares and any other shares that may be forfeited, canceled, or expired are available for any type of share-based awards in the future under the Equity Incentive Plan.  At June 30, 2012, shares available for future grants under the Equity Incentive Plan totaled 209,501 shares.

Restricted Stock

The following table presents the activity for restricted stock for the six months ended June 30, 2012.

	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2011	175,639		$	4.97
Granted	48,186		5.96
Vested	(52,596	)	6.18
Forfeited	(50,242	)	5.21
Unvested at June 30, 2012	120,987		$	4.72

The compensation expense related to restricted stock for the three months ended June 30, 2012 and 2011 totaled $49,000 and $79,000, respectively.  The compensation expense related to restricted stock for the six months ended June 30, 2012 and 2011 totaled $70,000 and $145,000, respectively. At June 30, 2012, the remaining unamortized cost of the restricted stock awards was reflected as a reduction in additional paid-in capital and totaled $572,000.  This cost is expected to be recognized over a weighted-average period of 3.0 years, which is subject to the actual number of shares earned and vested.

Stock Options

The Company’s 2008 Equity Incentive Plan allows for the grant of both incentive and non-qualified stock options to directors, officers, and employees.  The stock option vesting periods and exercise and expiration dates are determined by the Compensation Committee at the time of the grant.  The exercise price of the stock options is equal to the fair market value of the common stock on the grant date.

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The following table presents the activity under the Company’s stock option plans for the six months ended June 30, 2012.

	Number of Options		Weighted-Average Exercise Price
Options outstanding at December 31, 2011	515,995		$	14.01
Granted	20,000		4.40
Exercised	—		—
Forfeited	(56,000	)	13.91
Expired unexercised	(60,200	)	13.73
Options outstanding at June 30, 2012	419,795		$	13.60

For stock options outstanding at June 30, 2012, the range of exercise prices was $4.40 to $14.76, and the weighted-average remaining contractual term was 2.1 years.  At June 30, 2012, 399,795 of the Company’s outstanding stock options were fully vested and out-of-the-money with no intrinsic value.  The remaining 20,000 stock options were not yet exercisable and were in-the-money with an intrinsic value of $11,600, which represents the difference between the Company’s closing stock price on the last day of trading for the second quarter of 2012 and the exercise price multiplied by the number of in-the-money options, assuming all option holders had exercised their stock options on the last day of trading for the same period. Stock option expense for the three and six months ended June 30, 2012 was $3,000 and $6,000, respectively. There was no stock option expense for the same 2011 periods. There were no stock options exercised during the three and six months ended June 30, 2012 and 2011.  The Company reissues treasury shares to satisfy option exercises.

Item 2.          Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward Looking Statements

Certain statements contained in this Form 10-Q, in our other filings with the U.S. Securities and Exchange Commission (SEC), and in our press releases or other shareholder communications are forward-looking statements, as that term is defined in U.S. federal securities laws.  Generally, these statements relate to our business plans or strategies, projections involving anticipated revenues, earnings, profitability, or other aspects of operating results, or other future developments in our affairs or the industry in which we conduct business.  Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate,” “would be,” “will,” “intend to,” “project,”  or similar expressions or the negative thereof, as well as statements that include future events, tense or dates, or are not historical or current facts.

We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  These forward-looking statements include but are not limited to statements regarding our ability to continue to successfully execute our strategy and Strategic Growth and Diversification Plan; the level and sufficiency of our current regulatory capital and equity ratios; our ability to continue to diversify the loan portfolio; our efforts at deepening client relationships, increasing our levels of core deposits, lowering our non-performing asset levels, managing and reducing our credit-related costs, and increasing our revenue growth and levels of earning assets; the effects of general economic and competitive conditions nationally and within our core market area; the sufficiency of the levels of provision for the allowance for loan losses and amounts of charge-offs; loan and deposit growth; interest on loans; asset yields and cost of funds; net interest income; net

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interest margin; non-interest income; non-interest expense; interest rate environment; and other factors.   For further discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements see “Part I. Item 1A.  Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.  Such forward-looking statements are not guarantees of future performance.  We do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements unless required to do so under the federal securities laws.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), which require us to establish various accounting policies. Certain of these accounting policies require us to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities. The estimates, judgments, and assumptions we use are based on historical experience, projected results, internal cash flow modeling techniques, and other factors which we believe are reasonable under the circumstances.

Significant accounting policies are presented in “Note 1. Summary of Significant Accounting Policies” in the notes to consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of our December 31, 2011 Annual Report on Form 10-K. These policies, along with the disclosures presented in other financial statement notes and in this management’s discussion and analysis, provide information on the methodology used for the valuation of significant assets and liabilities in our financial statements. We view critical accounting policies to be those that are highly dependent on subjective or complex judgments, estimates, and assumptions, and where changes in those estimates and assumptions could have a significant impact on our consolidated financial statements. We currently view the determination of the allowance for loan losses, valuations and impairments of investment securities, and the accounting for income taxes to be critical accounting policies.

Allowance for Loan Losses.We maintain our allowance for loan losses at a level we believe is appropriate to absorb credit losses inherent in our loan portfolio. The allowance for loan losses represents our estimate of probable incurred losses in our loan portfolio at each statement of condition date and is based on our review of available and relevant information.

The first component of the allowance for loan losses contains allocations for probable incurred losses that management has identified relating to impaired loans pursuant to Accounting Standards Codification (ASC) 310-10, Receivables. We individually evaluate for impairment all loans classified substandard and over $375,000, which decreased from $750,000 during the second quarter of 2012, to enable management to proactively identify potential losses over a larger cross section of the loan portfolio.  We also individually evaluate for impairment all loans for which we have initiated foreclosure proceedings. For all portfolio segments, loans are considered impaired when, based on current information and events, it is probable that the borrower will not be able to fulfill its obligation according to the contractual terms of the loan agreement.  The impairment loss, if any, is generally measured based on the present value of expected cash flows discounted at the loan’s effective interest rate.  As a practical expedient, impairment may be measured based on the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.  A loan is considered collateral-dependent when the repayment of the loan will be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.  If we determine a loan is collateral-dependent, we will charge-off any identified collateral shortfall against the allowance for loan losses.

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If foreclosure is probable, we are required to measure the impairment based on the fair value of the collateral.  The fair value of the collateral is generally obtained from the evaluation of the collateral, and one of the methods of evaluation is an independent third-party appraisal. When current appraisals are not available, we utilize other evaluation methods to estimate the fair value of the collateral giving consideration to several factors including the price at which individual unit(s) could be sold in the current market, the period of time over which the unit(s) could be sold, the estimated cost to complete the unit(s), the risks associated with completing and selling the unit(s), the required return on the investment a potential acquirer may have, and the current market interest rates.  The analysis of each loan involves a high degree of judgment in estimating the amount of the loss associated with the loan, including the estimation of the amount and timing of future cash flows and collateral values.

The second component of our allowance for loan losses contains allocations for probable incurred losses within various pools of loans with similar characteristics pursuant to ASC 450-10, Contingencies. This component is based in part on certain loss factors applied to various stratified loan pools excluding loans evaluated individually for impairment. In determining the appropriate loss factors for these loan pools, we consider historical charge-offs and recoveries; levels of and trends in delinquencies, impaired loans, and other classified loans; concentrations of credit within the commercial loan portfolios; volume and type of lending; and current and anticipated economic conditions. Our historical charge-offs are determined by evaluating the net charge-offs over the most recent eight quarters, including the current quarter. Prior to the fourth quarter of 2010, we evaluated our net charge-offs by using the four calendar years preceding the current year.

Loan losses are charged-off against the allowance when the loan balance or a portion of the loan balance is no longer covered by the repayment capacity of the borrower based on an evaluation of available and projected cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance. We assess the appropriateness of the allowance for loan losses on a quarterly basis and adjust the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at a level deemed appropriate by management. The evaluation of the appropriateness of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as additional information becomes available or as future events occur. To the extent that actual outcomes differ from our estimates, an additional provision for loan losses could be required which could adversely affect earnings or our financial position in future periods.

Investment Securities.Under ASC 320-10, Investments – Debt and Equity Securities, investment securities must be classified as held-to-maturity, available-for-sale, or trading. We determine the appropriate classification at the time of purchase. The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on investment securities. Debt investment securities are classified as held-to-maturity and carried at amortized cost when we have the positive intent and the ability to hold the investment securities to maturity. Investment securities not classified as held-to-maturity are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and do not affect earnings until realized. Investment in FHLB stock is carried at cost. We have no trading account investment securities.

The fair values of our investment securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs. Certain of the fair values of investment securities are determined using models whose significant value drivers or assumptions are unobservable and are significant to the fair value of the investment securities. These models are utilized when quoted prices are not available for certain investment securities or in markets where trading activity has slowed or ceased. When quoted prices are

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not available and are not provided by third-party pricing services, our judgment is necessary to determine fair value. As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics, and implied volatilities.

We evaluate all investment securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in ASC 320-10. In evaluating the possible impairment of investment securities, consideration is given to many factors including the length of time and the extent to which the fair value has been less than cost, whether the market decline was affected by macroeconomic conditions, the financial conditions and near-term prospects of the issuer, and management’s ability and intent to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, we may consider whether the investment securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

If we determine that an investment experienced an OTTI, we must then determine the amount of the OTTI to be recognized in earnings. If we do not intend to sell the investment security and it is more likely than not that we will not be required to sell the investment security before recovery of its amortized cost basis less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the OTTI related to other factors will be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment. If we intend to sell the investment security or it is more likely than not we will be required to sell the investment security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Any recoveries related to the value of these investment securities are recorded as an unrealized gain (as other comprehensive income [loss] in shareholders’ equity) and not recognized in income until the investment security is ultimately sold. From time to time, we may dispose of an impaired investment security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Income Tax Accounting. We file a consolidated federal income tax return. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.

Under U.S. GAAP, a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning our evaluation of both positive and negative evidence, our forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. Positive evidence includes current positive earning trends, the existence of taxes paid in

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available carryback years, and the probability that taxable income will continue to be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends.

At June 30, 2012, based on the results of our regular assessment of the ability to realize our deferred tax assets, we concluded that, based on all available evidence, both positive and negative, approximately $6.5 million of our deferred tax assets did not meet the “more likely than not” threshold for realization. Although realization of the remaining net deferred tax assets of $16.3 million is not assured, we believe it is more likely than not that all of the recorded deferred tax assets will be realized based on available tax planning strategies and our projections of future taxable income. The positive evidence considered in our analysis of the remaining deferred tax assets included our long-term history of generating taxable income; the cyclical nature of the industry in which we operate; the fact that a portion of the losses realized in 2011 were partly attributable to syndicated/participation lending which we stopped investing in during 2007; our history of fully realizing net operating losses, including the federal net operating loss from a $45.0 million taxable loss in 2004; and the relatively long remaining tax loss carryforward periods (19 years for federal income tax purposes, ten years for the state of Indiana, and eight years for the state of Illinois). The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during tax loss carryforward periods are reduced. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets, which would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Positions taken in our tax returns may be subject to challenge upon examination by the taxing authorities. The benefit of an uncertain tax position is initially recognized in the financial statements only when it is more likely than not the position will be sustained upon examination by the taxing authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the taxing authority, assuming full knowledge of the position and all relevant facts. Differences between our position and the position of taxing authorities could result in a reduction of a tax benefit or an increase to a tax liability, which could adversely affect our future income tax expense.

We believe our tax policies and practices are critical accounting policies because the determination of our tax provision and current and deferred tax assets and liabilities have a material impact on our results of operations and the carrying value of our assets. We believe our tax assets and liabilities are adequate and are properly recorded in the condensed consolidated financial statements at June 30, 2012.

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Results of Operations for the Three and Six Months EndedJune 30, 2012 and 2011

Performance Overview

The following tables provide selected financial and performance information for the periods presented.

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands, except per share data)
Net income	$	1,354		$	1,233		$	1,844		$	1,705
Diluted earnings per share	.13			.11			.17			.16
Pre-tax, pre-provision earnings, as adjusted (1)	3,089			2,487			5,870			4,026
Return on average assets (2)	.47		%	.43		%	.32		%	.30		%
Return on average equity (2)	5.25			4.27			3.56			3.00
Average interest-earning assets	$	1,052,039		$	1,026,940		$	1,048,907		$	1,019,726
Net interest income	8,944			9,187			17,867			18,044
Net interest margin	3.42		%	3.59		%	3.43		%	3.57		%
Non-interest income	$	2,643		$	4,538		$	5,467		$	6,989
Non-interest expense	8,542			11,071			18,749			21,038
Efficiency ratio (3)	75.71		%	81.69		%	82.92		%	86.43		%

	June 30, 2012			December 31, 2011			June 30, 2011
Book value per share	$	9.62		$	9.49		$	10.69
Tangible book value per share	9.62			9.49			10.69
Shareholders’ equity to total assets	9.24		%	8.99		%	10.30		%
Tangible common shareholders’ equity to total assets	9.24			8.99			10.30
Tangible capital ratio (Bank only)	8.56			8.26			9.17
Tier 1 core capital ratio (Bank only)	8.56			8.26			9.17
Risk-based capital ratio (Bank only)	13.35			12.65			13.29

(1) See “Non-U.S. GAAP Financial Information” on page 47.

(2) Annualized.

(3) The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income, excluding net gain on sale of investment securities.

The following discussion and analysis presents the more significant factors affecting our financial condition as of June 30, 2012 and results of operations for the three and six months ended June 30, 2012.  This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this report.

During the second quarter of 2012, we recorded net income of $1.4 million, or $.13 per diluted share.  Our earnings were favorably impacted by a $2.5 million, or 23%, decrease in non-interest expenses to $8.5 million from $11.1 million for the second quarter of 2011 as we continue our focus to reduce non-interest expense. The reduction is primarily due to decreases of $1.8 million, or 80.6%, in credit related non-interest expense and $580,000, or 11.4%, in compensation and employee benefit expense resulting from our first quarter Voluntary Early Retirement Offering (VERO), the closing of our Bolingbrook and Orland Park, Illinois, branches, and the outsourcing of certain

46

support functions. The number of FTE employees decreased to 261 at June 30, 2012 from 303 at December 31, 2011 and 315 at June 30, 2011.

Our net interest margin decreased 17 basis points to 3.42% for the second quarter of 2012 from 3.59% for the second quarter of 2011.  Our net interest margin continued to be pressured by the higher levels of liquidity, modest loan demand, and elevated levels of non-performing assets. These factors resulted in a 35 basis point decline in our yield on average interest-earning assets, which was partially offset by a 21 basis point decrease in the cost of interest-bearing liabilities from the second quarter of 2011.

We continue to focus our efforts on reducing the level of non-performing loans, seeking to either restructure specific non-performing loans or foreclose, obtain title, and transfer the loan to other real estate owned where management can take control of and liquidate the underlying collateral. Our ratio of non-performing loans to total loans increased to 7.27% at June 30, 2012 from 6.41% at December 31, 2011, primarily due to transfers to non-accrual status of $4.4 million of non-owner occupied commercial real estate loans, $1.5 million of commercial construction and land development loans, and $840,000 of one-to-four family residential loans. Of the loans transferred to non-accrual status during the second quarter of 2012, $5.8 million are current and performing in accordance with their agreements. The ratio of non-performing assets to total assets increased to 6.28% at June 30, 2012 compared to 5.63% at December 31, 2011.

We continue to target specific segments in our loan portfolio for growth, including commercial and industrial and owner occupied and multifamily commercial real estate, which in the aggregate comprised 55.6% of the commercial loan portfolio at June 30, 2012, up from 53.0% at December 31, 2011 and 53.1% at June 30, 2011. Our focus on deepening client relationships continues to emphasize core deposit growth. Total core deposits as a percentage of total deposits increased to 62.5% at June 30, 2012 from 61.1% at December 31, 2011 and 59.2% at June 30, 2011. The increase was primarily related to clients transferring maturing certificates of deposit to money market accounts given the current low interest rate environment. In addition, the Bank’s High Performance Checking (HPC) deposit acquisition marketing program implemented during the first quarter of 2012 further enhanced growth in core deposits while attracting a younger demographic with 66% of the new retail accounts in the 20-49 age group, which will continue to provide additional cross-sell opportunities. During the second quarter of 2012, the Bank opened 1,880 new core deposit accounts compared to 768 accounts opened in the same period a year ago, with 50% of the accounts being new relationships. The HPC program has generated $2.8 million in new core deposit growth during the three months ended June 30, 2012.

At June 30, 2012, our tangible common shareholders’ equity was $104.6 million, or 9.24% of assets, compared to $103.2 million, or 8.99%, of assets at December 31, 2011 and $116.2 million, or 10.30% of assets, at June 30, 2011. At June 30, 2012, the Bank’s Tier 1 core capital ratio was 8.56% compared to 8.26% at December 31, 2011 and 9.17% at June 30, 2011. The Bank’s total risk-based capital ratio increased to 13.35% at June 30, 2012 from 12.65% at December 31, 2011 and 13.29% at June 30, 2011.

Non-U.S. GAAP Financial Information

Our accounting and reporting policies conform to U.S. GAAP and general practice within the banking industry.  Management uses certain non-U.S. GAAP financial measures to evaluate our financial performance and has provided the non-U.S. GAAP financial measures of pre-tax, pre-provision earnings, as adjusted, and pre-tax, pre-provision earnings, as adjusted, to average assets.  In these non-U.S. GAAP financial measures, the provision for loan losses, other real estate owned related income and expense, loan collection expense, and certain other items, such as gains and losses on sales of investment securities and other assets, and severance and early retirement

47

expense, are excluded.  Management believes that these measures are useful because they provide a more comparable basis for evaluating financial performance excluding certain credit-related costs and other non-recurring items period to period and allows management and others to assess our ability to generate pre-tax earnings to cover our provision for loan losses and other credit-related costs.  Although these non-U.S. GAAP financial measures are intended to enhance investors understanding of our business performance, these operating measures should not be considered as an alternative to U.S. GAAP.

The risks associated with utilizing operating measures (such as the pre-tax, pre-provision earnings, as adjusted) are that various persons might disagree as to the appropriateness of items included or excluded in these measures and that other companies might calculate these measures differently.  Management compensates for these limitations by providing detailed reconciliations between U.S. GAAP information and our pre-tax, pre-provision earnings, as adjusted, as noted above; however, these disclosures should not be considered an alternative to U.S. GAAP.

The following table reconciles income before income taxes in accordance with U.S. GAAP to the non-U.S. GAAP measurement of pre-tax, pre-provision earnings, as adjusted.

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Reconciliation of Income Before Income Taxes to Pre-Tax, Pre-Provision Earnings, as adjusted:
Income before income taxes	$	1,895		$	1,658		$	2,385		$	2,096
Provision for loan losses	1,150			996			2,200			1,899
Pre-tax, pre-provision earnings	3,045			2,654			4,585			3,995
Add back (subtract):
Net gain on sale of:
Investment securities	(305		)	(173		)	(723		)	(692		)
Other real estate owned	(86		)	(2,238		)	(39		)	(2,233		)
Other real estate owned related expense, net	316			2,011			934			2,603
Loan collection expense	119			233			237			353
Severance and early retirement expense	—			—			876			—
Pre-tax, pre-provision earnings, as adjusted	$	3,089		$	2,487		$	5,870		$	4,026
Pre-tax, pre-provision earnings, as adjusted, to average assets (annualized)	1.07		%	.87		%	1.02		%	.71		%

Pre-tax, pre-provision earnings, as adjusted, increased $602,000, or 24.2%, to $3.1 million for the second quarter of 2012 compared to $2.5 million for the second quarter of 2011. These increases were primarily due to increases in gain on sale of loans held for sale along with decreases in compensation and employee benefits expense and professional fees. Partially offsetting these positives was a modest decrease in net interest income.

The pre-tax, pre-provision earnings, as adjusted, for the six months ended June 30, 2012 increased $1.8 million, or 45.8%, to $5.9 million compared to $4.0 million for the 2011 period primarily due to increases in gain on sale of loans held for sale; income from bank-owned life insurance from the first quarter 2012 death of an insured; and decreases in compensation and employee benefits, professional fees, and FDIC insurance premiums

48

and regulatory assessments. These favorable variances were partially offset by an increase in marketing expenses due to the HPC program and a decrease in net interest income.

Average Balances/Rates

The following tables reflect the average yield on assets and average cost of liabilities for the periods indicated.  Average balances are derived from average daily balances.

	Three Months Ended June 30,
	2012						2011
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable (1)	$	705,410	$	8,243	4.70	%	$	732,746	$	9,016	4.94	%
Investment securities (2)	252,698		2,186		3.42		267,984		2,040		3.01
Other interest-earning assets (3)	93,931		103		.44		26,210		164		2.51
Total interest-earning assets	1,052,039		10,532		4.03		1,026,940		11,220		4.38
Non-interest earning assets	110,060						114,987
Total assets	$	1,162,099					$	1,141,927
Interest-bearing liabilities:
Deposits:
Checking accounts	$	181,584	$	76	.17	%	$	160,299	$	107	.27	%
Money market accounts	195,382		139		.29		189,307		227		.48
Savings accounts	142,827		70		.20		128,609		72		.22
Certificates of deposit	371,021		1,009		1.09		399,080		1,371		1.38
Total deposits	890,814		1,294		.58		877,295		1,777		.81
Borrowed funds:
Other short-term borrowed funds	10,810		4		.15		13,378		15		.45
FHLB advances	39,774		290		2.88		25,112		241		3.81
Total borrowed funds	50,584		294		2.30		38,490		256		2.64
Total interest-bearing liabilities	941,398		1,588		.68		915,785		2,033		.89
Non-interest bearing deposits	105,927						99,941
Other non-interest bearing liabilities	10,947						10,434
Total liabilities	1,058,272						1,026,160
Shareholders’ equity	103,827						115,767
Total liabilities and shareholders’ equity	$	1,162,099					$	1,141,927
Net interest-earning assets	$	110,641					$	111,155
Net interest income / interest rate spread			$	8,944	3.35	%			$	9,187	3.49	%
Net interest margin					3.42	%					3.59	%
Ratio of average interest-earning assets to average interest-bearing liabilities					111.75	%					112.14	%

(1) The average balance of loans receivable includes loans held for sale and non-performing loans, interest on which is recognized on a cash basis.

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

(3) Includes FHLB stock and interest-earning bank deposits.

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	Six Months Ended June 30,
	2012						2011
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable (1)	$	707,061	$	16,629	4.73	%	$	730,099	$	17,827	4.92	%
Investment securities (2)	255,789		4,316		3.34		253,607		4,085		3.20
Other interest-earning assets (3)	86,057		196		.46		36,020		321		1.80
Total interest-earning assets	1,048,907		21,141		4.05		1,019,726		22,233		4.40
Non-interest earning assets	111,737						116,308
Total assets	$	1,160,644					$	1,136,034
Interest-bearing liabilities:
Deposits:
Checking accounts	$	179,977	$	159	.18	%	$	159,047	$	219	.28	%
Money market accounts	195,749		310		.32		186,386		476		.52
Savings accounts	139,468		137		.20		126,365		148		.24
Certificates of deposit	374,534		2,078		1.12		401,762		2,827		1.42
Total deposits	889,728		2,684		.61		873,560		3,670		.85
Borrowed funds:
Other short-term borrowed funds	12,074		9		.15		13,786		33		.48
FHLB advances	39,797		581		2.89		25,383		486		3.81
Total borrowed funds	51,871		590		2.25		39,169		519		2.64
Total interest-bearing liabilities	941,599		3,274		.70		912,729		4,189		.93
Non-interest bearing deposits	103,786						97,781
Other non-interest bearing liabilities	11,207						10,939
Total liabilities	1,056,592						1,021,449
Shareholders’ equity	104,052						114,585
Total liabilities and shareholders’ equity	$	1,160,644					$	1,136,034
Net interest-earning assets	$	107,308					$	106,997
Net interest income / interest rate spread			$	17,867	3.35	%			$	18,044	3.47	%
Net interest margin					3.43	%					3.57	%
Ratio of average interest-earning assets to average interest-bearing liabilities					111.40	%					111.72	%

(1) The average balance of loans receivable includes loans held for sale and non-performing loans, interest on which is recognized on a cash basis.

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

(3) Includes FHLB stock and interest-earning bank deposits.

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Rate/Volume Analysis

The following tables show the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest rates on our interest income and interest expense for the periods indicated.  Changes attributable to the combined impact of rate and volume have been allocated proportionally to the changes due to rate and changes due to volume.

	Three Months Ended June 30,									Six Months Ended June 30,
	2012 Compared to 2011									2012 Compared to 2011
	Change due to Rate			Change due to Volume			Total Change			Change due to Rate			Change due to Volume			Total Change
	(Dollars in thousands)
Interest income:
Loans receivable	$	(444	)	$	(329	)	$	(773	)	$	(645	)	$	(553	)	$	(1,198	)
Investment securities	267			(121		)	146			196			35			231
Other interest-earning assets	(221		)	160			(61		)	(355		)	230			(125		)
Total	(398		)	(290		)	(688		)	(804		)	(288		)	(1,092		)
Interest expense:
Deposits:
Checking accounts	(44		)	13			(31		)	(86		)	26			(60		)
Money market accounts	(95		)	7			(88		)	(189		)	23			(166		)
Savings accounts	(10		)	8			(2		)	(25		)	14			(11		)
Certificates of deposit	(271		)	(91		)	(362		)	(567		)	(182		)	(749		)
Total deposits	(420		)	(63		)	(483		)	(867		)	(119		)	(986		)
Borrowed funds:
Other short-term borrowed funds	(8		)	(3		)	(11		)	(20		)	(4		)	(24		)
FHLB advances	(68		)	117			49			(134		)	229			95
Total borrowed funds	(76		)	114			38			(154		)	225			71
Total	(496		)	51			(445		)	(1,021		)	106			(915		)
Net change in net interest income	$	98		$	(341	)	$	(243	)	$	217		$	(394	)	$	(177	)

Net Interest Income

Net Interest Income.Netinterest income totaled $8.9 million for the three months ended June 30, 2012 compared to $9.2 million for the three months ended June 30, 2011. Net interest income totaled $17.9 million for the six months ended June 30, 2012 compared to $18.0 million for the six months ended June 30, 2011.  Thenet interest margin for the three months ended June 30, 2012 decreased 17 basis points to 3.42% from 3.59% for the comparable 2011 period and for the six months ended June 30, 2012 decreased 14 basis points to 3.43% from 3.57% for the 2011 period. Our net interest margin continued to be pressured by the higher levels of liquidity, modest loan demand, and elevated level of non-performing assets.

Interest Income.  Interest income decreased to $10.5 million for the three months ended June 30, 2012 from $11.2 million for the comparable 2011 period. For the six months ended June 30, 2012, interest income decreased to $21.1 million from $22.2 million for the comparable 2011 period.  The weighted-average rate on interest-earning assets decreased to 4.03% and 4.05%, respectively, for the three and six months ended June 30, 2012 from 4.38% and 4.40%, respectively, for the comparable 2011 periods.  The yield decrease was affected by

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the smaller loan portfolio as a percentage of earning assets, the elevated levels of non-performing assets, and the higher levels of short-term liquid investments maintained due to the lack of suitable higher yielding investment alternatives in the current low interest rate environment combined with modest loan demand.

Interest Expense.  Interest expense decreased 21.9% to $1.6 million for the three months ended June 30, 2012 from $2.0 million for the comparable 2011 period.  The average cost of interest-bearing liabilities decreased 21 basis points to .68% for the three months ended June 30, 2012 from .89% for the 2011 period.  For the six months ended June 30, 2012, interest expense decreased 21.8% to $3.3 million from $4.2 million for the 2011 period. The average cost of interest-bearing liabilities decreased 23 basis points to .70% for the six months ended June 30, 2012 from .93% for the 2011 period. Interest expense continues to be positively affected by strong growth in low-cost core deposit balances, a reduction in higher cost certificates of deposit, and a new $15.0 million fixed-rate FHLB advance in the third quarter of 2011 that lowered the average cost of borrowed funds.

Interest expense on interest-earning deposits decreased to $1.3 million and $2.7 million, respectively, for the three and six month periods ended June 30, 2012 from $1.8 million and $3.7 million, respectively, for the comparable 2011 periods.  The weighted-average cost of deposits decreased 23 basis points to .58% and .61%, respectively, for the three and six month periods ended June 30, 2012 from .81% and .85%, respectively, for the comparable 2011 periods as a result of disciplined pricing on deposits and the repricing of certificates of deposit at lower interest rates.

Interest expense on borrowed funds increased to $294,000 and $590,000, respectively, for the three and six months ended June 30, 2012 from $256,000 and $519,000, respectively, for the 2011 periods primarily as a result of increases in the average balance of FHLB advances during 2012 compared to 2011.  The weighted-average cost of borrowed funds decreased 34 and 39 basis points, respectively, during the three and six months ended June 30, 2012 to 2.30% and 2.25%, respectively, from 2.64% for both of the 2011 periods due to decreases in the cost of Repo Sweeps, the aforementioned $15.0 million FHLB advance, and the scheduled repayments of higher cost amortizing FHLB advances.

Provision for Loan Losses

The Company’s provision for loan losses was $1.15 million for the three months ended June 30, 2012 compared to $1.0 million for the 2011 period. The provision for loan losses was $2.2 million compared to $1.9 million, respectively, for the six months ended June 30, 2012and2011.  For more information, see “Changes in Financial Condition – Allowance for Loan Losses” below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Non-Interest Income

The following tables identify the changes in non-interest income for the periods presented:

	Three Months Ended June 30,
	2012		2011		$ Change			% Change
	(Dollars in thousands)
Service charges and other fees	$	1,087	$	1,174	$	(87	)	(7.4	)%
Card-based fees	577		520		57			11.0
Commission income	75		78		(3		)	(3.8	)
Subtotal fee-based revenues	1,739		1,772		(33		)	(1.9	)
Income from bank-owned life insurance	162		210		(48		)	(22.9	)
Other income	151		119		32			26.9
Subtotal	2,052		2,101		(49		)	(2.3	)
Net gain on sale of:
Investment securities	305		173		132			76.3
Loans receivable	200		26		174			669.2
Other real estate owned	86		2,238		(2,152		)	(96.2	)
Total non-interest income	$	2,643	$	4,538	$	(1,895	)	(41.8	)%

	Six Months Ended June 30,
	2012		2011		$ Change			% Change
	(Dollars in thousands)
Service charges and other fees	$	2,105	$	2,250	$	(145	)	(6.4	)%
Card-based fees	1,110		995		115			11.6
Commission income	132		123		9			7.3
Subtotal fee-based revenues	3,347		3,368		(21		)	(.6	)
Income from bank-owned life insurance	702		416		286			68.8
Other income	297		222		75			33.8
Subtotal	4,346		4,006		340			8.5
Net gain on sale of:
Investment securities	723		692		31			4.5
Loans receivable	359		58		301			519.0
Other real estate owned	39		2,233		(2,194		)	(98.3	)
Total non-interest income	$	5,467	$	6,989	$	(1,522	)	(21.8	)%

Service charges and other fees for the three and six months ended June 30, 2012 were impacted by a decrease in business deposit service charges due to the loss of one large business depositor during 2012 combined with lower credit enhancement fee income related to non-owner occupied commercial real estate letters of credit as we continue to strategically reduce our exposure to these types of relationships. Card-based fees for the three and six months ended June 30, 2012 increased modestly from the 2011 periods due to the success of the HPC program growing checking accounts in a younger demographic that is more prone to debit card usage. The increases for the 2012 periods in net gain on the sale of loans receivable related to our expanded residential loan origination and mortgage banking activities. The decreases from the 2011 periods in net gain on the sale of other real estate owned was primarily due to the gain recognized during the quarter ended June 30, 2011 on the sale of a large commercial

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other real estate owned property. For the six months ended June 30, 2012, income from bank-owned life insurance increased $286,000 primarily due to a benefit related to the death of an insured realized during the first quarter of 2012. For information related to net gain on sale of investment securities, see “Changes in Financial Condition – Investment Securities” below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Non-Interest Expense

The following tables identify changes in our non-interest expense for the periods presented:

	Three Months Ended June 30,
	2012		2011		$ Change			% Change
	(Dollars in thousands)
Compensation and mandatory benefits	$	3,716	$	4,194	$	(478	)	(11.4	)%
Retirement and stock related compensation	309		216		93			43.1
Medical and life benefits	425		620		(195		)	(31.5	)
Other employee benefits	17		17		—			—
Subtotal compensation and employee benefits	4,467		5,047		(580		)	(11.5	)
Net occupancy expense	679		670		9			1.3
FDIC insurance premiums and regulatory assessments	490		504		(14		)	(2.8	)
Furniture and equipment expense	468		454		14			3.1
Data processing	445		441		4			.9
Marketing	322		270		52			19.3
Professional fees	198		334		(136		)	(40.7	)
Other real estate owned related expense, net	316		2,011		(1,695		)	(84.3	)
Loan collection expense	119		233		(114		)	(48.9	)
Severance and early retirement expense	—		—		—			—
Other general and administrative expenses	1,038		1,107		(69		)	(6.2	)
Total non-interest expense	$	8,542	$	11,071	$	(2,529	)	(22.8	)%

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	Six Months Ended June 30,
	2012		2011		$ Change			% Change
	(Dollars in thousands)
Compensation and mandatory benefits	$	7,719	$	8,663	$	(944	)	(10.9	)%
Retirement and stock related compensation	581		429		152			35.4
Medical and life benefits	850		1,167		(317		)	(27.2	)
Other employee benefits	30		27		3			11.1
Subtotal compensation and employee benefits	9,180		10,286		(1,106		)	(10.8	)
Net occupancy expense	1,387		1,435		(48		)	(3.3	)
FDIC insurance premiums and regulatory assessments	978		1,157		(179		)	(15.5	)
Furniture and equipment expense	925		917		8			.9
Data processing	883		883		—			—
Marketing	726		457		269			58.9
Professional fees	451		722		(271		)	(37.5	)
Other real estate owned related expense, net	934		2,603		(1,669		)	(64.1	)
Loan collection expense	237		353		(116		)	(32.9	)
Severance and early retirement expense	876		—		876			100.0
Other general and administrative expenses	2,172		2,225		(53		)	(2.4	)
Total non-interest expense	$	18,749	$	21,038	$	(2,289	)	(10.9	)%

Total non-interest expense decreased $2.5 million, or 22.8%, for the three months ended June 30, 2012 and $2.3 million, or 10.9%, for the six months ended June 30, 2012 from the 2011 periods as we continue to make progress in decreasing our cost structure. Compensation and employee benefits expense decreased for the three and six months ended June 30, 2012 from the 2011 periods as a result of our VERO program, branch closings, and outsourcing during 2012. These cost reduction initiatives resulted in a 17.1% decrease of full-time equivalent employees to 261 at June 30, 2012 from 315 at June 30, 2011. In addition, medical and life benefits were significantly lower during the 2012 periods due to the lack of several individual large claims experienced in the 2011 periods. FDIC insurance premiums and regulatory assessments expense decreased during 2012 from the 2011 periods due to the premium assessment methodology implemented in April 2011. Professional fees also decreased during 2012 primarily due to lower legal, strategic adviser, and investor relations fees. Net other real estate owned related expense decreased due to significantly lower valuation allowances during the 2012 periods. Partially offsetting the favorable variances, marketing expense increased in 2012 due to the implementation of our new HPC direct mail checking deposit acquisition program and VERO severance and retirement compensation expense totaled $876,000 during the six months ended June 30, 2012.

Income Tax Expense

Income tax expense for both the three and six months ended June 30, 2012 totaled $541,000, which was equal to effective tax rates of 28.5% and 22.7%, respectively, compared to effective tax rates of 25.6% and 18.7%, respectively, for the comparable 2011 periods. The increases in the effective income tax rate during the 2012 periods were due to the increased level of income before income taxes partially offset by the tax sheltering impact of income from bank-owned life insurance and other tax credits.

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Changes in Financial Condition

Our total assets decreased to $1.13 billion at June 30, 2012 from $1.15 billion at December 31, 2011 primarily as a result of our proactive efforts to review the pricing and cross-sell potential of some of our larger single-service deposit relationships which enabled us to decrease the level of excess liquidity in this low interest rate environment while at the same time, improve our Tier 1 core capital ratios.

	June 30, 2012		December 31, 2011		$ Change			% Change
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	85,533	$	92,072	$	(6,539	)	(7.1	)%
Investment securities available-for-sale, at fair value	226,625		234,381		(7,756		)	(3.3	)
Investment securities held-to-maturity, at cost	13,965		16,371		(2,406		)	(14.7	)
Federal Home Loan Bank stock, at cost	6,188		6,188		—			—
Loans receivable, net	701,534		698,802		2,732			.4
Bank-owned life insurance	36,435		36,275		160			.4
Other real estate owned	19,223		19,091		132			.7
Other assets	42,591		45,770		(3,179		)	(6.9	)
Total assets	$	1,132,094	$	1,148,950	$	(16,856	)	(1.5	)%
Liabilities and Equity:
Deposits	$	967,154	$	977,424	$	(10,270	)	(1.1	)%
Borrowed funds	51,306		54,200		(2,894		)	(5.3	)
Other liabilities	9,037		14,078		(5,041		)	(35.8	)
Total liabilities	1,027,497		1,045,702		(18,205		)	(1.7	)
Shareholders’ equity	104,597		103,248		1,349			1.3
Total liabilities and equity	$	1,132,094	$	1,148,950	$	(16,856	)	(1.5	)%

56

Loans Receivable

The following table provides the balance and percentage of loans by category at the dates indicated.

	June 30, 2012					December 31, 2011
	Amount			% of Total		Amount			% of Total		% Change
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	89,479		12.6	%	$	85,160		12.0	%	5.1	%
Commercial real estate:
Owner occupied	102,149			14.3		93,833			13.2		8.9
Non-owner occupied	184,284			25.8		188,293			26.5		(2.1	)
Multifamily	76,647			10.7		71,876			10.1		6.6
Commercial construction and land development	23,353			3.3		22,045			3.1		5.9
Commercial participations	6,453			.9		12,053			1.7		(46.5	)
Total commercial loans	482,365			67.6		473,260			66.6		1.9
Retail loans:
One-to-four family residential	177,830			24.9		181,698			25.6		(2.1	)
Home equity lines of credit	49,476			6.9		52,873			7.4		(6.4	)
Retail construction	1,518			.2		1,022			.1		48.5
Other	2,724			.5		2,771			.4		(1.7	)
Total retail loans	231,548			32.5		238,364			33.5		(2.9	)
Total loans receivable	713,913			100.1		711,624			100.1		.3
Net deferred loan fees	(317		)	(.1	)	(398		)	(.1	)	(20.4	)
Total loans receivable, net of deferred loan fees	$	713,596		100.0	%	$	711,226		100.0	%	.3	%

 Total loans receivable increased $2.3 million at June 30, 2012 from December 31, 2011 primarily due to an increase of $9.1 million in total commercial loans. Loan fundings during the six months ended June 30, 2012 totaled $64.0 million compared to loan fundings of $45.4 million for the six months ended June 30, 2011 which reflects an increase in loan demand during 2012. Loan fundings in 2012 were partially offset by loan payoffs and amortization of $37.7 million, mortgage loan sales of $20.2 million, and transfers to other real estate owned totaling $1.8 million. In addition, loans decreased due to gross charge-offs totaling $2.6 million for the six months ended June 30, 2012.

Commercial participations decreased 46.5% compared to December 31, 2011 through net paydowns totaling $777,000 and the payoff of one non-owner occupied commercial real estate participation totaling $4.8 million. In addition, non-owner occupied commercial real estate loans decreased by $4.0 million, or 2.1%, since December 31, 2011 primarily due to three loan payoffs aggregating $2.3 million and gross charge-offs of $1.2 million. Partially offsetting this decrease, owner occupied commercial real estate loans increased by $8.3 million, or 8.9%, since December 31, 2011 primarily due to fundings of $11.9 million. In addition, commercial and industrial and multifamily loans increased by $4.3 million and $4.8 million, respectively, due to fundings of $5.3 million and $5.8 million, respectively, partially offset by gross charge-offs of $555,000 and $377,000, respectively.

57

As more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, we began a shift in mid-2007 to diversify our loan portfolio to reduce our focus on commercial real estate lending, including non-owner occupied, commercial construction and land development, and purchased participation and syndication loans. We have identified and segregated the remaining credit risk related to our deemphasized loan categories that were originated prior to our current risk tolerances, credit policy, and underwriting standards, by segregating our loan portfolio based upon each loan’s initial origination date. Loans that were renewed or modified subsequent to their initial origination are included for disclosure purposes based on their initial loan origination date. The categories of the loan portfolio that we continue to focus on growing, which are commercial and industrial and commercial real estate - owner occupied and multifamily, comprised 55.6% of the commercial loan portfolio at June 30, 2012 compared to 53.0% at December 31, 2011 and 53.1% at June 30, 2011. Over 77% of the loans outstanding at June 30, 2012 in these growth categories were originated after January 1, 2008 (Post-1/1/08). During 2012, these targeted growth categories grew by $17.4 million due to $23.0 million in new fundings which were partially offset by $5.0 million in loan payoffs. At June 30, 2012, our total commercial loans outstanding originated prior to January 1, 2008 (Pre-1/1/08) decreased to 38.9% of our total commercial loan portfolio primarily due to normal amortization, charge-offs, and repayments, including the full repayment of a $4.8 million performing participation loan.

The following tables present the categories of our commercial loan portfolio at the dates indicated segregated by the origination date of the lending relationship, and highlights the shift in our lending focus to those growth categories in accordance with our strategic plan.

	June 30, 2012
	Pre-1/1/08 Loans		Post-1/1/08 Loans		Total		% of Pre-1/1/08  to Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	8,447	$	81,032	$	89,479	9.4	%
Commercial real estate:
Owner occupied	41,917		60,232		102,149		41.0
Non-owner occupied	115,209		69,075		184,284		62.5
Multifamily	10,001		66,646		76,647		13.0
Commercial construction and land development	5,950		17,403		23,353		25.5
Commercial participations	6,354		99		6,453		98.5
Total commercial loans	$	187,878	$	294,487	$	482,365	38.9	%

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	December 31, 2011
	Pre-1/1/08 Loans		Post-1/1/08 Loans		Total		% of Pre-1/1/08  to Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	11,878	$	73,282	$	85,160	13.9	%
Commercial real estate:
Owner occupied	43,510		50,323		93,833		46.4
Non-owner occupied	118,956		69,337		188,293		63.2
Multifamily	10,453		61,423		71,876		14.5
Commercial construction and land development	6,280		15,765		22,045		28.5
Commercial participations	11,537		516		12,053		95.7
Total commercial loans	$	202,614	$	270,646	$	473,260	42.8	%

Total commercial participations by loan type and state where the collateral is located are presented in the following tables as of the dates indicated.

	June 30, 2012				December 31, 2011
	Amount		% of Total		Amount		% of Total		% Change
	(Dollars in thousands)
Commercial and industrial	$	78	1.2	%	$	151	1.3	%	(48.3	)%
Commercial real estate:
Owner occupied	99		1.5		102		.8		(2.9	)
Non-owner occupied	5,694		88.3		11,193		92.9		(49.1	)
Commercial construction and land development	582		9.0		607		5.0		(4.1	)
Total commercial participations	$	6,453	100.0	%	$	12,053	100.0	%	(46.5	)%

	June 30, 2012				December 31, 2011
	Amount		% of Total		Amount		% of Total		% Change
	(Dollars in thousands)
Illinois	$	1,106	17.2	%	$	1,534	12.7	%	(27.9	)%
Indiana	2,194		34.0		2,203		18.3		(.4	)
Ohio	—		—		4,875		40.5		(100.0	)
Florida	582		9.0		607		5.0		(4.1	)
Colorado	1,196		18.5		1,338		11.1		(10.6	)
Texas	1,375		21.3		1,496		12.4		(8.1	)
Total commercial participations	$	6,453	100.0	%	$	12,053	100.0	%	(46.5	)%

59

Asset Quality and Allowance for Loan Losses

Non-performing Assets.The following table provides information relating to non-performing assets at the dates presented.

	June 30, 2012			March 31, 2012			December 31, 2011
	(Dollars in thousands)
Non-performing loans:
Commercial loans:
Commercial and industrial	$	510		544			$	596
Commercial real estate:
Owner occupied	11,492			11,258			11,228
Non-owner occupied	24,791			21,278			22,294
Multifamily	1,521			1,440			91
Commercial construction and land development	4,766			3,378			3,378
Commercial participations	2,339			2,689			2,355
Total commercial loans	45,419			40,587			39,942
Retail loans:
One-to-four family residential	5,562			5,105			4,935
Home equity lines of credit	550			414			541
Retail construction	319			169			169
Total retail loans	6,431			5,688			5,645
Total non-performing loans	51,850			46,275			45,587
Other real estate owned:
Commercial	17,666			18,022			17,688
Retail	1,557			1,407			1,403
Total other real estate owned	19,223			19,429			19,091
Total non-performing assets	71,073			65,704			64,678
90 days past due loans still accruing interest	846			81			5
Total non-performing assets plus 90 days past due loans still accruing interest	$	71,919		65,785			$	64,683
Accruing troubled debt restructurings	$	7,197		$	8,079		$	8,875
Non-performing assets to total assets	6.28		%	5.61		%	5.63		%
Non-performing loans to total loans, net of deferred fees	7.27			6.55			6.41

Total non-performing loans increased $5.6 million to $51.9 million at June 30, 2012 from $46.3 million at March 31, 2012.  Non-performing commercial loans increased $4.8 million primarily due to the transfer of $4.4 million of non-owner occupied commercial real estate loans, $1.5 million of commercial construction and land development loans, and $436,000 of commercial and industrial loans to non-accrual, which was charged-off prior to June 30, 2012. Non-performing retail loans increased $743,000 primarily due to the transfer of 16 one-to-four family residential loans totaling $840,000 and three home equity lines of credit totaling $372,000 to non-accrual status.  Partially offsetting these increases, four one-to-four family residential loans totaling $237,000 became

60

current and were returned to accrual status along with total retail charge-offs of $260,000. Non-performing loans also decreased due to the transfer of a non-owner occupied commercial real estate loan totaling $860,000, one non-owner occupied commercial real estate and commercial construction and land development relationship totaling $283,000, and a one-to-four family residential loan totaling $32,000 to other real estate owned.

The disclosure required with respect to impaired loans and troubled debt restructurings is contained in “Note 5. Allowance for Loan Losses” in the notes to the condensed consolidated financial statements in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

Included in the non-performing loan totals are non-performing syndications and purchased participations as identified by loan category and states in the following table.

	June 30, 2012			March 31, 2012		December 31, 2011			% change  from  December 31  to June 30
	(Dollars in thousands)
Commercial and industrial	$	9		—		$	—		100.0	%
Commercial real estate – non-owner occupied	1,748			2,082		1,748			—
Commercial construction and land development	582			607		607			(4.1	)
Total non-performing commercial participations	$	2,339		2,689		$	2,355		(.7	)%
Illinois	$	9		—		$	—		100.0	%
Indiana	1,748			2,082		1,748			—
Florida	582			607		607			(4.1	)
Total non-performing commercial participations	$	2,339		2,689		$	2,355		(.7	)%
Percentage of total non-performing loans	4.51		%	5.81	%	5.17		%
Percentage of total commercial participations	36.25			37.93		19.54

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The following tables present additional information about the balances of our non-accrual loans outstanding at the dates indicated.  

	June 30, 2012
	Unpaid Principal Balance		Partial Charge-offs to Date		Interest Paid to Principal		Recorded Investment		Related Allowance		Recorded Investment  less  Related  Allowance		Recorded Investment  as a % of  Unpaid Principal
	(Dollars in thousands)
Non-performing loans:
Commercial loans:
Commercial and industrial	$	778	$	216	$	52	$	510	$	—	$	510	65.6	%
Commercial real estate:
Owner occupied	14,983		2,694		797		11,492		—		11,492		76.7
Non-owner occupied	31,789		5,901		1,097		24,791		195		24,596		78.0
Multifamily	1,937		377		39		1,521		—		1,521		78.5
Commercial construction and land development	4,766		—		—		4,766		148		4,618		100.0
Commercial participations	7,265		4,785		141		2,339		—		2,339		32.2
Total commercial loans	61,518		13,973		2,126		45,419		343		45,076		73.8
Retail loans:
One-to-four family residential	5,784		222		—		5,562		—		5,562		96.2
Home equity lines of credit	639		89		—		550		—		550		86.1
Retail construction	319		—		—		319		—		319		100.0
Total retail loans	6,742		311		—		6,431		—		6,431		95.4
Total non-performing loans	$	68,260	$	14,284	$	2,126	$	51,850	$	343	$	51,507	76.0	%

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	December 31, 2011
	Unpaid Principal Balance		Partial Charge-offs to Date		Interest Paid to Principal		Recorded Investment		Related Allowance		Recorded Investment  less  Related  Allowance		Recorded Investment  as a % of  Unpaid  Principal
	(Dollars in thousands)
Non-performing loans:
Commercial loans:
Commercial and industrial	$	841	$	216	$	29	$	596	$	—	$	596	70.9	%
Commercial real estate:
Owner occupied	14,638		2,694		716		11,228		—		11,228		76.7
Non-owner occupied	30,825		7,403		1,128		22,294		718		21,576		72.3
Multifamily	105		—		14		91		—		91		86.7
Commercial construction and land development	3,378		—		—		3,378		—		3,378		100.0
Commercial participations	7,239		4,742		142		2,355		—		2,355		32.5
Total commercial loans	57,026		15,055		2,029		39,942		718		39,224		70.0
Retail loans:
One-to-four family residential	5,180		245		—		4,935		—		4,935		95.3
Home equity lines of credit	630		89		—		541		—		541		85.9
Retail construction	169		—		—		169		—		169		100.0
Total retail loans	5,979		334		—		5,645		—		5,645		94.4
Total non-performing loans	$	63,005	$	15,389	$	2,029	$	45,587	$	718	$	44,869	72.4	%

Non-performing assets increased to $71.1 million at June 30, 2012 from $64.7 million at December 31, 2011 primarily due to the aforementioned increases in new non-performing loans and transfers to other real estate owned. The activity for the three and six months ended June 30, 2012 for our other real estate owned is set forth in the following table.

	June 30, 2012
	Three Months Ended			Six Months Ended
	(Dollars in thousands)
Balance at beginning of period	$	19,429		$	19,091
Transfers to other real estate owned	1,174			2,719
Net repayments and improvements of properties	8			8
Sales of other real estate owned	(1,189		)	(1,911		)
Valuation allowances for declines in net realizable value	(199		)	(684		)
Balance at end of period	$	19,223		$	19,223

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The following table identifies our other real estate owned properties based on the loan category in which they were originated:

	June 30,  2012		December 31, 2011		% Change
	(Dollars in thousands)
Commercial loans:
Commercial real estate:
Owner occupied	$	927	$	1,275	(27.3	)%
Non-owner occupied	3,257		2,193		48.5
Multifamily	476		557		(14.5	)
Commercial construction and land development	5,013		5,341		(6.1	)
Commercial participations:
Commercial real estate – non-owner occupied	2,673		2,673		—
Commercial construction and land development	5,320		5,649		(5.8	)
Total commercial loans	17,666		17,688		(.1	)
Retail loans:
One-to-four family residential	1,204		1,374		(12.4	)
Home equity lines of credit	353		29		NM
Total retail loans	1,557		1,403		11.0
Total other real estate owned	$	19,223	$	19,091	.7	%

As more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, we believe that our loans that were originated Pre-1/1/08 have a higher degree of risk of loss due to the nature of the types of these loans and the credit environment under which they were originated, particularly given the downturn in the economic environment over the last four years. During the one year and five years ended December 31, 2011, $18.3 million and $53.3 million, respectively, or 87.8% and 95.5%, of total commercial charge-offs were from the Pre-1/1/08 portfolio. The following tables illustrate that a large portion of our non-performing loans and other real estate owned were originated Pre-1/1/08 and that we have experienced a higher level of charge-offs and other real estate owned writedowns in the Pre-1/1/08 portfolios. As presented in the following tables, 72.0% of our non-performing commercial loans and our entire commercial other real estate owned portfolio at June 30, 2012 were originated Pre-1/1/08.

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	June 30, 2012
	Pre-1/1/08 Loans			Post-1/1/08 Loans			Total			% of Pre-1/1/08  to Total
	(Dollars in thousands)
Non-performing commercial loans:
Commercial and industrial	$	476		$	34		$	510		93.3	%
Commercial real estate:
Owner occupied	9,531			1,961			11,492			82.9
Non-owner occupied	16,828			7,963			24,791			67.9
Multifamily	192			1,329			1,521			12.6
Commercial construction and land development	3,316			1,450			4,766			69.6
Commercial participations	2,339			—			2,339			100.0
Total non-performing commercial loans	$	32,682		$	12,737		$	45,419		72.0	%
Total commercial loans outstanding at June 30, 2012	$	187,878		$	294,487		$	482,365
Non-performing commercial loans to total commercial loans	17.40		%	4.33		%	9.42		%

	June 30, 2012
	Pre-1/1/08 Loans		Post-1/1/08 Loans		Total		% of Pre-1/1/08  to Total
	(Dollars in thousands)
Other real estate owned – commercial:
Commercial real estate:
Owner occupied	$	927	$	—	$	927	100.0	%
Non-owner occupied	3,257		—		3,257		100.0
Multifamily	476		—		476		100.0
Commercial construction and land development	5,013		—		5,013		100.0
Commercial participations:
Commercial real estate – non-owner occupied	2,673		—		2,673		100.0
Commercial construction and land development	5,320		—		5,320		100.0
Total other real estate owned – commercial	$	17,666	$	—	$	17,666	100.0	%

During 2012, we recorded gross loan charge-offs related to our commercial loan portfolio totaling $2.1 million, of which 59.6% were related to loans originated Pre-1/1/08. During 2012, we also recorded other real estate owned writedowns on commercial properties totaling $654,000, all of which were related to the Pre-1/1/08 loan portfolio. The breakdown of gross charge-offs of commercial loans and other real estate owned writedowns on commercial properties are identified in the following table.

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	Six Months Ended June 30, 2012
	Pre-1/1/08 Loans		Post-1/1/08 Loans		Total		% of Pre-1/1/08  to Total
	(Dollars in thousands)
Commercial loan charge-offs:
Commercial and industrial	$	120	$	435	$	555	21.6	%
Commercial real estate:
Non-owner occupied	1,114		40		1,154		96.5
Multifamily	—		378		378		—
Commercial participations	25		—		25		100.0
Total commercial loan charge-offs	1,259		853		2,112		59.6
Writedowns on other real estate owned – commercial properties:
Commercial real estate:
Owner occupied	3		—		3		100.0
Non-owner occupied	193		—		193		100.0
Multifamily	80		—		80		100.0
Commercial construction and land development	196		—		196		100.0
Commercial participations – construction and land development	182		—		182		100.0
Total writedowns on other real estate owned – commercial properties	654		—		654		100.0
Total commercial loan charge-offs and writedowns on  other real estate owned	$	1,913	$	853	$	2,766	69.2	%

Potential Problem Assets.Potential problem assets, defined as loans classified substandard pursuant to our internal loan grading system that do not meet the definition of a non-performing loan, increased to $6.2 million at June 30, 2012 from $2.2 million at December 31, 2011. This increase is due to the substandard classification of ten loans to a multifamily and non-owner occupied commercial real estate loan relationship totaling $3.1 million, and a non-owner occupied commercial real estate loan totaling $952,000.

Allowance for Loan Losses.The following is a summary of changes in the allowance for loan losses for the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Balance at beginning of period	$	11,768		$	17,095		$	12,424		$	17,179
Loan charge-offs:
Current period loan charge-offs	(892		)	(1,073		)	(1,933		)	(2,087		)
Previously established specific reserves	—			—			(718		)	—
Total loan charge-offs	(892		)	(1,073		)	(2,651		)	(2,087		)
Recoveries of loans previously charged-off	36			21			89			48
Net loan charge-offs	(856		)	(1,052		)	(2,562		)	(2,039		)
Provision for loan losses	1,150			996			2,200			1,899
Balance at end of period	$	12,062		$	17,039		$	12,062		$	17,039

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	June 30, 2012			December 31, 2011			June 30, 2011
	(Dollars in thousands)
Allowance for loan losses	$	12,062		$	12,424		$	17,039
Total loans receivable, net of unearned fees	713,596			711,226			737,516
Allowance for loan losses to total loans	1.69		%	1.75		%	2.31		%
Allowance for loan losses to non-performing loans	23.26			27.25			29.78
Ratio of net loans charged-off to average loans outstanding for the quarter ended, annualized	.49			9.47			.58

The allowance for loan losses decreased $362,000 to $12.1 million at June 30, 2012 compared to $12.4 million at December 31, 2011 and $5.0 million from $17.0 million at June 30, 2011.  The large decrease in the allowance for loan losses compared to June 30, 2011 was primarily due to the charge-offs during 2011 of previously established ASC 310-10 impairment reserves. The ratio of the allowance for loan losses to total loans decreased to 1.69% at June 30, 2012 compared to 1.75% and 2.31%, respectively, at December 31, 2011 and June 30, 2011.

The provision for losses on loans increased to $1.15 million for the second quarter of 2012 from $996,000 for the prior year quarter.  The increase was primarily related to the establishment of a $343,000 ASC 310-10 reserve during the 2012 quarter.  Net charge-offs included $436,000 on a commercial and industrial loan and $243,000 on four home equity lines of credit.

When we determine that a non-performing collateral-dependent loan has a collateral shortfall, we will immediately charge off the collateral shortfall.  As a result, we are not required to maintain an allowance for loan losses on these loans as the loan balance has already been written down to its net realizable value (fair value less estimated costs to sell the collateral).  As such, the ratio of the allowance for loan losses to total loans and the ratio of the allowance for loan losses to non-performing loans has continued to be negatively affected by cumulative partial charge-offs of $17.4 million recorded through June 30, 2012 on $32.6 million (net of charge-offs) of non-performing collateral-dependent loans. At June 30, 2012, the ratio of the allowance for loan losses to non-performing loans, excluding the $32.6 million of non-performing collateral-dependent loans with partial charge-offs, was 62.8%.

Investment Securities

We manage our investment securities portfolio to adjust balance sheet interest rate sensitivity to insulate net interest income against the impact of changes in market interest rates, maximize the return on invested funds within acceptable risk guidelines, and meet pledging and liquidity requirements.

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We adjust the size and composition of our investment securities portfolio according to a number of factors including expected loan and deposit growth, the interest rate environment, and projected liquidity.  The amortized cost of investment securities available-for-sale and their fair values were as follows at the dates indicated:

	June 30, 2012
	Par  Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair  Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	14,500	$	14,469	$	436	$	—		$	14,905
Government sponsored entity (GSE) securities	37,800		37,826		939		—			38,765
Corporate bonds	5,420		5,069		100		—			5,169
Collateralized mortgage obligations	96,052		86,071		1,937		(884		)	87,124
Commercial mortgage-backed securities	58,969		60,155		1,340		—			61,495
Asset backed securities	4,599		4,226		—		(9		)	4,217
Pooled trust preferred securities	25,588		23,257		—		(8,311		)	14,946
GSE preferred stock	200		—		4		—			4
Total available-for-sale investment securities	$	243,128	$	231,073	$	4,756	$	(9,204	)	$	226,625
Held-to-maturity investment securities:
Asset backed securities	$	7,331	$	7,525	$	183	$	—		$	7,708
Municipal securities	6,440		6,440		46		—			6,486
Total held-to-maturity investment securities	$	13,771	$	13,965	$	229	$	—		$	14,194

	December 31, 2011
	Par  Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair  Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	15,000	$	14,967	$	447	$	—		$	15,414
Government sponsored entity (GSE) securities	46,800		46,967		1,415		—			48,382
Corporate bonds	5,420		5,022		9		(4		)	5,027
Collateralized mortgage obligations	79,006		71,073		1,178		(1,367		)	70,884
Commercial mortgage-backed securities	72,885		74,664		1,520		(66		)	76,118
Pooled trust preferred securities	27,398		24,804		—		(6,249		)	18,555
GSE preferred stock	200		—		1		—			1
Total available-for-sale investment securities	$	246,709	$	237,497	$	4,570	$	(7,686	)	$	234,381
Held-to-maturity investment securities:
Asset backed securities	$	8,201	$	8,461	$	285	$	—		$	8,746
Municipal securities	7,910		7,910		47		—			7,957
Total held-to-maturity investment securities	$	16,111	$	16,371	$	332	$	—		$	16,703

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The fair value of investment securities available-for-sale totaled $226.6 million at June 30, 2012 compared to $234.4 million at December 31, 2011.  Our investment securities portfolio decreased since December 31, 2011 as proceeds from repayments, prepayments, and sales were utilized for loan fundings and deposit outflows.

At June 30, 2012, our collateralized mortgage obligation portfolio totaled $87.1 million, with 83% of the portfolio maintaining a lowest credit rating of A or better.  The composition of this portfolio includes $4.6 million backed by Ginnie Mae. The portfolio is mainly backed by residential mortgages originated prior to 2005. Included in our collateralized mortgage obligation portfolio is $71.6 million of floating-rate bonds with unaccreted discounts totaling $9.5 million.

Our commercial mortgage-backed investment securities portfolio consists mainly of senior tranches of issues that were originated prior to 2006 and have extensive subordination.  All bonds in this portfolio were AAA-rated at June 30, 2012.  

Our corporate bond portfolio consists of three A-rated to AA-rated, floating-rate notes purchased at large discounts with maturities ranging from 2014 to 2016.

At June 30, 2012, management believed the unrealized losses in our investment securities portfolio are primarily attributable to macroeconomic conditions affecting the liquidity of these securities and not necessarily the expected cash flows of the individual securities.  The fair value of these securities is expected to recover as the economy recovers, as interest rates rise, and as the performance of the underlying collateral improves.

All of our pooled trust preferred investments were AAA-rated when they were purchased in late 2007 and early 2008 at discounts in excess of 10%.  In 2009, the market for this type of investment was severely impacted by the credit crisis leading to increased deferrals and defaults.  Credit ratings were also negatively affected in 2009, and all of these securities in our portfolio have at least one rating below investment grade.  Rating agencies have started to note the improving collateral statistics, limited number of new deferrals, number of cures, lack of defaults, and rapidly increasing redemptions and coverage ratios. Additionally, rating agencies are increasingly analyzing deferring issuers for probability of default instead of treating all, or nearly all, deferring issuers as defaulted issuers. All of the Bank’s holdings have received ratings upgrades by at least one rating agency in 2012. Two of our investments, representing approximately 45% of our pooled trust preferred investments, were upgraded during the first half of 2012 and now have an overall composite investment-grade rating.

We utilize extensive external and internal analysis on the pooled trust preferred investments.  Our internal model stress tests all underlying issuers in the pools to project probabilities of deferral or default.  Management’s internal modeling runs multiple stress scenarios.  The high-stress scenario utilizes immediate defaults for all deferring collateral.  Any collateral that management believes may be at risk for deferring or defaulting, based upon its review of the underlying issuers’ most recent financial and regulatory information, is assumed to default immediately.  Despite a recent trend of recoveries from previously defaulted trust preferred collateral, the high-stress scenario assumes no recoveries on defaulted collateral.  All external and internal stress testing at June 30, 2012 currently projects no loss of principal or interest on any of our pooled trust preferred investments.

All of our pooled trust preferred investments are “Super Senior” tranches purchased at large discounts.  The “Super Senior” tranches are the most senior tranches.  Due to the structure of the securities, as deferrals and defaults on the underlying collateral increase, cash flows are increasingly diverted from mezzanine and subordinate tranches to pay down principal on the “Super Senior” tranches.  If certain senior coverage tests are not met, all interest is diverted from subordinate classes to pay down principal on the “Super Senior” tranche.  Four of the five issues we

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own are failing the senior coverage test.  This test is structured to protect the holders of the “Super Senior” tranches if deferrals or defaults exceed a specific threshold as a percent of the outstanding senior tranches.  As such, the proceeds of any early redemptions, successful tenders, or cures will be used to further pay down principal of the “Super Senior” tranches on these issues.  In the second quarter of 2012, the amount of principal returned at par was at the highest level since we purchased the pooled trust preferred investments. The annualized principal pay down rates on these investments increased to 17.1% in the second quarter of 2012 and has averaged 9.4% for the past four quarters.  Management expects additional cure and redemption announcements in the near term.  In addition, the percentage of original collateral backing the investments deemed at risk by management declined during the second quarter of 2012.

A number of previously deferring issuers of our pooled trust preferred investments are resuming payments.  Of the previously deferring issues, 8.34% “cured,” or resumed payments, in the first quarter of 2012 and an additional 2.3% cured in the second quarter of 2012.  When a previously deferring issuer cures, all past interest and accrued interest on the past due interest is paid to the trust. In addition, 2.1% of the original collateral backing our investments was redeemed during the second quarter of 2012 with the proceeds of these redemptions being directed to the “Super Senior” tranches. The combination of contractual cash flows, cures, and redemptions resulted in an annualized paydown rate of 17.1% during the second quarter of 2012.

Management is expecting redemption activity to remain strong this year as call windows open on the remaining securities, certain issuers reevaluate the impact of Dodd-Frank changes to Tier 1 capital treatment for these securities, and issuers consider the high cost of this capital in the current low interest rate market.  The call window is open on four of our five pooled trust preferred investments, and the call window on the remaining investment is expected to open in the third quarter of 2012.

Due to the current ratings on the pooled trust preferred investments being below investment grade, the aggregate amortized cost of $14.9 million of these investments is classified as substandard in accordance with regulatory requirements.

Deposits

The following table sets forth the dollar amount of deposits and the percentage of total deposits in each category offered at the dates indicated:

	June 30, 2012				December 31, 2011
	Amount		% of Total		Amount		% of Total		% Change
	(Dollars in thousands)
Checking accounts:
Non-interest bearing	$	97,435	10.1	%	$	96,321	9.9	%	1.2	%
Interest-bearing	179,842		18.5		175,150		17.9		2.7
Money market accounts	182,522		18.9		192,593		19.7		(5.2	)
Savings accounts	144,705		15.0		133,292		13.6		8.6
Core deposits	604,504		62.5		597,356		61.1		1.2
Certificates of deposit accounts	362,650		37.5		380,068		38.9		(4.6	)
Total deposits	$	967,154	100.0	%	$	977,424	100.0	%	(1.1	)%

During the first quarter of 2012, we initiated our HPC deposit acquisition marketing program that targets both retail and business clients. This ongoing program is designed to attract a younger demographic and enhance

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growth in core deposits and related fee income as well as to provide additional cross-selling opportunities. The HPC program has generated approximately $5.8 million in new core deposit growth since the inception of the program. In addition, core deposits also benefited during 2012 from clients moving maturing certificates of deposit into money market accounts due to the current low interest rate environment. During the second quarter of 2012, we proactively reviewed the pricing and cross-sell potential of some of our larger single-service deposit relationships which enabled us to decrease the level of excess liquidity in this low interest rate environment, while at the same time improve our Tier 1 core capital ratios.

Total deposits decreased $10.3 million, or 1.1%, to $967.2 million at June 30, 2012 from $977.4 million at December 31, 2011. This decrease was primarily due to a $17.4 million, or 4.6%, decrease in certificates of deposit as management continues to be disciplined about pricing these deposits coupled with a $10.1 million, or 5.2%, decrease in money market accounts. Partially offsetting these decreases was an $11.4 million, or 8.6%, increase in savings accounts.

In addition, we offer a repurchase sweep agreement (Repo Sweep) account which allows public entities and other business depositors to earn interest with respect to checking and savings deposit products offered.  The depositor’s excess funds are swept from a deposit account and are used to purchase an interest in investment securities that we own.  The swept funds are not recorded as deposits and instead are classified as other short-term borrowed funds which generally provide a lower-cost funding alternative to FHLB advances.  At June 30, 2012, we had $11.5 million in Repo Sweeps compared to $14.3 million at December 31, 2011.  The Repo Sweeps are included in the table under “Borrowed Funds” and are treated as financings, and the obligations to repurchase investment securities sold are reflected as short-term borrowed funds.  The investment securities underlying these Repo Sweeps continue to be reflected as assets.

Borrowed Funds

Borrowed funds consisted of the following at the dates indicated:

	June 30, 2012				December 31, 2011
	Amount		Weighted-Average Contractual Rate		Amount		Weighted-Average Contractual Rate
	(Dollars in thousands)
Advances from FHLB of Indianapolis:
Fixed rate advances due in:
2013	$	15,000	2.22	%	$	15,000	2.22	%
2014 (1)	1,069		6.71		1,069		6.71
2015	15,000		1.42		15,000		1.42
2018 (1)	2,439		5.54		2,439		5.54
2019 (1)	6,258		6.30		6,358		6.29
Total FHLB advances	39,766		2.88		39,866		2.89
Short-term variable-rate borrowed funds - Repo Sweep accounts	11,540		.15		14,334		.20
Total borrowed funds	$	51,306	2.27	%	$	54,200	2.18	%

(1) These are amortizing advances and are listed by their contractual final maturity date.

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At June 30, 2012 and December 31, 2011, the Bank had a line of credit with a large commercial bank with a maximum of $15.0 million in secured overnight federal funds availability at the federal funds market rate at the time of any borrowing.  The Bank also has a borrowing relationship with the Federal Reserve Bank (FRB) discount window.  These lines were not utilized during the six months ended June 30, 2012 and 2011.

Shareholders’ Equity

Shareholders’ equity increased at June 30, 2012 to $104.6 million from $103.2 million at December 31, 2011. The increase in shareholders’ equity during the six months ended June 30, 2012 was primarily related to net income of $1.8 million for the period, partially offset by a $686,000 increase in accumulated other comprehensive loss and dividends declared of $109,000.

Subsequent to June 30, 2012, the Company declared a cash dividend of $.01 per share to shareholders of record on July 16, 2012. The dividends were distributed on July 31, 2012 and totaled $109,000.

Liquidity and Capital Resources

Liquidity, represented by cash and cash equivalents, is a product of operating, investing, and financing activities.  Our primary sources of funds are:

• deposits and Repo Sweeps;

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

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

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

• funds provided from operations;

• federal funds line of credit; and

• borrowed funds from the FHLB and FRB.

The Asset/Liability Management Committee is responsible for measuring and monitoring our liquidity profile.  We manage our liquidity to ensure stable, reliable, and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals, and investment opportunities.  Our general approach to managing liquidity involves preparing a monthly “funding gap” report which forecasts cash inflows and outflows over various time horizons and rate scenarios to identify potential cash imbalances.  We supplement our funding gap report with the monitoring of several liquidity ratios to assist in identifying any trends that may have an effect on available liquidity in future periods.

We maintain a contingency funding plan that outlines the process for addressing a liquidity crisis.  The plan assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

Scheduled payments from the amortization of loans, maturing investment securities, and short-term investments are relatively predictable sources of funds, while deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competitive rate offerings.

At June 30, 2012, we had cash and cash equivalents of $85.5 million, a $6.5 million, or 7.1%, decrease from $92.1 million at December 31, 2011.  The decrease was mainly the result of a decrease in deposit accounts totaling $10.3 million due to management’s proactive efforts to review the pricing and cross-sell potential of some of our larger single-service deposit relationships combined with $46.0 million of purchases of investment securities

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and $6.9 million of net loan fundings. These cash outflows were partially offset by proceeds received from sales and paydowns within our investment securities portfolio totaling $56.4 million.

We use our sources of funds primarily to meet our ongoing commitments, fund loan commitments, fund maturing certificates of deposit and savings withdrawals, and maintain an investment securities portfolio.  We anticipate that we will continue to have sufficient funds to meet our current commitments.

The parent company’s liquidity needs consist primarily of operating expenses and dividend payments to shareholders.  The primary sources of liquidity are cash and cash equivalents and dividends from the Bank.  We are prohibited from repurchasing shares and incurring any debt at the parent company without the prior approval of the Office of the Comptroller of the Currency (OCC) under our informal regulatory agreement.

We are currently prohibited from paying dividends to our shareholders without the prior approval of the FRB pursuant to our informal regulatory agreement we previously entered into with the Office of Thrift Supervision (OTS).  Additionally, the Bank requires the prior approval of the OCC before paying dividends to the Company under its informal regulatory agreement. Absent such restriction, OCC regulations provide various standards under which the Bank may declare and pay dividends to the parent company without prior approval. The dividends from the Bank are limited to the extent of its cumulative earnings for the year plus the net earnings (adjusted by prior distributions) of the prior two calendar years.  At June 30, 2012, under current regulations, the Bank had no net earnings available for dividend declarations to the parent company.  At June 30, 2012, the parent company had $2.3 million in cash and cash equivalents.  We do not anticipate that these restrictions will have a material adverse impact on our liquidity in the short-term.

Contractual Obligations

The following table presents our contractual obligations to third parties at June 30, 2012 by maturity:

	Payments Due By Period
	One Year  or less		Over One through Three Years		Over Three Through Five Years		Over Five Years		Total
	(Dollars in thousands)
Certificates of deposit	$	273,748	$	73,559	$	14,208	$	1,135	$	362,650
FHLB advances (1)	363		16,777		15,845		6,781		39,766
Short-term borrowed funds (2)	11,540		—		—		—		11,540
Service bureau contract	1,644		3,288		3,288		—		8,220
Operating leases	418		474		259		1,805		2,956
	$	287,713	$	94,098	$	33,600	$	9,721	$	425,132

(1) Does not include interest expense at the weighted-average contractual rate of 2.88% for the periods presented.

(2) Does not include interest expense at the weighted-average contractual rate of .15% for the periods presented.

See the “Borrowed Funds” section for further discussion surrounding FHLB advances.  The operating lease obligations reflected above include the future minimum rental payments, by year, required under the lease terms for premises and equipment.  Many of these leases contain renewal options, and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specific prices.

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Off-Balance-Sheet Obligations

We are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our clients.  These financial instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the statement of condition.  Our exposure to credit loss in the event of non-performance by the third-party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments.  We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

The following table details the amounts and expected maturities of significant commitments at June 30, 2012:

	One Year  or Less		Over One through Three Years		Over  Three  through  Five Years		Over Five Years		Total
	(Dollars in thousands)
Commitments to extend credit:
Commercial and industrial	$	7,703	$	—	$	—	$	100	$	7,803
Commercial real estate:
Owner occupied	14,104		285		—		—		14,389
Non-owner occupied	232		4,000		—		—		4,232
Multifamily	6,163		21		—		—		6,184
Commercial construction and land development	1,885		—		—		—		1,885
Commercial participations	48		—		—		—		48
Retail	4,646		—		—		—		4,646
Commitments to fund unused:
Equity lines of credit	—		—		—		38,525		38,525
Commercial business lines	35,640		8,059		—		—		43,699
Construction loans	500		—		—		—		500
Consumer overdraft lines	97		—		—		—		97
Credit enhancements	2,328		—		4,514		8,512		15,354
Letters of credit	1,572		7		—		—		1,579
	$	74,918	$	12,372	$	4,514	$	47,137	$	138,941

The commitments listed above do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.  Credit enhancements expire at various dates through 2018.  Letters of credit expire at various dates through 2013.

We also have commitments to fund community investments through investments in various limited partnerships, which represent future cash outlays for the construction and development of properties for low-income housing, small business real estate, and historic tax credit projects that qualify under the Community Reinvestment Act.  These commitments include $376,000 to be funded over two years.  The timing and amounts of these commitments are projected based upon the financing arrangements provided in each project’s partnership agreement, and could change due to variances in the construction schedule, project revisions, or the cancellation of the project.  These commitments are not included in the commitment table above.

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Credit enhancements are related to the issuance by municipalities of taxable and nontaxable revenue bonds.  The proceeds from the sale of such bonds are loaned to for-profit and not-for-profit companies for economic development projects.  In order for the bonds to receive AAA ratings, which provide for a lower interest rate, the FHLB issues, in favor of the bond trustee, an Irrevocable Direct Pay Letter of Credit (IDPLOC) for our account.  Since we, in accordance with the terms and conditions of a Reimbursement Agreement between the FHLB, would be required to reimburse the FHLB for draws against the IDPLOC, these facilities are analyzed, appraised, secured by real estate mortgages, and monitored as if we had funded the project initially.

Regulatory Capital

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios set forth in the below table of total risk-based, tangible, and core capital, as defined in the regulations. The Bank met all capital adequacy requirements to which it is subject as of June 30, 2012 and December 31, 2011.

At June 30, 2012, the Bank was deemed to be “well-capitalized” and in excess of regulatory requirements set by the OCC. The total amount of deferred tax assets not included for regulatory capital purposes was $8.9 million and $8.6 million, respectively, at June 30, 2012 and December 31, 2011. Determining the amount of deferred tax assets included or excluded in periodic regulatory capital calculations requires significant judgment when assessing a number of factors. In assessing the amount of the deferred tax assets includable in capital, management considers a number of relevant factors including the amount of deferred tax assets dependent on future taxable income, the amount of taxes that could be recovered through loss carrybacks, the reversal of temporary book/tax differences, projected future taxable income within one year, tax planning strategies, and OCC limitations. Using all information available to management at each statement of condition date, these factors are reviewed and can and do vary from period to period.

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The current regulatory capital requirements and the actual capital levels of the Bank at June 30, 2012 and December 31, 2011 are presented in the following table. There are no conditions or events since June 30, 2012 that management believes have changed the Bank’s category.

	Actual				For Capital Adequacy Purposes			To Be Well Capitalized  Under Prompt  Corrective Action  Provisions
	Amount		Ratio		Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
At June 30, 2012:
Tangible capital to adjusted total assets	$	96,290	8.56	%	$	16,878	>= 1.5	$	22,505	>= 2.0
Tier 1 (core) capital to adjusted total assets	96,290		8.56		45,009		>= 4.0	56,261		>= 5.0
Tier 1 (core) capital to risk-weighted assets	96,290		12.10		31,842		>= 4.0	47,764		>= 6.0
Total capital to risk-weighted assets	106,267		13.35		63,685		>= 8.0	79,606		>= 10.0
At December 31, 2011:
Tangible capital to adjusted total assets	$	94,502	8.26	%	$	17,151	>= 1.5	$	22,868	>= 2.0
Tier 1 (core) capital to adjusted total assets	94,502		8.26		45,737		>= 4.0	57,171		>= 5.0
Tier 1 (core) capital to risk-weighted assets	94,502		11.40		33,168		>= 4.0	49,752		>= 6.0
Total capital to risk-weighted assets	104,892		12.65		66,336		>= 8.0	82,920		>= 10.0

The following table reflects the adjustments required to reconcile the Bank’s shareholders’ equity to the Bank’s regulatory capital at June 30, 2012:

	Tangible			Core			Risk-Based
	(Dollars in thousands)
Shareholders’ equity of the Bank	$	103,445		$	103,445		$	103,445
Disallowed deferred tax asset	(8,938		)	(8,938		)	(8,938		)
Adjustment for unrealized losses on certain available-for-sale securities	2,615			2,615			2,615
Other	(832		)	(832		)	(832		)
General allowance for loan losses	—			—			9,977
Regulatory capital of the Bank	$	96,290		$	96,290		$	106,267
Total adjusted assets for Tangible and Tier 1 (Core) capital purposes	$	1,125,225		$	1,125,225
Total risk-weighted assets for capital purposes							$	796,062

The increase in the Bank’s risk-based capital ratio from December 31, 2011 is primarily a result of an increase in the Bank’s shareholders’ equity from net income for the six months ended June 30, 2012 coupled with a decrease in total risk-based assets due to a decrease in cash and cash equivalents.

Determining the amount of deferred tax assets included or excluded in periodic regulatory capital calculations requires significant judgment when assessing a number of factors.  In assessing the amount of the disallowed deferred tax asset, we consider a number of relevant factors including the amount of deferred tax assets dependent on future taxable income, the amount of taxes that could be recovered through loss carrybacks, the reversal of temporary book tax differences, projected future taxable income within one year, available tax planning strategies, and OCC limitations.  Using all information available to us at each statement of condition date, these factors are reviewed and vary from period to period.

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On June 7, 2012, the U.S. banking regulators released a notice of proposed rule-making that would substantially revise the regulatory risk-based capital rules currently applicable to the Company and the Bank. The proposed rules implement the “Basel III” international regulatory capital reforms and certain changes required by the Dodd-Frank Act. The proposed rules are subject to a comment period ending on September 7, 2012.

The proposed rules include new risk-based capital and leverage ratios, which would be phased in beginning in 2013 through 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to the Company and the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The proposed rules would also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements. The new capital conservation buffer requirement would be phased in beginning in January 2016 until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. The proposed rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which would be phased out over time.

The proposed rules also set forth certain changes to the calculation of risk-weighted assets, which we would be required to utilize beginning January 1, 2015. Risk-weighted assets would be calculated using new and expanded risk-weighting categories, including higher risk-weightings assigned to certain commercial real estate loans, past due or non-accrual loans, certain residential mortgage loans, unfunded commitments of less than one year, and portions of deferred tax assets exceeding certain limits.

The federal bank regulatory agencies also proposed revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions would take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions would be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

We continue to evaluate the impact of the proposed rules, and based on our current capital and balance sheet composition, we expect to meet the requirements as set forth in the proposed rules if adopted by U.S. banking regulators within the specified timelines. However, until the proposals are finalized and the timing of the implementation of the rules is determined, some uncertainty exists with respect to the ultimate impact on the Company and the Bank.

Item 3.          Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk is considered to be interest rate risk.  Interest rate risk on our balance sheet arises from the maturity mismatch of interest-earning assets versus interest-bearing liabilities, as well as the potential for maturities to shorten or lengthen on our interest-earning assets, and to a lesser extent on our interest-bearing liabilities due to the exercise of options.  The most common of these are prepayment options on mortgage loans, and commercial mortgage-backed securities, and to a lesser extent jump-rate features in certain of our certificates

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of deposit.  Management’s goal, through policies established by the Asset/Liability Management Committee of the Board of Directors (ALCO), is to maximize net interest income while achieving adequate returns on equity capital and managing our balance sheet within the established interest rate risk policy limits prescribed by the ALCO.

We maintain a written Asset/Liability Management Policy that establishes written guidelines for the asset/liability management function, including the management of net interest margin, interest rate risk (IRR), and liquidity.  The Asset/Liability Management Policy falls under the authority of the Board of Directors which in turn assigns its formulation, revision, and administration to the ALCO.  The ALCO schedules monthly meetings and consists of certain senior officers and one outside director.  The results of the meetings are reported to the Board of Directors.  The primary duties of the ALCO are to develop reports and establish procedures to measure and monitor IRR, verify compliance with Board approved IRR tolerance limits, take appropriate actions to mitigate those risks, monitor and discuss the status and results of implemented strategies and tactics, monitor our capital position, review the current and prospective liquidity positions, and monitor alternative funding sources.  The policy requires management to measure overall IRR exposure using Net Present Value analysis and earnings-at-risk analysis.

We use Net Portfolio Value Analysis as the primary measurement of our IRR.  Under prior OTS regulations in Thrift Bulletin 13a, we are required to measure our IRR assuming various increases and decreases in general interest rates and their effect on our market value of portfolio equity.  The Board of Directors has established limits to changes in Net Portfolio Value (NPV), (including limits regarding the change in net interest income discussed below), across a range of hypothetical interest rate changes.  If estimated changes to NPV and net interest income are not within these limits, the Board may direct management to adjust its asset/liability mix to bring its IRR within Board limits.  NPV is computed as the difference between the market value of assets and the market value of liabilities, adjusted for the value of off-balance-sheet items.

NPV analysis measures our IRR by calculating the estimated change in NPV of our cash flows from interest-sensitive assets and liabilities, as well as certain off-balance-sheet items, in the event of a shock in interest rates ranging down 200 to up 300 basis points.  The following table shows the change in NPV applying the various instantaneous rate shocks to the Bank’s interest-earning assets and interest-bearing liabilities as of June 30, 2012 and December 31, 2011. 

		Net Portfolio Value
		At June 30, 2012							At December 31, 2011
		$ Amount		$ Change			% Change		$ Amount		$ Change			% Change
		(Dollars in thousands)
Assumed Change in Interest Rates  (Basis Points):
+	300	$	125,818	$	19,228		18.0	%	$	128,623	$	18,838		17.2	%
+	200	121,394		14,804			13.9		125,450		15,665			14.3
+	100	114,202		7,612			7.1		119,804		10,019			9.1
	0	106,590		—			—		109,785		—			—
-	100	89,693		(16,897		)	(15.9	)	95,325		(14,460		)	(13.2	)
-	200	86,919		(19,671		)	(18.5	)	91,269		(18,516		)	(16.9	)

78

Our reported earnings at risk analysis models the impact of instantaneous parallel shifts in yield curve changes in interest rates (assuming interest rates rise and fall in increments of 100 basis points), on anticipated net interest income over a twelve-month horizon.  These models are modeling underlying cash flows in each of our interest-sensitive portfolios under these changing rate environments.  This includes adjusting anticipated prepayments as well as modeling anticipated changes in interest rates paid on core deposit accounts, whose rates do not necessarily move in any relationship to movements in U.S. Treasury rates.  We compare these results to our results assuming flat interest rates.

The following table presents the projected changes in net interest income over a twelve-month period for the various interest rate change (rate shocks) scenarios at June 30, 2012 and December 31, 2011, respectively.

		Change in Net Interest Income Over a Twelve Month Period
		June 30, 2012					December 31, 2011
		$ Change			% Change		$ Change		% Change
		(Dollars in thousands)
Assumed Change in Interest Rates (Basis Points):
+	300	$	2,050		6.3	%	$	1,008	2.8	%
+	200	1,360			4.2		678		1.9
+	100	596			1.8		297		.8
-	100	36			.1		155		.4
-	200	(27		)	(.1	)	1		—

The table above indicates that if interest rates were to move up 200 basis points, net interest income would be expected to increase 4.2% in year one; and if interest rates were to move down 100 basis points, net interest income would be expected to increase .1% in year one.  The primary causes for the changes in net interest income over the twelve-month period were a result of the changes in the composition of interest-earning assets and interest-bearing liabilities, their repricing characteristics and frequencies, and related interest rates.  The net interest income projections for rising rates have improved since December 31, 2011 as the Bank has been growing low-cost core deposits, shifting the investment securities portfolio from fixed-rate bonds to floating-rate bonds, and growing interest-earning bank deposit assets. Actual results will differ from the above model results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies.  The above table does not reflect any actions we might take in response to changes in interest rates.

We manage our IRR position by holding assets with various desired IRR characteristics, implementing certain pricing strategies for loans and deposits, and implementing various investment securities portfolio strategies.  On a quarterly basis, the ALCO reviews the calculations of all IRR measures for compliance with the Board approved tolerance limits.  At June 30, 2012, we were in compliance with all of our tolerance limits.

The IRR analyses include the assets and liabilities of the Bank only.  Inclusion of the parent company assets and liabilities would not have a material impact on the results presented.

Item 4.        Controls and Procedures

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

79

Management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15(d)-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s

disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner as of such date.

Part II.         OTHER INFORMATION

Item 1.          Legal Proceedings

The Company is involved in routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, are believed to be immaterial to the financial condition, results of operations, and cash flows of the Company.

Item 1A.       Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 Form 10-K), which could materially affect our business, financial condition, or future results.  There have been no material changes from the risk factors as disclosed in the 2011 Form 10-K.

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

(a) Not applicable.

(b) Not applicable.

(c) We did not repurchase any shares of our common stock during the quarter ended June 30, 2012.  Under our repurchase plan publicly announced on March 20, 2008 for 530,000 shares, we have 448,612 shares that may yet be purchased.  We are currently prohibited from repurchasing our common stock without prior approval of the FRB of Chicago pursuant to an informal regulatory agreement with the FRB of Chicago.

Item 3.          Defaults Upon Senior Securities

(a) None.

(b) Not applicable.

Item 4.          Mine Safety Disclosures

Not applicable.

80

Item 5.           Other Information

(a) Not applicable.

(b) None.

Item 6.           Exhibits

(a)	List of exhibits (filed herewith unless otherwise noted).
3.1	Articles of Incorporation of CFS Bancorp, Inc. (1)
3.2	Amended and Restated Bylaws of CFS Bancorp, Inc. (2)
4.0	Form of Stock Certificate of CFS Bancorp, Inc. (3)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.0	Section 1350 Certifications
101.0	The following financial statements from the CFS Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed on August 8, 2012, formatted in Extensive Business Reporting Language (XBRL):  (i) condensed consolidated statements of condition, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statements of changes in shareholders’ equity, (v) condensed consolidated statements of cash flows, and (vi) the notes to condensed consolidated financial statements (4)

(1) Incorporated herein by Reference to the Company’s Definitive Proxy Statement from the Annual Meeting of Shareholders filed with the SEC on March 25, 2005 (File No. 000-24611).

(2) Incorporated herein by Reference to the Company’s Form 8-K filed with the SEC on December 17, 2010.

(3) Incorporated herein by Reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 15, 2007.

(4) As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1033 and Section 18 of the Securities Exchange Act of 1934.

81

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.

CFS BANCORP, INC.

Date:	August 8, 2012	By:	/s/ Daryl D. Pomranke
			Daryl D. Pomranke President and Chief Executive Officer
Date:	August 8, 2012	By:	/s/ Jerry A. Weberling
			Jerry A. Weberling Executive Vice President and Chief Financial Officer

82

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Daryl D. Pomranke, President and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:	August 8, 2012	/s/ DARYL D. POMRANKE
		DARYL D.POMRANKE
		President and ChiefExecutive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Jerry A. Weberling, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:	August 8, 2012	/s/ JERRY A. WEBERLING
		JERRY A. WEBERLING
		Executive Vice President and Chief Financial Officer

EX-32.2

EXHIBIT 32.0

SECTION 1350 CERTIFICATIONS

I, Daryl D. Pomranke, President and Chief Executive Officer, and Jerry A. Weberling, Executive Vice President and Chief Financial Officer, of CFS Bancorp, Inc. (the “Company”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Quarterly Report on Form 10-Q of the Company for the three months ended June 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m(a) or 78o(d); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	August 8, 2012	By:	/s/ DARYL D. POMRANKE
			DARYL D.POMRANKE
			President and Chief Executive Officer

Date:	August 8, 2012	By:	/s/ JERRY A. WEBERLING
			JERRY A. WEBERLING
			Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to CFS Bancorp, Inc. and will be retained by CFS Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Allowance for Loan Losses Schedule of Loans Modified in a TDR (Details) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Financing Receivable, Modifications [Line Items]
Count	2	11
Balance prior to TDR	$ 386,000	$ 1,197,000
Balance after TDR	389,000	1,294,000
One-to-four family residential
Financing Receivable, Modifications [Line Items]
Count	2	8
Balance prior to TDR	386,000	872,000
Balance after TDR	389,000	906,000
Financing Receivable Modifications Defaulted in Current Period, Recorded Investment	69,000	69,000
Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Count	0	2
Balance prior to TDR	0	259,000
Balance after TDR	0	305,000
Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Count	0	1
Balance prior to TDR	0	66,000
Balance after TDR	0	83,000
Total commercial loans
Financing Receivable, Modifications [Line Items]
Count	0	3
Balance prior to TDR	0	325,000
Balance after TDR	$ 0	$ 388,000

XML

Fair Value Measurements Schedule of Fair Value Hierarchy, Balance Sheet Groupings (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Dec. 31, 2010
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Cash and cash equivalents	$ 85,533	$ 92,072	$ 47,498	$ 61,754
Available-for-sale Securities	226,625	234,381
Investment securities, available-for-sale	226,625	234,381
Investment securities, held-to-maturity	13,965	16,371
Investment securities, held-to-maturity	14,194	16,703
Federal Home Loan Bank stock	6,188	6,188
Loans receivable, net of allowance for loan losses	701,534	698,802
Interest receivable	2,801	3,011
Total assets	1,132,094	1,148,950
Deposits	967,154	977,424
Borrowed funds	51,306	54,200
Advance payments by borrowers	4,243	4,275
Total liabilities	1,027,497	1,045,702
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Cash and cash equivalents	85,533
Investment securities, available-for-sale	4
Investment securities, held-to-maturity	0
Federal Home Loan Bank stock	6,188
Loans receivable, net of allowance for loan losses	0
Loans held for sale	0
Interest receivable	0
Total financial assets	91,725
Deposits	604,504
Borrowed funds	0
Advance payments by borrowers	0
Interest payable	0
Total financial liabilities	604,504
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Cash and cash equivalents	0
Investment securities, available-for-sale	211,675
Investment securities, held-to-maturity	14,194
Federal Home Loan Bank stock	0
Loans receivable, net of allowance for loan losses	0
Loans held for sale	610
Interest receivable	2,801
Total financial assets	229,280
Deposits	0
Borrowed funds	54,270
Advance payments by borrowers	4,243
Interest payable	84
Total financial liabilities	58,597
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Cash and cash equivalents	0
Investment securities, available-for-sale	14,946
Investment securities, held-to-maturity	0
Federal Home Loan Bank stock	0
Loans receivable, net of allowance for loan losses	707,434
Loans held for sale	0
Interest receivable	0
Total financial assets	722,380
Deposits	364,325
Borrowed funds	0
Advance payments by borrowers	0
Interest payable	0
Total financial liabilities	364,325
Carrying Amount
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Cash and cash equivalents	85,533	92,072
Available-for-sale Securities	226,625	234,381
Investment securities, held-to-maturity	13,965	16,371
Federal Home Loan Bank stock	6,188	6,188
Loans receivable, net of allowance for loan losses	701,534	698,802
Loans held for sale	610	1,124
Interest receivable	2,801	3,011
Total assets	1,037,256	1,051,949
Deposits	967,154	977,424
Borrowed funds	51,306	54,200
Advance payments by borrowers	4,243	4,275
Interest payable	84	90
Total liabilities	1,022,787	1,035,989
Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Cash and cash equivalents		92,072
Investment securities, available-for-sale		234,381
Investment securities, held-to-maturity		16,703
Federal Home Loan Bank stock		6,188
Loans receivable, net of allowance for loan losses		702,987
Loans held for sale		1,124
Interest receivable		3,011
Total financial assets		1,056,466
Deposits		979,483
Borrowed funds		57,241
Advance payments by borrowers		4,275
Interest payable		90
Total financial liabilities		$ 1,041,089

XML

Fair Value Measurements Schedule of Fair Value Hierarchy, Assets Measured on Nonrecurring Basis (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis
Discount Applied to Real Estate Appraisal Value to Allow for Selling Expenses	10.00%		10.00%
Impaired loans (collateral-dependent)	$ 62,724,000		$ 62,724,000		$ 52,920,000
Fair value measured on a nonrecurring basis
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis
Change in fair value of impaired loans	880,000	771,000	1,700,000	1,600,000
Change in fair value of other real estate owned	199,000	1,800,000	684,000	2,200,000
Impaired loans (collateral-dependent)	11,836,000		11,836,000		17,180,000
Other real estate owned	2,356,000		2,356,000		2,462,000
Fair value measured on a nonrecurring basis | Level 1
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis
Impaired loans (collateral-dependent)	0		0		0
Other real estate owned	0		0		0
Fair value measured on a nonrecurring basis | Level 2
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis
Impaired loans (collateral-dependent)	0		0		0
Other real estate owned	0		0		0
Fair value measured on a nonrecurring basis | Level 3
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis
Impaired loans (collateral-dependent)	11,836,000		11,836,000		17,180,000
Other real estate owned	$ 2,356,000		$ 2,356,000		$ 2,462,000

XML

Allowance for Loan Losses Schedule of Allowance and Loan Balances by Portfolio Segment and Impairment Method (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Impairment Measurement Method [Line Items]
Loan Balance Amount to Determine Whether Loan is Individually Evaluated for Impairment	$ 375,000	$ 750,000
Ending allowance balance:
Individually evaluated for impairment	343		718
Collectively evaluated for impairment	11,719		11,706
Total evaluated for impairment	12,062	11,768	12,424	17,039	17,095	17,179
Loans receivable:
Individually evaluated for impairment	58,384		45,009
Collectively evaluated for impairment	655,529		666,615
Total loans receivable	713,913		711,624
Commercial and industrial
Loans receivable:
Individually evaluated for impairment	1,240		2,479
Collectively evaluated for impairment	88,239		82,681
Total loans receivable	89,479		85,160
Commercial real estate - owner occupied
Loans receivable:
Individually evaluated for impairment	11,783		11,203
Collectively evaluated for impairment	90,366		82,630
Total loans receivable	102,149		93,833
Commercial real estate - non-owner occupied
Loans receivable:
Individually evaluated for impairment	31,032		25,518
Collectively evaluated for impairment	153,252		162,775
Total loans receivable	184,284		188,293
Commercial real estate - multifamily
Loans receivable:
Individually evaluated for impairment	3,691		673
Collectively evaluated for impairment	72,956		71,203
Total loans receivable	76,647		71,876
Commercial construction and land development
Loans receivable:
Individually evaluated for impairment	4,766		2,781
Collectively evaluated for impairment	18,587		19,264
Total loans receivable	23,353		22,045
Commercial participations
Loans receivable:
Individually evaluated for impairment	2,330		2,355
Collectively evaluated for impairment	4,123		9,698
Total loans receivable	6,453		12,053
One-to-four family residential
Loans receivable:
Individually evaluated for impairment	2,890		0
Collectively evaluated for impairment	174,940		181,698
Total loans receivable	177,830		181,698
Home equity lines of credit
Loans receivable:
Individually evaluated for impairment	483		0
Collectively evaluated for impairment	48,993		52,873
Total loans receivable	49,476		52,873
Retail construction
Loans receivable:
Individually evaluated for impairment	169		0
Collectively evaluated for impairment	1,349		1,022
Total loans receivable	1,518		1,022
Other
Loans receivable:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	2,724		2,771
Total loans receivable	2,724		2,771
Commercial and industrial
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	1,284		1,236
Total evaluated for impairment	1,284		1,236
Commercial real estate - owner occupied
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	2,347		2,129
Total evaluated for impairment	2,347		2,129
Commercial real estate - non-owner occupied
Ending allowance balance:
Individually evaluated for impairment	195		718
Collectively evaluated for impairment	3,604		3,217
Total evaluated for impairment	3,799		3,935
Commercial real estate - multifamily
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	600		370
Total evaluated for impairment	600		370
Commercial construction and land development
Ending allowance balance:
Individually evaluated for impairment	148		0
Collectively evaluated for impairment	1,294		1,198
Total evaluated for impairment	1,442		1,198
Commercial participations
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	651		1,467
Total evaluated for impairment	651		1,467
One-to-four family residential
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	1,348		1,521
Total evaluated for impairment	1,348		1,521
Home equity lines of credit
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	468		442
Total evaluated for impairment	468		442
Retail construction
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	4		3
Total evaluated for impairment	4		3
Other
Ending allowance balance:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	119		123
Total evaluated for impairment	$ 119		$ 123

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Investment Securities Schedule of Securities in an Unrealized Loss Position (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investment securities in an unrealized loss position
Less than 12 Months, Fair Value	$ 41,687	$ 38,562
Less than 12 Months, Unrealized Losses	(792)	(988)
12 Months or More, Fair Value	17,263	26,137
12 Months or More, Unrealized Losses	(8,412)	(6,698)
Total Fair Value	58,950	64,699
Total Unrealized Losses	(9,204)	(7,686)
Corporate bonds
Investment securities in an unrealized loss position
Less than 12 Months, Fair Value		3,969
Less than 12 Months, Unrealized Losses		(4)
12 Months or More, Fair Value		0
12 Months or More, Unrealized Losses		0
Total Fair Value		3,969
Total Unrealized Losses		(4)
Collateralized mortgage obligations
Investment securities in an unrealized loss position
Less than 12 Months, Fair Value	37,501	34,504
Less than 12 Months, Unrealized Losses	(791)	(983)
12 Months or More, Fair Value	2,286	3,428
12 Months or More, Unrealized Losses	(93)	(384)
Total Fair Value	39,787	37,932
Total Unrealized Losses	(884)	(1,367)
Commercial mortgage-backed securities
Investment securities in an unrealized loss position
Less than 12 Months, Fair Value		89
Less than 12 Months, Unrealized Losses		(1)
12 Months or More, Fair Value		4,154
12 Months or More, Unrealized Losses		(65)
Total Fair Value		4,243
Total Unrealized Losses		(66)
Asset backed securities
Investment securities in an unrealized loss position
Less than 12 Months, Fair Value	4,186
Less than 12 Months, Unrealized Losses	(1)
12 Months or More, Fair Value	31
12 Months or More, Unrealized Losses	(8)
Total Fair Value	4,217
Total Unrealized Losses	(9)
Pooled trust preferred securities
Investment securities in an unrealized loss position
Less than 12 Months, Fair Value	0	0
Less than 12 Months, Unrealized Losses	0	0
12 Months or More, Fair Value	14,946	18,555
12 Months or More, Unrealized Losses	(8,311)	(6,249)
Total Fair Value	14,946	18,555
Total Unrealized Losses	$ (8,311)	$ (6,249)

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Allowance for Loan Losses Schedule of Troubled Debt Restructure Activity (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Receivables [Abstract]
Beginning balance	$ 25,883	$ 39,708	$ 25,849	$ 39,581
Restructured loans identified as TDRs	389	0	1,294	1,307
Protective advances and miscellaneous	10	101	459	158
Repayments and payoffs	(1,067)	(990)	(2,387)	(2,227)
Charge-offs	(47)	(42)	(47)	(42)
Transfers to other real estate owned	0	(2,326)	0	(2,326)
Ending balance	$ 25,168	$ 36,451	$ 25,168	$ 36,451

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Allowance for Loan Losses Schedule of Impaired Loans (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Impaired Retail Loans that have not had Foreclosure Proceedings Initiated and are below Management's Scope for Individual Impairment Review Due to Immateriality	$ 4,300,000
Recorded Investment	62,724,000	52,920,000
Unpaid Principal Balance	80,050,000	69,926,000
Partial Charge-offs to Date	15,190,000	15,043,000
Related Allowance	343,000	718,000
Recorded Investment, Commercial	54,842,000	45,009,000
Unpaid Principal Balance, Commercial	71,856,000	61,623,000
Partial Charge-offs to Date, Commercial	14,878,000	14,652,000
Related Allowance, Commercial	343,000	718,000
Recorded Investment, Retail	7,882,000	7,911,000
Unpaid Principal Balance, Retail	8,194,000	8,303,000
Partial Charge-offs to Date, Retail	312,000	391,000
Related Allowance, Retail	0	0
Commercial real estate - non-owner occupied
Financing Receivable, Impaired [Line Items]
Recorded Investment	2,591,000	4,986,000
Unpaid Principal Balance	2,591,000	4,986,000
Partial Charge-offs to Date	0	0
Related Allowance	195,000	718,000
Commercial construction and land development
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,450,000
Unpaid Principal Balance	1,450,000
Partial Charge-offs to Date	0
Related Allowance	148,000
Total loans with a specific valuation allowance
Financing Receivable, Impaired [Line Items]
Recorded Investment	4,041,000	4,986,000
Unpaid Principal Balance	4,041,000	4,986,000
Partial Charge-offs to Date	0	0
Related Allowance	343,000	718,000
One-to-four family residential
Financing Receivable, Impaired [Line Items]
Recorded Investment	7,013,000	7,202,000
Unpaid Principal Balance	7,236,000	7,504,000
Partial Charge-offs to Date	222,000	302,000
Related Allowance	0	0
Home equity lines of credit
Financing Receivable, Impaired [Line Items]
Recorded Investment	550,000	540,000
Unpaid Principal Balance	639,000	630,000
Partial Charge-offs to Date	90,000	89,000
Related Allowance	0	0
Retail construction
Financing Receivable, Impaired [Line Items]
Recorded Investment	319,000	169,000
Unpaid Principal Balance	319,000	169,000
Partial Charge-offs to Date	0	0
Related Allowance	0	0
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,240,000	2,479,000
Unpaid Principal Balance	2,116,000	2,700,000
Partial Charge-offs to Date	855,000	216,000
Related Allowance	0	0
Commercial real estate - owner occupied
Financing Receivable, Impaired [Line Items]
Recorded Investment	11,783,000	11,203,000
Unpaid Principal Balance	15,488,000	14,557,000
Partial Charge-offs to Date	2,977,000	2,694,000
Related Allowance	0	0
Commercial real estate - non-owner occupied
Financing Receivable, Impaired [Line Items]
Recorded Investment	28,441,000	20,532,000
Unpaid Principal Balance	35,564,000	34,130,000
Partial Charge-offs to Date	5,901,000	10,553,000
Related Allowance	0	0
Commercial real estate - multifamily
Financing Receivable, Impaired [Line Items]
Recorded Investment	3,691,000	673,000
Unpaid Principal Balance	4,092,000	673,000
Partial Charge-offs to Date	377,000	0
Related Allowance	0	0
Commercial construction and land development
Financing Receivable, Impaired [Line Items]
Recorded Investment	3,316,000	2,781,000
Unpaid Principal Balance	3,316,000	2,781,000
Partial Charge-offs to Date	0	0
Related Allowance	0	0
Commercial participations
Financing Receivable, Impaired [Line Items]
Recorded Investment	2,330,000	2,355,000
Unpaid Principal Balance	7,239,000	1,796,000
Partial Charge-offs to Date	4,768,000	1,189,000
Related Allowance	0	0
Total loans without a specific valuation allowance
Financing Receivable, Impaired [Line Items]
Recorded Investment	58,683,000	47,934,000
Unpaid Principal Balance	76,009,000	64,940,000
Partial Charge-offs to Date	15,190,000	15,043,000
Related Allowance	$ 0	$ 0

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Fair Value Measurements Schedule of Fair Value, Assets with Level 3 Inputs Measured on Recurring and Nonrecurring Basis (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Consensus pricing Level 3	Jun. 30, 2012 Market comparable properties Level 3	Jun. 30, 2012 Minimum Consensus pricing Level 3	Jun. 30, 2012 Minimum Market comparable properties Level 3	Jun. 30, 2012 Maximum Consensus pricing Level 3	Jun. 30, 2012 Maximum Market comparable properties Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Pooled trust preferred securities, fair value			$ 14,946
Pooled trust preferred securities					42.40%
Pooled trust preferred securities							83.40%
Impaired loans (collateral-dependent)	62,724	52,920		11,836
Impaired loans						10.00%
Impaired loans								10.00%
Other real estate owned, fair value				$ 2,356
Other real estate owned						10.00%
Other real estate owned								10.00%
Fair Value Inputs, weighting of pricing, average			57.90%	10.00%

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information or footnotes necessary for a complete presentation of financial condition, results of operations, or cash flows in accordance with U.S. generally accepted accounting principles.  In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation have been included.  The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results expected for the year ending December 31, 2012.  The June 30, 2012 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K.

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments, or assumptions that could have a material effect on the carrying value of certain assets and liabilities.  These estimates, judgments, and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided.  The determination of the allowance for loan losses, valuations and impairments of investment securities, and the accounting for income tax expense are highly dependent on management’s estimates, judgments, and assumptions where changes in any of these could have a significant impact on the financial statements.

The condensed consolidated financial statements include the accounts of CFS Bancorp, Inc. (the Company), its wholly-owned subsidiary, Citizens Financial Bank (the Bank), and its wholly-owned subsidiaries, CFS Holdings, LTD and WHCC, LLC.  All material intercompany balances and transactions have been eliminated in consolidation.

Certain items in the condensed consolidated financial statements of prior periods have been reclassified to conform to the current period’s presentation.

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Allowance for Loan Losses Policy Information (Details)	Jun. 30, 2012
Receivables [Abstract]
Minimum Typical Advance Rate of the Collateral Value Securing Commercial and Industrial Loans	50.00%
Maximum Typical Loan Advance Rate of the Collateral Value Securing Commercial and Industrial Loans	80.00%
Miminum Amount of Space that a Borrower Occupies for an Owner-Occupied Loan	51.00%
Maximum Loan to Value for One-to-Four Family Residential Mortgages and Home Equity Lines of Credit that are Secured by a First or Second Mortgage on Owner and Non-owner Occupied Residences	80.00%
Loan To Value Threshold For Private Mortgage Insurance Requirement	80.00%

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Investment Securities Schedule of Carrying Value of Pledged Securities (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Carrying value of investment securites pledged as collateral	$ 40.3	$ 54.4

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Investment Securities Schedule of Realized Gains on Available-for-sale Securities (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Realized Gross Gains on the Sale of Investments
Available-for-sale Securities, Gross Realized Gains	$ 305,000	$ 173,000	$ 723,000	$ 692,000

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Fair Value Measurements Schedule of Fair Value Hierarchy, Assets Measured on Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value Measured on Recurring Basis
Available-for-sale Securities	$ 226,625	$ 234,381
U.S. Treasury securities | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	14,905	15,414
U.S. Treasury securities | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
U.S. Treasury securities | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	14,905	15,414
U.S. Treasury securities | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
GSE securities | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	38,765	48,382
GSE securities | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
GSE securities | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	38,765	48,382
GSE securities | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Corporate bonds | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	5,169	5,027
Corporate bonds | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Corporate bonds | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	5,169	5,027
Corporate bonds | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Collateralized mortgage obligations | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	87,124	70,884
Collateralized mortgage obligations | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Collateralized mortgage obligations | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	87,124	70,884
Collateralized mortgage obligations | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Commercial mortgage-backed securities | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	61,495	76,118
Commercial mortgage-backed securities | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Commercial mortgage-backed securities | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	61,495	76,118
Commercial mortgage-backed securities | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Asset backed securities | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	4,217
Asset backed securities | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0
Asset backed securities | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	4,217
Asset backed securities | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0
Pooled trust preferred securities | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	14,946	18,555
Pooled trust preferred securities | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Pooled trust preferred securities | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
Pooled trust preferred securities | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	14,946	18,555
GSE preferred stock | Fair value measured on a recurring basis
Fair Value Measured on Recurring Basis
Available-for-sale Securities	4	1
GSE preferred stock | Fair value measured on a recurring basis | Level 1
Fair Value Measured on Recurring Basis
Available-for-sale Securities	4	1
GSE preferred stock | Fair value measured on a recurring basis | Level 2
Fair Value Measured on Recurring Basis
Available-for-sale Securities	0	0
GSE preferred stock | Fair value measured on a recurring basis | Level 3
Fair Value Measured on Recurring Basis
Available-for-sale Securities	$ 0	$ 0

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Investment Securities Schedule of Concentrations of Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Minimum threshold to identify concentrations of investment securities as a percentage of shareholders' equity	10.00%
Number of separate issuers with investment holdings greater than 10% of shareholders' equity	3
Investments issued by Homestar Mortgage Acceptance Corp
Book value	14,001
Market value	14,278
Number of underlying collateral pools	4
Investments issued by IMPAC CMB Trust
Book value	10,989
Market value	10,987
Number of underlying collateral pools	3
Investments issued by JP Morgan Chase Commercial Mortgage Securities Corp
Book value	18,398
Market value	18,811
Number of underlying collateral pools	5
Number of securities held	5
Number of collateral pools secured by commercial real estate loans originated prior to 2006	4
Number of collateral pools secured by commercial real estate loans originated during 2010	1
Investments issued by Homestar Mortgage Acceptance Corp and IMPAC CMB Trust
Number of underlying collateral pools	7
Number of securities held	8

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Loans Receivable (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	$ 713,913	$ 711,624
Net deferred loan fees	(317)	(398)
Total loans receivable, net of deferred loan fees	713,596	711,226
One-to-four family residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	177,830	181,698
Home equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	49,476	52,873
Retail construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	1,518	1,022
Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	2,724	2,771
Total retail loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	231,548	238,364
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	89,479	85,160
Commercial real estate - owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	102,149	93,833
Commercial real estate - non-owner occupied
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	184,284	188,293
Commercial real estate - multifamily
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	76,647	71,876
Commercial construction and land development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	23,353	22,045
Commercial participations
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	6,453	12,053
Total commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable	$ 482,365	$ 473,260

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
OPERATING ACTIVITIES:
Net income	$ 1,844	$ 1,705
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,200	1,899
Depreciation and amortization	760	755
Net discount accretion on investment securities available-for-sale	(881)	(52)
Net premium amortization on investment securities held-to-maturity	66	81
Net gain on sale of:
Loans held for sale	(359)	(58)
Investment securities	(723)	(692)
Other real estate owned	(39)	(2,233)
Properties and equipment	(8)	0
Writedowns on other real estate owned	684	1,785
Writedowns on transfer of future branch sites to other real estate owned	0	396
Writedown on construction in process	0	106
Deferred income tax expense	554	334
Proceeds from sale of loans held for sale	20,790	2,434
Origination of loans held for sale	(19,689)	(2,299)
Increase in cash surrender value of bank-owned life insurance	(702)	(416)
Decrease in other assets	1,525	2,879
Increase (decrease) in other liabilities	(4,694)	109
Net cash flows provided by operating activities	1,328	6,733
Proceeds from sale of:
Investment securities, available-for-sale	22,343	19,463
Other real estate owned	1,950	6,130
Properties and equipment	26	0
Proceeds from maturities and paydowns of:
Investment securities, available-for-sale	31,715	29,644
Investment securities, held-to-maturity	2,340	2,283
Purchases of:
Investment securities, available-for-sale	(46,032)	(82,965)
Properties and equipment	(423)	(67)
Redemption of Federal Home Loan Bank stock	0	11,645
Increase in loans receivable	(6,854)	(10,550)
Proceeds from bank-owned life insurance	542	0
Net cash flows provided by (used in) investing activities	5,607	(24,417)
Net increase (decrease) in:
Deposit accounts	(10,330)	18,593
Advance payments by borrowers for taxes and insurance	(32)	(231)
Short-term borrowed funds	(2,794)	378
Repayments of Federal Home Loan Bank advances	(100)	(15,093)
Dividends paid on common stock	(218)	(219)
Net cash flows provided by (used in) financing activities	(13,474)	3,428
Decrease in cash and cash equivalents	(6,539)	(14,256)
Cash and cash equivalents at beginning of period	92,072	61,754
Cash and cash equivalents at end of period	85,533	47,498
Supplemental disclosures:
Loans and land transferred to other real estate owned	2,719	4,522
Cash paid for interest on deposits	2,687	3,670
Cash paid for interest on borrowed funds	$ 594	$ 549

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Allowance for Loan Losses Schedule of Financing Receivable, Allowance for Credit Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	$ 11,768	$ 17,095	$ 12,424	$ 17,179
Provision for loan losses	1,150	996	2,200	1,899
Loans charged-off:
Current period charge-offs	(892)	(1,073)	(1,933)	(2,087)
Previously established specific reserves	0	0	(718)	0
Total loans charged-off	(892)	(1,073)	(2,651)	(2,087)
Recoveries	36	21	89	48
Balance, at end of period	12,062	17,039	12,062	17,039
Commercial and industrial
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	1,063	1,268	1,236	1,279
Provision for loan losses	645	435	578	422
Loans charged-off:
Current period charge-offs	(436)	(153)	(555)	(153)
Previously established specific reserves	0	0	0	0
Total loans charged-off	(436)	(153)	(555)	(153)
Recoveries	12	4	25	6
Balance, at end of period	1,284	1,554	1,284	1,554
Commercial real estate - owner occupied
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	2,196	1,012	2,129	1,090
Provision for loan losses	151	(58)	218	(136)
Loans charged-off:
Current period charge-offs	0	(125)	0	(125)
Previously established specific reserves	0	0	0	0
Total loans charged-off	0	(125)	0	(125)
Recoveries	0	0	0	0
Balance, at end of period	2,347	829	2,347	829
Commercial real estate - non-owner occupied
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	3,697	6,717	3,935	6,906
Provision for loan losses	163	(208)	981	(405)
Loans charged-off:
Current period charge-offs	(75)	0	(436)	0
Previously established specific reserves	0	0	(718)	0
Total loans charged-off	(75)	0	(1,154)	0
Recoveries	14	6	37	14
Balance, at end of period	3,799	6,515	3,799	6,515
Commercial real estate - multifamily
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	600	461	370	350
Provision for loan losses	0	(20)	608	295
Loans charged-off:
Current period charge-offs	0	0	(378)	(204)
Previously established specific reserves	0	0	0	0
Total loans charged-off	0	0	(378)	(204)
Recoveries	0	0	0	0
Balance, at end of period	600	441	600	441
Commercial construction and land development
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	1,313	154	1,198	188
Provision for loan losses	129	(61)	244	(91)
Loans charged-off:
Current period charge-offs	0	0	0	(4)
Previously established specific reserves	0	0	0	0
Total loans charged-off	0	0	0	(4)
Recoveries	0	0	0	0
Balance, at end of period	1,442	93	1,442	93
Commercial participations
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	951	4,719	1,467	4,559
Provision for loan losses	(275)	673	(791)	1,536
Loans charged-off:
Current period charge-offs	(25)	(605)	(25)	(1,308)
Previously established specific reserves	0	0	0	0
Total loans charged-off	(25)	(605)	(25)	(1,308)
Recoveries	0	0	0	0
Balance, at end of period	651	4,787	651	4,787
One-to-four family residential
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	1,459	1,323	1,521	1,356
Provision for loan losses	(43)	230	1	219
Loans charged-off:
Current period charge-offs	(70)	(168)	(184)	(191)
Previously established specific reserves	0	0	0	0
Total loans charged-off	(70)	(168)	(184)	(191)
Recoveries	2	2	10	3
Balance, at end of period	1,348	1,387	1,348	1,387
Home equity lines of credit
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	374	1,327	442	1,309
Provision for loan losses	334	(44)	317	21
Loans charged-off:
Current period charge-offs	(243)	0	(295)	(52)
Previously established specific reserves	0	0	0	0
Total loans charged-off	(243)	0	(295)	(52)
Recoveries	3	1	4	6
Balance, at end of period	468	1,284	468	1,284
Retail construction
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	4	9	3	7
Provision for loan losses	0	(4)	1	(2)
Loans charged-off:
Current period charge-offs	0	0	0	0
Previously established specific reserves	0	0	0	0
Total loans charged-off	0	0	0	0
Recoveries	0	0	0	0
Balance, at end of period	4	5	4	5
Other
Allowance for Loan and Lease Losses [Roll Forward]
Balance, at beginning of period	111	105	123	135
Provision for loan losses	46	53	43	40
Loans charged-off:
Current period charge-offs	(43)	(22)	(60)	(50)
Previously established specific reserves	0	0	0	0
Total loans charged-off	(43)	(22)	(60)	(50)
Recoveries	5	8	13	19
Balance, at end of period	$ 119	$ 144	$ 119	$ 144

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Allowance for Loan Losses Schedule of Troubled Debt Restructurings by Loan Category and Accruing Status (Details) (USD $)	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Financing Receivable, Modifications [Line Items]
Accruing	$ 7,197,000		$ 8,875,000
Non-accruing	17,971,000		16,974,000
Total	25,168,000	25,883,000	25,849,000	36,451,000	39,708,000	39,581,000
Financing Receivable, Modifications, Performing in Accordance with their Modified Terms and on Non-accrual	11,100,000
One-to-four family residential
Financing Receivable, Modifications [Line Items]
Accruing	1,451,000		2,266,000
Non-accruing	3,021,000		1,600,000
Total	4,472,000		3,866,000
Commercial and industrial
Financing Receivable, Modifications [Line Items]
Accruing	946,000		2,167,000
Non-accruing	242,000		259,000
Total	1,188,000		2,426,000
Commercial real estate - owner occupied
Financing Receivable, Modifications [Line Items]
Accruing	665,000		369,000
Non-accruing	2,242,000		2,272,000
Total	2,907,000		2,641,000
Commercial real estate - non-owner occupied
Financing Receivable, Modifications [Line Items]
Accruing	3,879,000		3,814,000
Non-accruing	10,718,000		11,095,000
Total	14,597,000		14,909,000
Commercial real estate - multifamily
Financing Receivable, Modifications [Line Items]
Accruing	256,000		259,000
Non-accruing	0		0
Total	256,000		259,000
Commercial participations
Financing Receivable, Modifications [Line Items]
Accruing	0		0
Non-accruing	1,748,000		1,748,000
Total	1,748,000		1,748,000
Total commercial loans
Financing Receivable, Modifications [Line Items]
Accruing	5,746,000		6,609,000
Non-accruing	14,950,000		15,374,000
Total	$ 20,696,000		$ 21,983,000

XML

Consolidated Statements of Condition (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash and amounts due from depository institutions	$ 33,846	$ 32,982
Interest-bearing deposits	51,687	59,090
Cash and cash equivalents	85,533	92,072
Investment securities available-for-sale, at fair value	226,625	234,381
Investment securities held-to-maturity, at cost	13,965	16,371
Federal Home Loan Bank stock, at cost	6,188	6,188
Loans receivable	713,596	711,226
Allowance for loan losses	(12,062)	(12,424)
Net loans	701,534	698,802
Loans held for sale	610	1,124
Bank-owned life insurance	36,435	36,275
Accrued interest receivable	2,801	3,011
Other real estate owned	19,223	19,091
Office properties and equipment	16,225	17,539
Net deferred tax assets	16,281	16,273
Other assets	6,674	7,823
Total assets	1,132,094	1,148,950
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits	967,154	977,424
Borrowed funds	51,306	54,200
Advance payments by borrowers for taxes and insurance	4,243	4,275
Other liabilities	4,794	9,803
Total liabilities	1,027,497	1,045,702
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 15,000,000 shares authorized	0	0
Common stock, $.01 par value; 85,000,000 shares authorized; 23,423,306 shares issued; 10,867,357 and 10,874,668 shares outstanding	234	234
Additional paid-in capital	187,379	187,030
Retained earnings	74,420	72,683
Treasury stock, at cost; 12,555,949 and 12,548,638 shares	(154,824)	(154,773)
Accumulated other comprehensive loss, net of tax	(2,612)	(1,926)
Total shareholders' equity	104,597	103,248
Total liabilities and shareholders' equity	$ 1,132,094	$ 1,148,950

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Fair Value Measurements Schedule of Trust Preferred Securities Rollforward (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning balance	$ 15,467	$ 19,262	$ 18,555	$ 18,125
Realized and unrealized gains (losses) included in accumulated other comprehensive income	469	99	(2,062)	1,322
Principal repayments	(1,141)	(1,126)	(1,810)	(1,250)
Discount accretion	151	136	263	174
Ending balance	$ 14,946	$ 18,371	$ 14,946	$ 18,371

XML

Consolidated Statements of Changes in Shareholders' Equity (USD $)	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss
Balance at Dec. 31, 2010	$ 112,928,000	$ 234,000	$ 187,164,000	$ 83,592,000	$ (155,112,000)	$ (2,950,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	1,705,000	0	0	1,705,000	0	0
Other comprehensive income (loss)	1,546,000	0	0	0	0	1,546,000
Forfeiture of restricted stock awards	2,000	0	437,000	2,000	(437,000)	0
Vesting of restricted stock awards	204,000	0	204,000	0	0	0
Grants of restricted stock awards	0	0	(672,000)	0	672,000	0
Dividends declared on common stock	(219,000)	0	0	(219,000)	0	0
Balance at Jun. 30, 2011	116,166,000	234,000	187,133,000	85,080,000	(154,877,000)	(1,404,000)
Balance at Dec. 31, 2011	103,248,000	234,000	187,030,000	72,683,000	(154,773,000)	(1,926,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	1,844,000	0	0	1,844,000	0	0
Other comprehensive income (loss)	(686,000)	0	0	0	0	(686,000)
Amortization of stock based compensation	6,000	0	6,000	0	0	0
Forfeiture of restricted stock awards	2,000	0	615,000	2,000	(615,000)	0
Vesting of restricted stock awards	292,000	0	318,000	0	(26,000)	0
Grants of restricted stock awards	0	0	(590,000)	0	590,000	0
Dividends declared on common stock	(109,000)	0	0	(109,000)	0	0
Balance at Jun. 30, 2012	$ 104,597,000	$ 234,000	$ 187,379,000	$ 74,420,000	$ (154,824,000)	$ (2,612,000)

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Allowance for Loan Losses Schedule of Delinquency Status of Loans Receivable by Risk Rating Category (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 648,048	$ 652,893
Delinquent:
30-59 days	7,950	8,058
60-89 days	5,219	5,081
90 days or more	846	5
Non-accrual	51,850	45,587
Total loans receivable	713,913	711,624
Pass
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	595,119	610,127
Delinquent:
30-59 days	3,685	6,083
60-89 days	1,345	1,800
90 days or more	0	0
Non-accrual	0	0
Total loans receivable	600,149	618,010
Pass Watch
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	25,384	29,528
Delinquent:
30-59 days	2,182	1,285
60-89 days	1,157	900
90 days or more	846	0
Non-accrual	9	0
Total loans receivable	29,578	31,713
Special Mention
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	25,199	11,670
Delinquent:
30-59 days	900	93
60-89 days	0	2,381
90 days or more	0	0
Non-accrual	0	0
Total loans receivable	26,099	14,144
Substandard
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	1,739	1,568
Delinquent:
30-59 days	1,183	597
60-89 days	2,717	0
90 days or more	0	5
Non-accrual	51,697	45,587
Total loans receivable	57,336	47,757
Doubtful
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	607	0
Delinquent:
30-59 days	0	0
60-89 days	0	0
90 days or more	0	0
Non-accrual	144	0
Total loans receivable	$ 751	$ 0

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Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Restricted Stock Units Award Activity [Table Text Block]

Restricted Stock

The following table presents the activity for restricted stock for the six months ended June 30, 2012.

	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2011	175,639		$	4.97
Granted	48,186		5.96
Vested	(52,596	)	6.18
Forfeited	(50,242	)	5.21
Unvested at June 30, 2012	120,987		$	4.72

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

The following table presents the activity under the Company’s stock option plans for the six months ended June 30, 2012.

	Number of Options		Weighted-Average Exercise Price
Options outstanding at December 31, 2011	515,995		$	14.01
Granted	20,000		4.40
Exercised	—		—
Forfeited	(56,000	)	13.91
Expired unexercised	(60,200	)	13.73
Options outstanding at June 30, 2012	419,795		$	13.60

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Allowance for Loan Losses Schedule of Delinquency Status of Loans Receivable (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 7,950	$ 8,058
60-89 Days Past Due	5,219	5,081
Greater Than 90 Days	846	5
Non-accrual	51,850	45,587
Total Past Due and Non-accrual	65,865	58,731
Current	648,048	652,893
Total loans receivable	713,913	711,624
Current Non-accrual Loans	13,910	7,744
One-to-four family residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	2,572	3,439
60-89 Days Past Due	736	1,501
Greater Than 90 Days	0	0
Non-accrual	5,562	4,935
Total Past Due and Non-accrual	8,870	9,875
Current	168,960	171,823
Total loans receivable	177,830	181,698
Current Non-accrual Loans	1,516	741
Home equity lines of credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	141	221
60-89 Days Past Due	0	149
Greater Than 90 Days	0	0
Non-accrual	550	541
Total Past Due and Non-accrual	691	911
Current	48,785	51,962
Total loans receivable	49,476	52,873
Current Non-accrual Loans	214	50
Retail construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
Greater Than 90 Days	0	0
Non-accrual	319	169
Total Past Due and Non-accrual	319	169
Current	1,199	853
Total loans receivable	1,518	1,022
Current Non-accrual Loans	0	0
Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1	0
60-89 Days Past Due	0	0
Greater Than 90 Days	0	0
Non-accrual	0	0
Total Past Due and Non-accrual	1	0
Current	2,723	2,771
Total loans receivable	2,724	2,771
Current Non-accrual Loans	0	0
Total retail loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	2,714	3,660
60-89 Days Past Due	736	1,650
Greater Than 90 Days	0	0
Non-accrual	6,431	5,645
Total Past Due and Non-accrual	9,881	10,955
Current	221,667	227,409
Total loans receivable	231,548	238,364
Current Non-accrual Loans	1,730	791
Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	300	369
60-89 Days Past Due	917	24
Greater Than 90 Days	130	0
Non-accrual	510	596
Total Past Due and Non-accrual	1,857	989
Current	87,622	84,171
Total loans receivable	89,479	85,160
Current Non-accrual Loans	264	262
Commercial real estate - owner occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,894	551
60-89 Days Past Due	553	0
Greater Than 90 Days	716	0
Non-accrual	11,492	11,228
Total Past Due and Non-accrual	14,655	11,779
Current	87,494	82,054
Total loans receivable	102,149	93,833
Current Non-accrual Loans	779	569
Commercial real estate - non-owner occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,903	1,622
60-89 Days Past Due	1,423	1,173
Greater Than 90 Days	0	5
Non-accrual	24,791	22,294
Total Past Due and Non-accrual	28,117	25,094
Current	156,167	163,199
Total loans receivable	184,284	188,293
Current Non-accrual Loans	9,687	6,122
Commercial real estate - multifamily
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	312	1,856
60-89 Days Past Due	1,590	1,732
Greater Than 90 Days	0	0
Non-accrual	1,521	91
Total Past Due and Non-accrual	3,423	3,679
Current	73,224	68,197
Total loans receivable	76,647	71,876
Current Non-accrual Loans	0	0
Commercial construction and land development
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	827	0
60-89 Days Past Due	0	502
Greater Than 90 Days	0	0
Non-accrual	4,766	3,378
Total Past Due and Non-accrual	5,593	3,880
Current	17,760	18,165
Total loans receivable	23,353	22,045
Current Non-accrual Loans	1,450	0
Commercial participations
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
Greater Than 90 Days	0	0
Non-accrual	2,339	2,355
Total Past Due and Non-accrual	2,339	2,355
Current	4,114	9,698
Total loans receivable	6,453	12,053
Current Non-accrual Loans	0	0
Total commercial loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	5,236	4,398
60-89 Days Past Due	4,483	3,431
Greater Than 90 Days	846	5
Non-accrual	45,419	39,942
Total Past Due and Non-accrual	55,984	47,776
Current	426,381	425,484
Total loans receivable	482,365	473,260
Current Non-accrual Loans	$ 12,180	$ 6,953

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Investment Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale:
Par Value	$ 243,128	$ 246,709
Amortized Cost	231,073	237,497
Gross Unrealized Gains	4,756	4,570
Gross Unrealized Losses	(9,204)	(7,686)
Fair Value	226,625	234,381
Held-to-maturity:
Par Value	13,771	16,111
Amortized Cost	13,965	16,371
Gross Unrealized Gains	229	332
Gross Unrealized Losses	0	0
Fair Value	14,194	16,703
Asset backed securities
Held-to-maturity:
Par Value	7,331	8,201
Amortized Cost	7,525	8,461
Gross Unrealized Gains	183	285
Gross Unrealized Losses	0	0
Fair Value	7,708	8,746
Municipal securities
Held-to-maturity:
Par Value	6,440	7,910
Amortized Cost	6,440	7,910
Gross Unrealized Gains	46	47
Gross Unrealized Losses	0	0
Fair Value	6,486	7,957
U.S. Treasury securities
Available-for-sale:
Par Value	14,500	15,000
Amortized Cost	14,469	14,967
Gross Unrealized Gains	436	447
Gross Unrealized Losses	0	0
Fair Value	14,905	15,414
Government sponsored entity (GSE) securities
Available-for-sale:
Par Value	37,800	46,800
Amortized Cost	37,826	46,967
Gross Unrealized Gains	939	1,415
Gross Unrealized Losses	0	0
Fair Value	38,765	48,382
Corporate bonds
Available-for-sale:
Par Value	5,420	5,420
Amortized Cost	5,069	5,022
Gross Unrealized Gains	100	9
Gross Unrealized Losses	0	(4)
Fair Value	5,169	5,027
Collateralized mortgage obligations
Available-for-sale:
Par Value	96,052	79,006
Amortized Cost	86,071	71,073
Gross Unrealized Gains	1,937	1,178
Gross Unrealized Losses	(884)	(1,367)
Fair Value	87,124	70,884
Commercial mortgage-backed securities
Available-for-sale:
Par Value	58,969	72,885
Amortized Cost	60,155	74,664
Gross Unrealized Gains	1,340	1,520
Gross Unrealized Losses	0	(66)
Fair Value	61,495	76,118
Asset backed securities
Available-for-sale:
Par Value	4,599
Amortized Cost	4,226
Gross Unrealized Gains	0
Gross Unrealized Losses	(9)
Fair Value	4,217
Pooled trust preferred securities
Available-for-sale:
Par Value	25,588	27,398
Amortized Cost	23,257	24,804
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(8,311)	(6,249)
Fair Value	14,946	18,555
GSE preferred stock
Available-for-sale:
Par Value	200	200
Amortized Cost	0	0
Gross Unrealized Gains	4	1
Gross Unrealized Losses	0	0
Fair Value	4	1
Residential collateralized mortgage obligations, GSE issued portion
Available-for-sale:
Fair Value	4,600	5,200
Residential collateralized mortgage obligations, non-agency (private issued) portion
Available-for-sale:
Fair Value	$ 82,500	$ 65,700

XML

Consolidated Statements of Changes in Shareholders' Equity Parenthetical (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Cash dividends declared per share	$ 0.00	$ 0.01	$ 0.01	$ 0.02

XML

Consolidated Statements of Condition Parenthetical (USD $)	Jun. 30, 2012	Dec. 31, 2011
Shareholders' equity:
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	15,000,000	15,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	85,000,000	85,000,000
Common stock, shares issued	23,423,306	23,423,306
Common stock, shares outstanding	10,867,357	10,874,668
Treasury stock, at cost	12,555,949	12,548,638

XML

Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Dollars in thousands, except per share data)
Net income	$	1,354	$	1,233	$	1,844	$	1,705
Weighted-average common shares:
Outstanding	10,750,313		10,691,424		10,724,103		10,671,196
Equivalents (1)	56,242		67,908		52,373		61,953
Total	10,806,555		10,759,332		10,776,476		10,733,149
Earnings per share:
Basic	$	.13	$	.12	$	.17	$	.16
Diluted	.13		.11		.17		.16
Number of anti-dilutive stock options excluded from the diluted earnings per share calculation	399,795		516,495		425,895		581,882
Weighted-average exercise price of anti-dilutive option shares	$	14.06	$	14.01	$	14.06	$	13.71

(1) Assumes exercise of dilutive stock options, a portion of the unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts.

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Document And Entity Information (USD $)	6 Months Ended
	Jun. 30, 2012	Aug. 07, 2012
Entity Information [Line Items]
Entity Registrant Name	CFS Bancorp Inc
Entity Central Index Key	0001058438
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	No
Entity Filer Category	Smaller Reporting Company
Entity Public Float	$ 46,900,000
Entity Common Stock, Shares Outstanding		10,866,613
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012

XML

Investment Securities (Tables)

6 Months Ended

Jun. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Schedule of Investment Securities [Table Text Block]

The amortized cost of investment securities and their fair values are as follows for the periods indicated:

	June 30, 2012
	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	14,500	$	14,469	$	436	$	—		$	14,905
Government sponsored entity (GSE) securities	37,800		37,826		939		—			38,765
Corporate bonds	5,420		5,069		100		—			5,169
Collateralized mortgage obligations	96,052		86,071		1,937		(884		)	87,124
Commercial mortgage-backed securities	58,969		60,155		1,340		—			61,495
Asset backed securities	4,599		4,226		—		(9		)	4,217
Pooled trust preferred securities	25,588		23,257		—		(8,311		)	14,946
GSE preferred stock	200		—		4		—			4
Total available-for-sale investment securities	$	243,128	$	231,073	$	4,756	$	(9,204	)	$	226,625
Held-to-maturity investment securities:
Asset backed securities	$	7,331	$	7,525	$	183	$	—		$	7,708
Municipal securities	6,440		6,440		46		—			6,486
Total held-to-maturity investment securities	$	13,771	$	13,965	$	229	$	—		$	14,194

	December 31, 2011
	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	15,000	$	14,967	$	447	$	—		$	15,414
Government sponsored entity (GSE) securities	46,800		46,967		1,415		—			48,382
Corporate bonds	5,420		5,022		9		(4		)	5,027
Collateralized mortgage obligations	79,006		71,073		1,178		(1,367		)	70,884
Commercial mortgage-backed securities	72,885		74,664		1,520		(66		)	76,118
Pooled trust preferred securities	27,398		24,804		—		(6,249		)	18,555
GSE preferred stock	200		—		1		—			1
Total available-for-sale investment securities	$	246,709	$	237,497	$	4,570	$	(7,686	)	$	234,381
Held-to-maturity investment securities:
Asset backed securities	$	8,201	$	8,461	$	285	$	—		$	8,746
Municipal securities	7,910		7,910		47		—			7,957
Total held-to-maturity investment securities	$	16,111	$	16,371	$	332	$	—		$	16,703

Schedule of Unrealized Loss on Investments [Table Text Block]

Investment securities with unrealized losses aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position are presented in the following tables for the dates indicated.

	June 30, 2012
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Collateralized mortgage obligations	$	37,501	$	(791	)	$	2,286	$	(93	)	$	39,787	$	(884	)
Asset backed securities	4,186		(1		)	31		(8		)	4,217		(9		)
Pooled trust preferred securities	—		—			14,946		(8,311		)	14,946		(8,311		)
	$	41,687	$	(792	)	$	17,263	$	(8,412	)	$	58,950	$	(9,204	)

	December 31, 2011
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Corporate bonds	$	3,969	$	(4	)	$	—	$	—		$	3,969	$	(4	)
Collateralized mortgage obligations	34,504		(983		)	3,428		(384		)	37,932		(1,367		)
Commercial mortgage-backed securities	89		(1		)	4,154		(65		)	4,243		(66		)
Pooled trust preferred securities	—		—			18,555		(6,249		)	18,555		(6,249		)
	$	38,562	$	(988	)	$	26,137	$	(6,698	)	$	64,699	$	(7,686	)

Schedule of Investments Classified by Contractual Maturity Date [Table Text Block]

The amortized cost and fair value of investment securities at June 30, 2012, by contractual maturity, are shown in the following tables.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.  Investment securities not due at a single maturity date are shown separately.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
U.S. Treasury securities:
Due in one year or less	$	2,500	$	2,500
Due after one year through five years	11,969		12,405
GSE securities:
Due in one year or less	800		805
Due after one year through five years	37,026		37,960
Corporate bonds — Due after one year through five years	5,069		5,169
Collateralized mortgage obligations:
Due after five years through ten years	8,940		9,423
Due after ten years	77,131		77,701
Commercial mortgage-backed securities — Due after ten years	60,155		61,495
Asset backed securities — Due after ten years	4,226		4,217
Pooled trust preferred securities — Due after ten years	23,257		14,946
GSE preferred stock	—		4
	$	231,073	$	226,625

	Held-to-Maturity
	Amortized Cost		Fair Value
	(Dollars in thousands)
Asset backed securities — Due after five years through ten years	$	7,525	$	7,708
Municipal securities:
Due in one year or less	2,500		2,512
Due after one year through five years	3,940		3,974
	$	13,965	$	14,194

Schedule of Concentration of Holdings of Investment Securities to Issuers [Table Text Block]

At June 30, 2012, other than the U.S. Government, its agencies, and GSEs, the Company had holdings of investment securities from three separate issuers in an amount greater than 10% of shareholders’ equity as identified in the table below.

Issuer	Book Value		Market Value		# of Underlying Pools
	(Dollars in thousands)
Homestar Mortgage Acceptance Corp	$	14,001	$	14,278	4
IMPAC CMB Trust	10,989		10,987		3
JP Morgan Chase Commercial Mortgage Securities Corp	18,398		18,811		5

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Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Interest income:
Loans receivable	$ 8,243	$ 9,016	$ 16,629	$ 17,827
Investment securities	2,186	2,040	4,316	4,085
Other interest-earning assets	103	164	196	321
Total interest income	10,532	11,220	21,141	22,233
Interest expense:
Deposits	1,294	1,777	2,684	3,670
Borrowed funds	294	256	590	519
Total interest expense	1,588	2,033	3,274	4,189
Net interest income	8,944	9,187	17,867	18,044
Provision for loan losses	1,150	996	2,200	1,899
Net interest income after provision for loan losses	7,794	8,191	15,667	16,145
Non-interest income:
Service charges and other fees	1,087	1,174	2,105	2,250
Card-based fees	577	520	1,110	995
Commission income	75	78	132	123
Net gain on sale of:
Investment securities	305	173	723	692
Loans held for sale	200	26	359	58
Other real estate owned	86	2,238	39	2,233
Income from bank-owned life insurance	162	210	702	416
Other income	151	119	297	222
Total non-interest income	2,643	4,538	5,467	6,989
Non-interest expense:
Compensation and employee benefits	4,467	5,047	9,180	10,286
Net occupancy expense	679	670	1,387	1,435
FDIC insurance premiums and regulatory assessments	490	504	978	1,157
Furniture and equipment expense	468	454	925	917
Data processing	445	441	883	883
Marketing	322	270	726	457
Professional fees	198	334	451	722
Other real estate owned related expense, net	316	2,011	934	2,603
Loan collection expense	119	233	237	353
Severance and early retirement expense	0	0	876	0
Other general and administrative expenses	1,038	1,107	2,172	2,225
Total non-interest expense	8,542	11,071	18,749	21,038
Income before income tax expense	1,895	1,658	2,385	2,096
Income tax expense	541	425	541	391
Net income	$ 1,354	$ 1,233	$ 1,844	$ 1,705
Per share data:
Basic earnings per share	$ 0.13	$ 0.12	$ 0.17	$ 0.16
Diluted earnings per share	$ 0.13	$ 0.11	$ 0.17	$ 0.16
Cash dividends declared per share	$ 0.00	$ 0.01	$ 0.01	$ 0.02
Weighted-average common and common share equivalents outstanding:
Basic	10,750,313	10,691,424	10,724,103	10,671,196
Diluted	10,806,555	10,759,332	10,776,476	10,733,149

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Loans Receivable

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Loans Receivable

Loans Receivable

Loans receivable are summarized as follows:

	June 30, 2012			December 31, 2011
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	89,479		$	85,160
Commercial real estate:
Owner occupied	102,149			93,833
Non-owner occupied	184,284			188,293
Multifamily	76,647			71,876
Commercial construction and land development	23,353			22,045
Commercial participations	6,453			12,053
Total commercial loans	482,365			473,260
Retail loans:
One-to-four family residential	177,830			181,698
Home equity lines of credit	49,476			52,873
Retail construction	1,518			1,022
Other	2,724			2,771
Total retail loans	231,548			238,364
Total loans receivable	713,913			711,624
Net deferred loan fees	(317		)	(398		)
Total loans receivable, net of deferred loan fees	$	713,596		$	711,226

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Investment Securities

6 Months Ended

Jun. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

The amortized cost of investment securities and their fair values are as follows for the periods indicated:

	June 30, 2012
	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	14,500	$	14,469	$	436	$	—		$	14,905
Government sponsored entity (GSE) securities	37,800		37,826		939		—			38,765
Corporate bonds	5,420		5,069		100		—			5,169
Collateralized mortgage obligations	96,052		86,071		1,937		(884		)	87,124
Commercial mortgage-backed securities	58,969		60,155		1,340		—			61,495
Asset backed securities	4,599		4,226		—		(9		)	4,217
Pooled trust preferred securities	25,588		23,257		—		(8,311		)	14,946
GSE preferred stock	200		—		4		—			4
Total available-for-sale investment securities	$	243,128	$	231,073	$	4,756	$	(9,204	)	$	226,625
Held-to-maturity investment securities:
Asset backed securities	$	7,331	$	7,525	$	183	$	—		$	7,708
Municipal securities	6,440		6,440		46		—			6,486
Total held-to-maturity investment securities	$	13,771	$	13,965	$	229	$	—		$	14,194

	December 31, 2011
	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale investment securities:
U.S. Treasury securities	$	15,000	$	14,967	$	447	$	—		$	15,414
Government sponsored entity (GSE) securities	46,800		46,967		1,415		—			48,382
Corporate bonds	5,420		5,022		9		(4		)	5,027
Collateralized mortgage obligations	79,006		71,073		1,178		(1,367		)	70,884
Commercial mortgage-backed securities	72,885		74,664		1,520		(66		)	76,118
Pooled trust preferred securities	27,398		24,804		—		(6,249		)	18,555
GSE preferred stock	200		—		1		—			1
Total available-for-sale investment securities	$	246,709	$	237,497	$	4,570	$	(7,686	)	$	234,381
Held-to-maturity investment securities:
Asset backed securities	$	8,201	$	8,461	$	285	$	—		$	8,746
Municipal securities	7,910		7,910		47		—			7,957
Total held-to-maturity investment securities	$	16,111	$	16,371	$	332	$	—		$	16,703

The Company’s investments in residential collateralized mortgage obligations consisted of $4.6 million and $5.2 million, respectively, of GSE issued investment securities and $82.5 million and $65.7 million, respectively, of non-agency (private issued) residential investment securities at June 30, 2012 and December 31, 2011.

Investment securities with unrealized losses aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position are presented in the following tables for the dates indicated.

	June 30, 2012
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Collateralized mortgage obligations	$	37,501	$	(791	)	$	2,286	$	(93	)	$	39,787	$	(884	)
Asset backed securities	4,186		(1		)	31		(8		)	4,217		(9		)
Pooled trust preferred securities	—		—			14,946		(8,311		)	14,946		(8,311		)
	$	41,687	$	(792	)	$	17,263	$	(8,412	)	$	58,950	$	(9,204	)

	December 31, 2011
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Corporate bonds	$	3,969	$	(4	)	$	—	$	—		$	3,969	$	(4	)
Collateralized mortgage obligations	34,504		(983		)	3,428		(384		)	37,932		(1,367		)
Commercial mortgage-backed securities	89		(1		)	4,154		(65		)	4,243		(66		)
Pooled trust preferred securities	—		—			18,555		(6,249		)	18,555		(6,249		)
	$	38,562	$	(988	)	$	26,137	$	(6,698	)	$	64,699	$	(7,686	)

We evaluate all investment securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in the Financial Accounting Standards Board Accounting Standards Codification (ASC) 320-10, Investments - Debt and Equity Securities.  Current accounting guidance generally provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the investment securities must assess whether the impairment is other-than-temporary.

In management’s belief, the decline in value of the Company’s investment in collateralized mortgage obligations is minimal and primarily attributable to changes in market interest rates and macroeconomic conditions affecting liquidity and not necessarily the expected cash flows of the individual investment securities.  The fair value of these investment securities is expected to recover as macroeconomic conditions improve, interest rates rise, and the investment securities approach their maturity date.

At June 30, 2012, the Company’s pooled trust preferred investment securities consisted of “Super Senior” securities backed by senior securities issued mainly by bank and thrift holding companies.  Due to the structure of the securities, as deferrals and defaults on the underlying collateral increase, cash flows are increasingly diverted from mezzanine and subordinate tranches to pay down principal for the “Super Senior” tranches.  In management’s belief, the continued decline in value is primarily attributable to macroeconomic conditions affecting the liquidity of these securities and not necessarily the expected cash flows of the individual securities. The fair value of these securities is expected to recover as the securities approach their maturity date.

Unrealized losses on collateralized mortgage obligations and pooled trust preferred investment securities have not been recognized in income because management does not have the intent to sell these securities and has the ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value, which may be at maturity.  We may, from time to time, dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds could be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.  The Company concluded that the unrealized losses that existed at June 30, 2012 did not constitute other-than-temporary impairments.

The amortized cost and fair value of investment securities at June 30, 2012, by contractual maturity, are shown in the following tables.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.  Investment securities not due at a single maturity date are shown separately.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
U.S. Treasury securities:
Due in one year or less	$	2,500	$	2,500
Due after one year through five years	11,969		12,405
GSE securities:
Due in one year or less	800		805
Due after one year through five years	37,026		37,960
Corporate bonds — Due after one year through five years	5,069		5,169
Collateralized mortgage obligations:
Due after five years through ten years	8,940		9,423
Due after ten years	77,131		77,701
Commercial mortgage-backed securities — Due after ten years	60,155		61,495
Asset backed securities — Due after ten years	4,226		4,217
Pooled trust preferred securities — Due after ten years	23,257		14,946
GSE preferred stock	—		4
	$	231,073	$	226,625

	Held-to-Maturity
	Amortized Cost		Fair Value
	(Dollars in thousands)
Asset backed securities — Due after five years through ten years	$	7,525	$	7,708
Municipal securities:
Due in one year or less	2,500		2,512
Due after one year through five years	3,940		3,974
	$	13,965	$	14,194

The Company realized gross gains on the sale of available-for-sale investment securities for the three months ended June 30, 2012 and 2011 totaling $305,000 and $173,000, respectively. Gross gains realized for the six months ended June 30, 2012 and 2011 totaled $723,000 and $692,000, respectively.

The carrying value of investment securities pledged as collateral to secure public deposits and for other purposes at June 30, 2012 and December 31, 2011 was $40.3 million and $54.4 million, respectively.  

At June 30, 2012, other than the U.S. Government, its agencies, and GSEs, the Company had holdings of investment securities from three separate issuers in an amount greater than 10% of shareholders’ equity as identified in the table below.

Issuer	Book Value		Market Value		# of Underlying Pools
	(Dollars in thousands)
Homestar Mortgage Acceptance Corp	$	14,001	$	14,278	4
IMPAC CMB Trust	10,989		10,987		3
JP Morgan Chase Commercial Mortgage Securities Corp	18,398		18,811		5

There are seven different pools of collateral backing eight collateralized mortgage obligation securities issued by Homestar Mortgage Acceptance Corp and IMPAC CMB Trust. These pools consist primarily of floating-rate, first lien mortgages originated prior to 2005 on single-family properties in multiple states. There are five different collateral pools of geographically diversified commercial real estate loans backing five commercial mortgage-backed securities issued by JP Morgan Chase Commercial Mortgage Securities Corp. Four of the five collateral pools consist of commercial real estate loans originated prior to 2006 and one collateral pool consists of loans originated in 2010.

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Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2012		Jun. 30, 2011
Earnings Per Share [Abstract]
Net Income	$ 1,354		$ 1,233		$ 1,844		$ 1,705
Weighted-average Common Shares Outstanding, Basic	10,750,313		10,691,424		10,724,103		10,671,196
Weighted-average Common Share Equivalents	56,242	[1]	67,908	[1]	52,373	[1]	61,953	[1]
Weighted-average Common Shares Outstanding, Diluted	10,806,555		10,759,332		10,776,476		10,733,149
Earnings Per Share, Basic	$ 0.13		$ 0.12		$ 0.17		$ 0.16
Earnings Per Share, Diluted	$ 0.13		$ 0.11		$ 0.17		$ 0.16
Number of Anti-dilutive Stock Options Excluded from the Diluted Earnings Per Share Calculation	399,795		516,495		425,895		581,882
Anti-dilutive Stock Options, Weighted Average Exercise Price	$ 14.06		$ 14.01		$ 14.06		$ 13.71

[1] Assumes exercise of dilutive stock options, a portion of the unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts.

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Loans Receivable Loans Receivable (Tables)

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Schedule of Loan and Lease Portfolio [Table Text Block]

Loans receivable are summarized as follows:

	June 30, 2012			December 31, 2011
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	89,479		$	85,160
Commercial real estate:
Owner occupied	102,149			93,833
Non-owner occupied	184,284			188,293
Multifamily	76,647			71,876
Commercial construction and land development	23,353			22,045
Commercial participations	6,453			12,053
Total commercial loans	482,365			473,260
Retail loans:
One-to-four family residential	177,830			181,698
Home equity lines of credit	49,476			52,873
Retail construction	1,518			1,022
Other	2,724			2,771
Total retail loans	231,548			238,364
Total loans receivable	713,913			711,624
Net deferred loan fees	(317		)	(398		)
Total loans receivable, net of deferred loan fees	$	713,596		$	711,226

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Share-Based Compensation

6 Months Ended

Jun. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-Based Compensation

The Company accounts for its share-based compensation in accordance with ASC 718-10, Compensation – Stock Based Compensation.  ASC 718-10 addresses all forms of share-based payment awards, including shares under employee stock purchase plans, stock options, restricted stock, and stock appreciation rights.  ASC 718-10 requires all share-based payments to be recognized as expense, based upon their fair values, in the financial statements over the service period of the awards.

For additional details on the Company’s share-based compensation plans and related disclosures, see “Note 9.  Share-Based Compensation” in the consolidated financial statements as presented in the Company’s 2011 Annual Report on Form 10-K.

Omnibus Equity Incentive Plan

The Company’s 2008 Omnibus Equity Incentive Plan (Equity Incentive Plan) authorized the issuance of 270,000 shares of its common stock.  In addition, there were 64,500 shares that had not yet been issued or were forfeited, canceled, or unexercised at the end of the option term under the 2003 Stock Option Plan when it was frozen.  These shares and any other shares that may be forfeited, canceled, or expired are available for any type of share-based awards in the future under the Equity Incentive Plan.  At June 30, 2012, shares available for future grants under the Equity Incentive Plan totaled 209,501 shares.

Restricted Stock

The following table presents the activity for restricted stock for the six months ended June 30, 2012.

	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2011	175,639		$	4.97
Granted	48,186		5.96
Vested	(52,596	)	6.18
Forfeited	(50,242	)	5.21
Unvested at June 30, 2012	120,987		$	4.72

The compensation expense related to restricted stock for the three months ended June 30, 2012 and 2011 totaled $49,000 and $79,000, respectively.  The compensation expense related to restricted stock for the six months ended June 30, 2012 and 2011 totaled $70,000 and $145,000, respectively. At June 30, 2012, the remaining unamortized cost of the restricted stock awards was reflected as a reduction in additional paid-in capital and totaled $572,000.  This cost is expected to be recognized over a weighted-average period of 3.0 years, which is subject to the actual number of shares earned and vested.

Stock Options

The Company’s 2008 Equity Incentive Plan allows for the grant of both incentive and non-qualified stock options to directors, officers, and employees.  The stock option vesting periods and exercise and expiration dates are determined by the Compensation Committee at the time of the grant.  The exercise price of the stock options is equal to the fair market value of the common stock on the grant date.

The following table presents the activity under the Company’s stock option plans for the six months ended June 30, 2012.

	Number of Options		Weighted-Average Exercise Price
Options outstanding at December 31, 2011	515,995		$	14.01
Granted	20,000		4.40
Exercised	—		—
Forfeited	(56,000	)	13.91
Expired unexercised	(60,200	)	13.73
Options outstanding at June 30, 2012	419,795		$	13.60

For stock options outstanding at June 30, 2012, the range of exercise prices was $4.40 to $14.76, and the weighted-average remaining contractual term was 2.1 years.  At June 30, 2012, 399,795 of the Company’s outstanding stock options were fully vested and out-of-the-money with no intrinsic value.  The remaining 20,000 stock options were not yet exercisable and were in-the-money with an intrinsic value of $11,600, which represents the difference between the Company’s closing stock price on the last day of trading for the second quarter of 2012 and the exercise price multiplied by the number of in-the-money options, assuming all option holders had exercised their stock options on the last day of trading for the same period. Stock option expense for the three and six months ended June 30, 2012 was $3,000 and $6,000, respectively. There was no stock option expense for the same 2011 periods. There were no stock options exercised during the three and six months ended June 30, 2012 and 2011.  The Company reissues treasury shares to satisfy option exercises.

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Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Allowance for Credit Losses [Text Block]

Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level management believes is appropriate in relation to the estimated risk inherent in the loan portfolio.  The allowance for loan losses represents the Company’s estimate of probable incurred losses in our loan portfolio at each statement of condition date and is based on the review of available and relevant information.

The first component of the allowance for loan losses contains allocations for probable incurred losses that we have identified relating to impaired loans pursuant to ASC 310-10, Receivables.  The Company individually evaluates for impairment all loans classified substandard and over $375,000, which decreased from $750,000 during the second quarter of 2012, to enable management to proactively identify potential losses over a larger cross section of the loan portfolio.  We also individually evaluate for impairment all loans for which we have initiated foreclosure proceedings. For all portfolio segments, loans are considered impaired when, based on current information and events, it is probable that the borrower will not be able to fulfill its obligation according to the contractual terms of the loan agreement.  The impairment loss, if any, is generally measured based on the present value of expected cash flows discounted at the loan’s effective interest rate.  As a practical expedient, impairment may be measured based on the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.  A loan is considered collateral-dependent when the repayment of the loan will be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.  If management determines a loan is collateral-dependent, management will charge-off any identified collateral shortfall against the allowance for loan losses.

If foreclosure is probable, the Company is required to measure the impairment based on the fair value of the collateral.  The fair value of the collateral is generally obtained from the evaluation of the collateral, and one of the methods of evaluation is an independent third-party appraisal. When current appraisals are not available, management utilizes other evaluation methods to estimate the fair value of the collateral giving consideration to several factors including the price at which individual unit(s) could be sold in the current market, the period of time over which the unit(s) could be sold, the estimated cost to complete the unit(s), the risks associated with completing and selling the unit(s), the required return on the investment a potential acquirer may have, and the current market interest rates.  The analysis of each loan involves a high degree of judgment in estimating the amount of the loss associated with the loan, including the estimation of the amount and timing of future cash flows and collateral values.

The second component of the Company’s allowance for loan losses contains allocations for probable incurred losses within various pools of loans with similar characteristics pursuant to ASC 450-10, Contingencies.  This component is based in part on certain loss factors applied to various stratified loan pools excluding loans evaluated individually for impairment.  In determining the appropriate loss factors for all portfolio segments, management considers historical charge-offs and recoveries; levels of and trends in delinquencies, impaired loans, and other classified loans; concentrations of credit within the commercial loan portfolios; volume and type of lending; and current and anticipated economic conditions.

Loan losses for all portfolio segments are charged-off against the allowance when the loan balance or a portion of the loan balance is no longer covered by the repayment capacity of the borrower based on an evaluation of available and projected cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance.  The Company assesses the appropriateness of the allowance for loan losses on a quarterly basis and adjusts the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at a level deemed appropriate by management.  The evaluation of the appropriateness of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as additional information becomes available or as future events occur.  To the extent that actual outcomes differ from management’s estimates, an additional provision for loan losses could be required which could adversely affect earnings or the Company’s financial position in future periods.

The risk characteristics of each loan portfolio segment are as follows:

Commercial and Industrial Loans (C&I)

C&I loans are primarily based on the identified historic and/or the projected cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, do fluctuate based on changes in the company’s internal and external environment including management, human and capital resources, economic conditions, competition, regulation, and product innovation/obsolescence.  The collateral securing these loans may also fluctuate in value and generally has advance rates between 50-80% of the collateral value.  Most C&I loans are secured by business assets being financed such as equipment, accounts receivable, and/or inventory and generally incorporate a secured or unsecured personal guarantee.  Occasionally, some loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable and/or inventory, the collateral securing the advances is generally monitored through a borrowing base certificate submitted by the borrower which may identify deterioration in collateral value.  The ability of the borrower to collect amounts due from its customers may be affected by its customers’ economic and financial condition.  The availability of funds for the repayment of these loans may be substantially dependent on each of the factors described above.

Commercial Real Estate – Owner Occupied, Non-Owner Occupied, and Multifamily

These types of commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent upon the cash flows from the successful operation of the property securing the loan or the cash flows from the owner occupied business conducted on the property securing the loan.  A borrower’s business and/or the property securing the loan may be adversely affected by business conditions generally, and fluctuations in the real estate markets or in the general economy, which if adverse, can negatively affect the borrowers’ ability to repay the loan.  The value and cash flow of the property can be influenced by changes in market rental rates, changes in interest rates or investors’ required rates of return, the condition of the property, zoning, or environmental issues.  The properties securing the commercial real estate portfolio are diverse in terms of type and are generally located in the Chicagoland/Northwest Indiana market.  Owner occupied loans are generally a borrower purchased building where the borrower occupies at least 51% of the space with the primary source of repayment dependent on sources other than the underlying collateral.  Non-owner occupied and single tenant properties may have higher risk than owner occupied loans since the primary source of repayment is dependent upon the ability to lease out the collateral as well as the financial stability of the businesses occupying the collateral.  Multifamily loans can also be impacted by vacancy/collection losses and tenant turnover due to generally shorter term leases or even month-to-month leases.  Management monitors and evaluates commercial real estate loan portfolio concentrations based upon cash flow, collateral, geography, and risk grade criteria.  As a general rule, management avoids financing single purpose projects unless other underwriting factors mitigate the credit risk to an acceptable level.  The Company’s loan policy generally requires lower loan-to-value ratios against these types of properties.

Commercial Construction and Land Development Loans

Construction loans are underwritten utilizing feasibility studies, independent appraisals, sensitivity analysis of absorption and lease rates, presale or prelease/Letters of Intent analysis, and financial analysis of the developers and property owners.  Construction loans are generally based on the estimated cost to construct and cash flows associated with the completed project or stabilized value.  These estimates are subjective in nature and if erroneous, may preclude the borrower from being able to repay the loan.  Construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the completed project.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, the ability to sell the property, and the availability of long-term financing.

Commercial Participation Loans

Participation loans generally have larger principal balances, portions of which are sold to multiple participant banks in order to spread credit risk.  The collateral securing these loans is often real estate and is often located outside of the Company’s geographic footprint.  Loans outside of the Company’s geographical footprint pose additional risk due to the lack of knowledge of general economic conditions where the project is located along with various project specific risks regarding buyer demand and project specific risks regarding project competition risks.  The participant banks are required to underwrite these credits utilizing their own internal analysis techniques

and their own credit standards.  However, the participant banks are reliant upon the information about the borrowers and the collateral provided by the lead bank.  These loans carry higher levels of risk due to the participant banks being dependent on the lead bank for monitoring and managing the credit relationship, including the workout and/or foreclosure process should the borrower default.

Retail Loans

The Company’s retail loans include one-to-four family residential mortgage loans, home equity loans and lines of credit, retail construction, and other consumer loans.  Management has established a maximum loan-to-value ratio (LTV) of 80% for one-to-four family residential mortgages and home equity loans and lines of credit that are secured by a first or second mortgage on owner and non-owner occupied residences.  Loan applications exceeding 80% LTV require private mortgage insurance (PMI) from a mortgage insurance company deemed acceptable by management.  Residential construction loans are underwritten to the same standards and generally require an end loan financing commitment either from the Company or another financial institution acceptable to the Company.  Other consumer loans are generally small dollar auto and personal loans based on the credit score and income of the applicant.  These loans are homogeneous in nature and are rated in pools based on similar characteristics.

The following tables present the activity in the allowance for loan losses for the three and six months ended June 30, 2012 and 2011.

	Three Months Ended June 30, 2012
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied		Non-Owner Occupied			Multifamily		Construction and Land Development		Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction		Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,063		$	2,196	$	3,697		$	600	$	1,313	$	951		$	1,459		$	374		$	4	$	111		$	11,768
Provision for loan losses	645			151		163			—		129		(275		)	(43		)	334			—		46			1,150
Loans charged-off:
Current period charge-offs	(436		)	—		(75		)	—		—		(25		)	(70		)	(243		)	—		(43		)	(892		)
Previously established specific reserves	—			—		—			—		—		—			—			—			—		—			—
Total loans charged-off	(436		)	—		(75		)	—		—		(25		)	(70		)	(243		)	—		(43		)	(892		)
Recoveries	12			—		14			—		—		—			2			3			—		5			36
Balance at end of period	$	1,284		$	2,347	$	3,799		$	600	$	1,442	$	651		$	1,348		$	468		$	4	$	119		$	12,062

	Six Months Ended June 30, 2012
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied		Non-Owner Occupied			Multifamily			Construction and Land Development		Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction		Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,236		$	2,129	$	3,935		$	370		$	1,198	$	1,467		$	1,521		$	442		$	3	$	123		$	12,424
Provision for loan losses	578			218		981			608			244		(791		)	1			317			1		43			2,200
Loans charged-off:
Current period charge-offs	(555		)	—		(436		)	(378		)	—		(25		)	(184		)	(295		)	—		(60		)	(1,933		)
Previously established specific reserves	—			—		(718		)	—			—		—			—			—			—		—			(718		)
Total loans charged-off	(555		)	—		(1,154		)	(378		)	—		(25		)	(184		)	(295		)	—		(60		)	(2,651		)
Recoveries	25			—		37			—			—		—			10			4			—		13			89
Balance at end of period	$	1,284		$	2,347	$	3,799		$	600		$	1,442	$	651		$	1,348		$	468		$	4	$	119		$	12,062

	Three Month Ended June 30, 2011
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction			Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,268		$	1,012		$	6,717		$	461		$	154		$	4,719		$	1,323		$	1,327		$	9		$	105		$	17,095
Provision for loan losses	435			(58		)	(208		)	(20		)	(61		)	673			230			(44		)	(4		)	53			996
Loans charged-off:
Current period charge-offs	(153		)	(125		)	—			—			—			(605		)	(168		)	—			—			(22		)	(1,073		)
Previously established specific reserves	—			—			—			—			—			—			—			—			—			—			—
Total loans charged-off	(153		)	(125		)	—			—			—			(605		)	(168		)	—			—			(22		)	(1,073		)
Recoveries	4			—			6			—			—			—			2			1			—			8			21
Balance at end of period	$	1,554		$	829		$	6,515		$	441		$	93		$	4,787		$	1,387		$	1,284		$	5		$	144		$	17,039

	Six Months Ended June 30, 2011
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to-four Family Residential			HELOC			Retail Construction			Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,279		$	1,090		$	6,906		$	350		$	188		$	4,559		$	1,356		$	1,309		$	7		$	135		$	17,179
Provision for loan losses	422			(136		)	(405		)	295			(91		)	1,536			219			21			(2		)	40			1,899
Loans charged-off:
Current period charge-offs	(153		)	(125		)	—			(204		)	(4		)	(1,308		)	(191		)	(52		)	—			(50		)	(2,087		)
Previously established specific reserves	—			—			—			—			—			—			—			—			—			—			—
Total loans charged-off	(153		)	(125		)	—			(204		)	(4		)	(1,308		)	(191		)	(52		)	—			(50		)	(2,087		)
Recoveries	6			—			14			—			—			—			3			6			—			19			48
Balance at end of period	$	1,554		$	829		$	6,515		$	441		$	93		$	4,787		$	1,387		$	1,284		$	5		$	144		$	17,039

The following tables provide other information regarding the allowance for loan and lease losses and balances by portfolio segment and impairment method at the dates indicated.

	At June 30, 2012
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to- four Family Residential		HELOC		Retail Construction		Other		Total
	(Dollars in thousands)
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	195	$	—	$	148	$	—	$	—	$	—	$	—	$	—	$	343
Collectively evaluated for impairment	1,284		2,347		3,604		600		1,294		651		1,348		468		4		119		11,719
Total evaluated for impairment	$	1,284	$	2,347	$	3,799	$	600	$	1,442	$	651	$	1,348	$	468	$	4	$	119	$	12,062
Loans receivable:
Individually evaluated for impairment	$	1,240	$	11,783	$	31,032	$	3,691	$	4,766	$	2,330	$	2,890	$	483	$	169	$	—	$	58,384
Collectively evaluated for impairment	88,239		90,366		153,252		72,956		18,587		4,123		174,940		48,993		1,349		2,724		655,529
Total loans receivable	$	89,479	$	102,149	$	184,284	$	76,647	$	23,353	$	6,453	$	177,830	$	49,476	$	1,518	$	2,724	$	713,913

	At December 31, 2011
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to- four Family Residential		HELOC		Retail Construction		Other		Total
	(Dollars in thousands)
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	718	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	718
Collectively evaluated for impairment	1,236		2,129		3,217		370		1,198		1,467		1,521		442		3		123		11,706
Total evaluated for impairment	$	1,236	$	2,129	$	3,935	$	370	$	1,198	$	1,467	$	1,521	$	442	$	3	$	123	$	12,424
Loans receivable:
Individually evaluated for impairment	$	2,479	$	11,203	$	25,518	$	673	$	2,781	$	2,355	$	—	$	—	$	—	$	—	$	45,009
Collectively evaluated for impairment	82,681		82,630		162,775		71,203		19,264		9,698		181,698		52,873		1,022		2,771		666,615
Total loans receivable	$	85,160	$	93,833	$	188,293	$	71,876	$	22,045	$	12,053	$	181,698	$	52,873	$	1,022	$	2,771	$	711,624

The Company, as a matter of good risk management practices, utilizes objective loan grading matrices to assign risk ratings to all commercial loans.  The risk rating criteria is supported by core credit attributes that emphasize debt service coverage, operating trends, collateral, and guarantor liquidity, and further removes subjective criteria and bias from the analysis.  Retail loans are rated pass until they become 90 days or more delinquent, put on non-accrual status, and generally rated substandard.  The Company uses the following definitions for risk ratings:

• Pass.  Loans that meet the conservative underwriting guidelines that include core credit attributes noted above as measured by the loan grading matrices at levels that are in excess of the minimum amounts required to adequately service the loans.

• Pass Watch.  Loans which are performing per their contractual terms and are not necessarily demonstrating signs of credit or operational weakness, including but not limited to delinquency.  Loans in this category are monitored by management for timely payments.  Current financial information may be pending or, based upon the most recent analysis of the loan, possess credit attributes that are sufficient to adequately service the loan, but are less than the parameters required for a pass risk rating.  This rating is considered transitional because management does not have current financial information to determine the appropriate risk grade or the quality of the loan appears to be changing.  Loans may be graded as pass watch when a single event may have occurred that could be indicative of an emerging issue or indicate trending that would warrant a change in the risk rating.

• Special Mention.  Loans that have a potential weakness that will be closely monitored by management.  A credit graded special mention does not expose the Company to elevated risk that would warrant an adverse classification.

• Substandard.  Loans that are inadequately protected by the current net worth and paying capacity of the borrower, guarantor, or the collateral pledged.  Loans classified as substandard have a well-defined weakness or weaknesses, characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

• Doubtful.  Loans that have the same weaknesses as those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The Company’s loans receivable portfolio is summarized by risk rating category as follows:

	Risk Rating at June 30, 2012
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	75,420	$	7,692	$	5,857	$	510	$	—	$	89,479
Commercial real estate:
Owner occupied	76,866		11,760		1,727		11,796		—		102,149
Non-owner occupied	131,996		5,643		17,916		28,585		144		184,284
Multifamily	69,340		3,184		599		3,524		—		76,647
Commercial construction and land development	17,296		1,290		—		4,160		607		23,353
Commercial participations	4,114		9		—		2,330		—		6,453
Total commercial loans	375,032		29,578		26,099		50,905		751		482,365
Retail loans:
One-to-four family residential	172,267		—		—		5,563		—		177,830
Home equity lines of credit	48,927		—		—		549		—		49,476
Retail construction	1,199		—		—		319		—		1,518
Other	2,724		—		—		—		—		2,724
Total retail loans	225,117		—		—		6,431		—		231,548
Total loans	$	600,149	$	29,578	$	26,099	$	57,336	$	751	$	713,913

	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	595,119	$	25,384	$	25,199	$	1,739	$	607	$	648,048
Delinquent:
30-59 days	3,685		2,182		900		1,183		—		7,950
60-89 days	1,345		1,157		—		2,717		—		5,219
90 days or more	—		846		—		—		—		846
Non-accrual	—		9		—		51,697		144		51,850
Total loans	$	600,149	$	29,578	$	26,099	$	57,336	$	751	$	713,913

	Risk Rating at December 31, 2011
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	76,554	$	6,534	$	1,476	$	596	$	—	$	85,160
Commercial real estate:
Owner occupied	69,029		12,036		1,540		11,228		—		93,833
Non-owner occupied	147,678		9,219		7,347		24,049		—		188,293
Multifamily	65,920		3,119		2,331		506		—		71,876
Commercial construction and land development	16,412		805		1,450		3,378		—		22,045
Commercial participations	9,698		—		—		2,355		—		12,053
Total commercial loans	385,291		31,713		14,144		42,112		—		473,260
Retail loans:
One-to-four family residential	176,763		—		—		4,935		—		181,698
Home equity lines of credit	52,332		—		—		541		—		52,873
Retail construction	853		—		—		169		—		1,022
Other	2,771		—		—		—		—		2,771
Total retail loans	232,719		—		—		5,645		—		238,364
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624

	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	610,127	$	29,528	$	11,670	$	1,568	$	—	$	652,893
Delinquent:
30-59 days	6,083		1,285		93		597		—		8,058
60-89 days	1,800		900		2,381		—		—		5,081
90 days or more	—		—		—		5		—		5
Non-accrual	—		—		—		45,587		—		45,587
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624

For all loan categories, past due status is based on the contractual terms of the loan.  Interest income is generally not accrued on loans which are delinquent 90 days or more, or for loans which management believes, after giving consideration to a number of factors, including economic and business conditions and collection efforts, collection of interest is doubtful.  In all cases, loans are placed on non-accrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued but not received for loans placed on non-accrual is reversed against interest income.  Interest subsequently received on non-accrual loans is accounted for using the cost-recovery basis for commercial loans and the cash-basis for retail loans until qualifying for return to accrual status.

Commercial loans are generally placed on non-accrual once they become 90 days past due.  Management reviews all current financial information of the borrower and guarantor(s) and action plans to bring the loan current before determining if the loan should be placed on non-accrual.  Management requires appropriate justification to maintain a commercial loan on accrual status once 90 days past due.  Occasionally commercial loans are placed on non-accrual status before the loan becomes significantly past due if current information indicates that future repayment of principal and interest may be doubtful.

Commercial loans are returned to accrual status when management, based on a thorough analysis of the borrower, can expect the full repayment of principal and interest. The analysis will reflect the borrower’s capacity to service the debt and/or the guarantor’s ability and willingness to make the required debt service payments, either under the original note agreement and terms, or, in the case of an A/B note structure, under the terms of the new A note. Analysis may also include the proceeds from the disposition of the collateral as a potential repayment source based upon the net realizable value of the property.

In addition, a note may be considered for return to accrual status when payments (equal to or greater than those required in the final A note structure) have been made by the borrower for a minimum of six months and the borrower is in compliance with all other terms of the applicable agreement.

Retail loans are returned to accrual status primarily based on the payment status of the loan.  A retail loan is automatically placed on non-accrual status immediately upon becoming 90 days past due.  The loan remains on non-accrual status, with interest income recognized on a cash basis when a payment is made, until the loan is paid current.  Once current, the loan is automatically returned to accrual status.  If management identifies other information to indicate that future repayment of the loan balance may still be questionable, the loan may be manually moved to non-accrual status until management determines otherwise.

The Company’s loan portfolio delinquency status and its non-accrual loans are presented in the tables below at the dates indicated. The Company’s loans that are current and in non-accrual status include loans that have been restructured as troubled debt restructurings (TDRs) and have not yet met the required six months of payments under the restructured terms to be returned to accrual status.

	Delinquency at June 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable		Current Non-accrual Loans
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	300	$	917	$	130	$	510	$	1,857	$	87,622	$	89,479	$	264
Commercial real estate:
Owner occupied	1,894		553		716		11,492		14,655		87,494		102,149		779
Non-owner occupied	1,903		1,423		—		24,791		28,117		156,167		184,284		9,687
Multifamily	312		1,590		—		1,521		3,423		73,224		76,647		—
Commercial construction and land development	827		—		—		4,766		5,593		17,760		23,353		1,450
Commercial participations	—		—		—		2,339		2,339		4,114		6,453		—
Total commercial loans	5,236		4,483		846		45,419		55,984		426,381		482,365		12,180
Retail loans:
One-to-four family residential	2,572		736		—		5,562		8,870		168,960		177,830		1,516
Home equity lines of credit	141		—		—		550		691		48,785		49,476		214
Retail construction	—		—		—		319		319		1,199		1,518		—
Other	1		—		—		—		1		2,723		2,724		—
Total retail loans	2,714		736		—		6,431		9,881		221,667		231,548		1,730
Total loans receivable	$	7,950	$	5,219	$	846	$	51,850	$	65,865	$	648,048	$	713,913	$	13,910

	Delinquency at December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable		Current Non-accrual Loans
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	369	$	24	$	—	$	596	$	989	$	84,171	$	85,160	$	262
Commercial real estate:
Owner occupied	551		—		—		11,228		11,779		82,054		93,833		569
Non-owner occupied	1,622		1,173		5		22,294		25,094		163,199		188,293		6,122
Multifamily	1,856		1,732		—		91		3,679		68,197		71,876		—
Commercial construction and land development	—		502		—		3,378		3,880		18,165		22,045		—
Commercial participations	—		—		—		2,355		2,355		9,698		12,053		—
Total commercial loans	4,398		3,431		5		39,942		47,776		425,484		473,260		6,953
Retail loans:
One-to-four family residential	3,439		1,501		—		4,935		9,875		171,823		181,698		741
Home equity lines of credit	221		149		—		541		911		51,962		52,873		50
Retail construction	—		—		—		169		169		853		1,022		—
Other	—		—		—		—		—		2,771		2,771		—
Total retail loans	3,660		1,650		—		5,645		10,955		227,409		238,364		791
Total loans receivable	$	8,058	$	5,081	$	5	$	45,587	$	58,731	$	652,893	$	711,624	$	7,744

The Company’s impaired loans are summarized as follows with the majority of the interest income recognized on a cash basis at the time the payment is received. The below tables include impaired loans that are individually reviewed for impairment as well as $4.3 million of impaired retail loans at June 30, 2012 that have not had foreclosure proceedings initiated and are below management’s scope for individual impairment review due to immateriality.

	At June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	1,240	$	2,116	$	855	$	—
Commercial real estate:
Owner occupied	11,783		15,488		2,977		—
Non-owner occupied	28,441		35,564		5,901		—
Multifamily	3,691		4,092		377		—
Commercial construction and land development	3,316		3,316		—		—
Commercial participations	2,330		7,239		4,768		—
Retail loans:
One-to-four family residential	7,013		7,236		222		—
Home equity lines of credit	550		639		90		—
Retail construction	319		319		—		—
Total	$	58,683	$	76,009	$	15,190	$	—
Loans with a specific valuation allowance:
Commercial real estate - non-owner occupied	$	2,591	$	2,591	$	—	$	195
Commercial construction and land development	1,450		1,450		—		148
Total	$	4,041	$	4,041	$	—	$	343
Total impaired loans:
Commercial	$	54,842	$	71,856	$	14,878	$	343
Retail	7,882		8,194		312		—
Total	$	62,724	$	80,050	$	15,190	$	343

	At December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	2,479	$	2,700	$	216	$	—
Commercial real estate:
Owner occupied	11,203		14,557		2,694		—
Non-owner occupied	20,532		34,130		10,553		—
Multifamily	673		673		—		—
Commercial construction and land development	2,781		2,781		—		—
Commercial participations	2,355		1,796		1,189		—
Retail loans:
One-to-four family residential	7,202		7,504		302		—
Home equity lines of credit	540		630		89		—
Retail construction	169		169		—		—
Total	$	47,934	$	64,940	$	15,043	$	—
Loans with a specific valuation allowance:
Commercial real estate - non-owner occupied	4,986		4,986		—		718
Total	$	4,986	$	4,986	$	—	$	718
Total impaired loans:
Commercial	$	45,009	$	61,623	$	14,652	$	718
Retail	7,911		8,303		391		—
Total	$	52,920	$	69,926	$	15,043	$	718

The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the periods indicated.

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	1,835	$	20	$	3,208	$	44	$	2,066	$	47	$	3,574	$	90
Commercial real estate:
Owner occupied	11,811		13		13,092		—		11,792		21		13,130		—
Non-owner occupied	28,547		113		7,557		98		29,179		182		7,695		145
Multifamily	3,703		10		678		13		3,890		21		678		17
Commercial construction and land development	3,316		—		7,171		—		3,316		—		7,171		—
Commercial participations	2,450		—		3,487		—		2,515		—		3,833		—
Retail loans:
One-to-four family residential	7,086		79		6,892		60		7,103		118		6,905		105
Home equity lines of credit	550		5		589		1		550		7		589		1
Retail construction	320		—		169		—		321		—		169		—
Other	—		—		4		—		—		—		4		—
Total	$	59,618	$	240	$	42,847	$	216	$	60,732	$	396	$	43,748	$	358
Loans with a specific valuation allowance:
Commercial real estate:
Owner occupied	$	—	$	—	$	2,639	$	—	$	—	$	—	$	2,709	$	—
Non-owner occupied	2,592		—		17,102		—		2,593		—		17,172		—
Commercial construction and land development	1,450		—		—		—		1,450		—		—		—
Commercial participations	—		—		5,302		—		—		—		5,302		—
Total	$	4,042	$	—	$	25,043	$	—	$	4,043	$	—	$	25,183	$	—
Total impaired loans:
Commercial	$	55,704	$	156	$	60,236	$	155	$	56,801	$	271	$	61,264	$	252
Retail	7,956		84		7,654		61		7,974		125		7,667		106
Total	$	63,660	$	240	$	67,890	$	216	$	64,775	$	396	$	68,931	$	358

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a TDR.  The Company may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations.  Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.  TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports.  Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

For one-to-four family residential loans and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure.  There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

When considering a loan restructure, management will determine if:  (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

When a loan is restructured, the new terms often require a reduced monthly debt service payment. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt.  If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status.  To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.

For retail loans, an analysis of the individual’s ability to service the new required payments is performed.  If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status.  The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status.  Retail TDRs remain on non-accrual status until sufficient payments have been made to bring the past due principal and interest current, at which point the loan would be transferred to accrual status.

The following table summarizes the loans that have been restructured as TDRs during the three and six months ended June 30, 2012:

	Three Months Ended June 30, 2012					Six Months Ended  June 30, 2012
	Count	Balance prior to TDR		Balance after TDR		Count	Balance prior to TDR		Balance after TDR
	(Dollars in thousands)
Commercial loans:
Commercial real estate:
Owner occupied	—	$	—	$	—	2	$	259	$	305
Non-owner occupied	—	—		—		1	66		83
Total commercial loans	—	—		—		3	325		388
Retail loans – one-to-four family residential	2	386		389		8	872		906
Total loans	2	$	386	$	389	11	$	1,197	$	1,294

Default occurs when a TDR is 90 days or more past due, transferred to non-accrual status, or transferred to other real estate owned within twelve months of restructuring.  The Company had a one-to-four family residential TDR totaling $69,000 that defaulted during the three and six months ended June 30, 2012.

The tables below summarize the Company’s TDRs by loan category and accrual status at the dates indicated:

	June 30, 2012						December 31, 2011
	Accruing		Non-accruing		Total		Accruing		Non-accruing		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	946	$	242	$	1,188	$	2,167	$	259	$	2,426
Commercial real estate:
Owner occupied	665		2,242		2,907		369		2,272		2,641
Non-owner occupied	3,879		10,718		14,597		3,814		11,095		14,909
Multifamily	256		—		256		259		—		259
Commercial participations	—		1,748		1,748		—		1,748		1,748
Total commercial	5,746		14,950		20,696		6,609		15,374		21,983
Retail loans – one-to-four family residential	1,451		3,021		4,472		2,266		1,600		3,866
Total troubled debt restructurings	$	7,197	$	17,971	$	25,168	$	8,875	$	16,974	$	25,849

At June 30, 2012, TDRs totaled $25.2 million, of which $11.1 million were performing in accordance with their agreements and on non-accrual status.

Management monitors the TDRs based on the type of modification or concession granted to the borrower.  These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions.  Of the various noted concessions, management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal.  Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure. The following tables set forth the Company’s TDRs by portfolio segment to quantify the type of modification or concession provided: 

	June 30, 2012
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	1,181	$	1,181
Payment extension	1,188		2,268		2,221		—		—		772		6,449
Rate reduction and payment extension	—		304		619		256		—		2,265		3,444
Rate reduction and interest only	—		—		3,018		—		—		254		3,272
Payment extension and interest only	—		289		—		—		—		—		289
Forbearance	—		—		2,879		—		1,748		—		4,627
Rate reduction, payment extension, interest only, and forbearance	—		46		—		—		—		—		46
A/B note structure	—		—		5,860		—		—		—		5,860
Total troubled debt restructurings	$	1,188	$	2,907	$	14,597	$	256	$	1,748	$	4,472	$	25,168

	December 31, 2011
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	805	$	805
Payment extension	2,426		2,297		2,210		—		—		948		7,881
Rate reduction and payment extension	—		—		542		259		—		1,858		2,659
Rate reduction and interest only	—		—		9,054		—		—		255		9,309
Payment extension and interest only	—		297		—		—		—		—		297
Forbearance	—		—		3,103		—		1,748		—		4,851
Rate reduction, payment extension, interest only, and forbearance	—		47		—		—		—		—		47
Total troubled debt restructurings	$	2,426	$	2,641	$	14,909	$	259	$	1,748	$	3,866	$	25,849

At June 30, 2012, TDRs were relatively stable at $25.2 million compared to $25.8 million at December 31, 2011. The activity related to the Company’s TDRs is presented in the following table:

	Three Months Ended  June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning balance	$	25,883		$	39,708		$	25,849		$	39,581
Restructured loans identified as TDRs	389			—			1,294			1,307
Protective advances and miscellaneous	10			101			459			158
Repayments and payoffs	(1,067		)	(990		)	(2,387		)	(2,227		)
Charge-offs	(47		)	(42		)	(47		)	(42		)
Transfers to other real estate owned	—			(2,326		)	—			(2,326		)
Ending balance	$	25,168		$	36,451		$	25,168		$	36,451

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company measures fair value according to ASC 820-10: Fair Value Measurements and Disclosures.  ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques, but not the valuation techniques themselves.  The fair value hierarchy is designed to indicate the relative reliability of the fair value measure.  The highest priority is given to quoted prices in active markets and the lowest to unobservable data such as the Company’s internal information.  ASC 820-10 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  There are three levels of inputs into the fair value hierarchy (Level 1 being the highest priority and Level 3 being the lowest priority):

Level 1 – Unadjusted quoted prices for identical instruments in active markets;

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable; and

Level 3 – Instruments whose significant value drivers or assumptions are unobservable and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following tables set forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis at the dates indicated.

			Fair Value Measurements at  June 30, 2012
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
	(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury securities	$	14,905	$	—	$	14,905	$	—
GSE securities	38,765		—		38,765		—
Corporate bonds	5,169		—		5,169		—
Collateralized mortgage obligations	87,124		—		87,124		—
Commercial mortgage-backed securities	61,495		—		61,495		—
Asset backed securities	4,217		—		4,217		—
Pooled trust preferred securities	14,946		—		—		14,946
GSE preferred stock	4		4		—		—

			Fair Value Measurements at  December 31, 2011
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
	(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury securities	$	15,414	$	—	$	15,414	$	—
GSE securities	48,382		—		48,382		—
Corporate bonds	5,027		—		5,027		—
Collateralized mortgage obligations	70,884		—		70,884		—
Commercial mortgage-backed securities	76,118		—		76,118		—
Pooled trust preferred securities	18,555		—		—		18,555
GSE preferred stock	1		1		—		—

Level 1 investment securities are valued using quoted prices in active markets for identical assets.  The Company uses Level 1 prices for its GSE preferred stock.

Level 2 investment securities are valued by a third-party pricing service commonly used in the banking industry utilizing observable inputs.  The pricing provider utilizes evaluated pricing models that vary based on asset class.  These models incorporate available market information including quoted prices of investment securities with similar characteristics and, because many fixed-income investment securities do not trade on a daily basis, apply available information through processes such as benchmark yield curves, benchmarking of like investment securities, sector groupings, and matrix pricing.  In addition, model processes, such as an option adjusted spread model, are used to develop prepayment estimates and interest rate scenarios for investment securities with prepayment features.

Management uses a recognized third-party pricing service to obtain market values for the Company’s fixed-income securities portfolio.  Documentation is maintained as to the methodology and summary of inputs used by the pricing service for the various types of securities, and management notes that the servicer maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs.  Management does not have access to all of the individual specific assumptions and inputs used for each security.  The significant observable inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

Management validates the market values against fair market curves and other available pricing sources. Bloomberg pricing is used to compare the reasonableness of the third-party pricing service prices for U.S. Treasury securities and GSE bonds.  For all securities, the Company’s Investment Officer, who is in the market on a regular basis, monitors the market and is familiar with where similar securities are trading and where specific bonds in specific sectors should be priced.  All monthly output from the third-party provider is reviewed against expectations as to pricing based on fair market curves, ratings, coupon, structure, and recent trade reports or offerings.

Based on management’s review of the methodology and summary of inputs used, management has concluded these assets are properly classified as Level 2 assets.

Fair value determinations for Level 3 measurements of securities are the responsibility of the Company’s Investment Officer with review and approval by the Asset/Liability Management Committee. Level 3 models are utilized when quoted prices are not available for certain investment securities or in markets where trading activity has slowed or ceased.  When quoted prices are not available and are not provided by third-party pricing services, management judgment is necessary to determine fair value.  As such, fair value is determined using discounted cash flow analysis models, incorporating default rate assumptions, estimations of prepayment characteristics, and implied volatilities.

The Company determined that Level 3 pricing models should be utilized for valuing its pooled trust preferred investment securities.  The markets for these securities and for similar securities at June 30, 2012 were illiquid.  There have been a limited number of observable transactions in the secondary market, however, a new issue market does not exist.  Management has determined a valuation approach that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is more representative of fair value than the market approach valuation technique.

For its Level 3 pricing model, the Company uses externally produced fair values provided by a third-party pricing service and compares them to other external pricing sources. Other external sources provided similar prices, both higher and lower, than those used by the Company.  The external model uses observed prices from limited transactions on similar securities to estimate liquidation values.

The following is a reconciliation of the beginning and ending balances for the periods indicated of recurring fair value measurements recognized in the accompanying consolidated statements of condition using Level 3 inputs:

	Pooled Trust Preferred Securities
	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning balance	$	15,467		$	19,262		$	18,555		$	18,125
Total realized and unrealized gains and losses:
Included in accumulated other comprehensive income (loss)	469			99			(2,062		)	1,322
Principal repayments	(1,141		)	(1,126		)	(1,810		)	(1,250		)
Discount accretion	151			136			263			174
Ending balance	$	14,946		$	18,371		$	14,946		$	18,371

The following table sets forth the Company’s financial and non-financial assets by level within the fair value hierarchy that were measured at fair value on a non-recurring basis at the dates indicated.

			Fair Value Measurements at  June 30, 2012
	Fair  Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans (collateral-dependent)	$	11,836	$	—	$	—	$	11,836
Other real estate owned	2,356		—		—		2,356

			Fair Value Measurements at  December 31, 2011
	Fair  Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans (collateral-dependent)	$	17,180	$	—	$	—	$	17,180
Other real estate owned	2,462		—		—		2,462

Loans for which it is probable that the Bank will not collect all principal and interest due according to their contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.  If the impaired loan is identified as collateral-dependent, then the fair value method of measuring the amount of impairment is utilized. Impaired loans that are collateral-dependent are classified within Level 3 of the fair value hierarchy.

When the Bank determines a loan is collateral-dependent, the Bank’s Asset Management Committee (AMC) obtains appraisals on the underlying collateral securing the loan. The Senior Credit Officer (SCO) reviews the appraisals for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by the SCO with input from the Bank’s Loan Committee. For purchased participation loans, management is dependent upon the lead bank to order and provide appraisals, which occasionally are broker’s opinions.

In determining the estimated fair value of the real estate, senior liens such as unpaid and current real estate taxes and any perfected liens are subtracted from the appraised value.  In addition, the Company generally applies a 10% discount to the current appraisal to allow for reasonable selling expenses, including sales commissions and closing costs.  

Fair value measurements for impaired loans are performed pursuant to ASC 310-10, Receivables, and are measured on a non-recurring basis.  Certain impaired loans were partially charged-off or re-evaluated during the second quarter of 2012.  These impaired loans were carried at fair value as estimated using current and prior appraisals, discounting factors, the borrowers’ financial results, estimated cash flows generated from the property, and other factors.  The change in the fair value of impaired loans that were valued based upon Level 3 inputs was approximately $880,000 and $771,000 for the three months ended June 30, 2012 and 2011, respectively, and $1.7 million and $1.6 million for the six months ended June 30, 2012 and 2011, respectively.  These losses are not recorded directly as an adjustment to current earnings or other comprehensive income (loss), but rather as a component in determining the overall adequacy of the allowance for loan losses.  These adjustments to the estimated fair value of impaired loans may result in increases or decreases to the provision for loan losses recorded in future earnings.

The estimated fair value of other real estate owned is based on current or prior appraisals, less estimated costs to sell of 10%. Other real estate owned is classified within Level 3 of the fair value hierarchy. Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by the AMC. The SCO reviews the appraisals for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by the SCO with input from the Bank’s Loan Committee. The reduction in fair value of other real estate owned was $199,000 and $1.8 million, respectively, for the three months ended June 30, 2012 and 2011 and $684,000 and $2.2 million, respectively, for the six months ended June 30, 2012 and 2011.  The changes were recorded as adjustments to current earnings through other real estate owned related expenses.

The following table sets forth quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at June 30, 2012 (dollars in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Averages)
Pooled trust preferred securities	$	14,946	Consensus pricing	Weighting of pricing	Varies by security 42.4% - 83.4% (57.9%)
Impaired loans (collateral-dependent)	11,836		Market comparable properties	Marketability discount	10%
Other real estate owned	2,356		Market comparable properties	Marketability discount	10%

The value of the pooled trust preferred securities is determined using multiple pricing models or similar techniques from third-party sources as well as significant unobservable inputs such as judgment or estimations by the Company in the weighting of the models. The unobservable inputs used in the fair value measurement of the Company’s investment in pooled trust preferred securities are offered quotes and comparability adjustments. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, changes in either of those inputs will not affect the other input.

The Company has the option to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the Fair Value Option) according to ASC 825-10, Financial Instruments.  The Company is not currently engaged in any hedging activities and, as a result, did not elect to measure any financial instruments at fair value under ASC 825-10.

Disclosure of fair value information about financial instruments for which it is practicable to estimate their value, whether or not recognized in the condensed consolidated statements of condition, is summarized below and identified within the fair value hierarchy at the dates indicated.  The aggregate fair value amounts presented do not represent the underlying value of the Company.

	June 30, 2012
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	85,533	$	85,533	$	—	$	—
Investment securities, available-for-sale	226,625		4		211,675		14,946
Investment securities, held-to-maturity	13,965		—		14,194		—
Federal Home Loan Bank stock	6,188		6,188		—		—
Loans receivable, net of allowance for loan losses	701,534		—		—		707,434
Loans held for sale	610		—		610		—
Interest receivable	2,801		—		2,801		—
Total financial assets	$	1,037,256	$	91,725	$	229,280	$	722,380
Financial Liabilities:
Deposits	$	967,154	$	604,504	$	—	$	364,325
Borrowed funds	51,306		—		54,270		—
Advance payments by borrowers	4,243		—		4,243		—
Interest payable	84		—		84		—
Total financial liabilities	$	1,022,787	$	604,504	$	58,597	$	364,325

	December 31, 2011
	Carrying Amount		Fair Value
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	92,072	$	92,072
Investment securities, available-for-sale	234,381		234,381
Investment securities, held-to-maturity	16,371		16,703
Federal Home Loan Bank stock	6,188		6,188
Loans receivable, net of allowance for loan losses	698,802		702,987
Loans held for sale	1,124		1,124
Interest receivable	3,011		3,011
Total financial assets	$	1,051,949	$	1,056,466
Financial Liabilities:
Deposits	$	977,424	$	979,483
Borrowed funds	54,200		57,241
Advance payments by borrowers	4,275		4,275
Interest payable	90		90
Total financial liabilities	$	1,035,989	$	1,041,089

The carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, and advance payments by borrowers.  Investment securities fair values are based on quotes received from a third-party pricing source and discounted cash flow analysis models.  The fair value of Federal Home Loan Bank stock is based on its redemption value.  The fair values for loans receivable are estimated using discounted cash flow analyses. Cash flows are adjusted for estimated prepayments, where appropriate, and are discounted using interest rates currently being offered by the Bank for loans with similar terms and collateral to borrowers of similar credit quality. The carrying amount of loans held for sale is the amount funded and approximates fair value due to the insignificant time between origination and date of sale.

The fair value of core deposits (checking, savings, and money market accounts) is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered by the Bank for deposits of similar remaining maturities.  The fair value of borrowed funds is estimated based on rates currently available to the Company for debt with similar terms and remaining maturities.  The fair value of the Company’s off-balance sheet instruments, including lending commitments, letters of credit, and credit enhancements, approximates their book value and is not included in the above table.

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Earnings Per Share, Policy [Policy Text Block]

Basic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the year.  Restricted stock shares which have not vested and shares held in Rabbi Trust accounts are not considered to be outstanding for purposes of calculating basic EPS.  Diluted EPS is computed by dividing net income by the average number of common shares outstanding during the year and includes the dilutive effect of stock options, unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts pursuant to deferred compensation plans.  The dilutive common stock equivalents are computed based on the treasury stock method using the average market price for the period.

Investment, Policy [Policy Text Block]

We evaluate all investment securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in the Financial Accounting Standards Board Accounting Standards Codification (ASC) 320-10, Investments - Debt and Equity Securities.  Current accounting guidance generally provides that if a marketable security is in an unrealized loss position, whether due to general market conditions or industry or issuer-specific factors, the holder of the investment securities must assess whether the impairment is other-than-temporary.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

The Company maintains an allowance for loan losses at a level management believes is appropriate in relation to the estimated risk inherent in the loan portfolio.  The allowance for loan losses represents the Company’s estimate of probable incurred losses in our loan portfolio at each statement of condition date and is based on the review of available and relevant information.

The first component of the allowance for loan losses contains allocations for probable incurred losses that we have identified relating to impaired loans pursuant to ASC 310-10, Receivables.  The Company individually evaluates for impairment all loans classified substandard and over $375,000, which decreased from $750,000 during the second quarter of 2012, to enable management to proactively identify potential losses over a larger cross section of the loan portfolio.  We also individually evaluate for impairment all loans for which we have initiated foreclosure proceedings. For all portfolio segments, loans are considered impaired when, based on current information and events, it is probable that the borrower will not be able to fulfill its obligation according to the contractual terms of the loan agreement.  The impairment loss, if any, is generally measured based on the present value of expected cash flows discounted at the loan’s effective interest rate.  As a practical expedient, impairment may be measured based on the loan’s observable market price, or the fair value of the collateral, if the loan is collateral-dependent.  A loan is considered collateral-dependent when the repayment of the loan will be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.  If management determines a loan is collateral-dependent, management will charge-off any identified collateral shortfall against the allowance for loan losses.

If foreclosure is probable, the Company is required to measure the impairment based on the fair value of the collateral.  The fair value of the collateral is generally obtained from the evaluation of the collateral, and one of the methods of evaluation is an independent third-party appraisal. When current appraisals are not available, management utilizes other evaluation methods to estimate the fair value of the collateral giving consideration to several factors including the price at which individual unit(s) could be sold in the current market, the period of time over which the unit(s) could be sold, the estimated cost to complete the unit(s), the risks associated with completing and selling the unit(s), the required return on the investment a potential acquirer may have, and the current market interest rates.  The analysis of each loan involves a high degree of judgment in estimating the amount of the loss associated with the loan, including the estimation of the amount and timing of future cash flows and collateral values.

The second component of the Company’s allowance for loan losses contains allocations for probable incurred losses within various pools of loans with similar characteristics pursuant to ASC 450-10, Contingencies.  This component is based in part on certain loss factors applied to various stratified loan pools excluding loans evaluated individually for impairment.  In determining the appropriate loss factors for all portfolio segments, management considers historical charge-offs and recoveries; levels of and trends in delinquencies, impaired loans, and other classified loans; concentrations of credit within the commercial loan portfolios; volume and type of lending; and current and anticipated economic conditions.

Loan losses for all portfolio segments are charged-off against the allowance when the loan balance or a portion of the loan balance is no longer covered by the repayment capacity of the borrower based on an evaluation of available and projected cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance.  The Company assesses the appropriateness of the allowance for loan losses on a quarterly basis and adjusts the allowance for loan losses by recording a provision for loan losses in an amount sufficient to maintain the allowance at a level deemed appropriate by management.  The evaluation of the appropriateness of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as additional information becomes available or as future events occur.  To the extent that actual outcomes differ from management’s estimates, an additional provision for loan losses could be required which could adversely affect earnings or the Company’s financial position in future periods.

The risk characteristics of each loan portfolio segment are as follows:

Commercial and Industrial Loans (C&I)

C&I loans are primarily based on the identified historic and/or the projected cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, do fluctuate based on changes in the company’s internal and external environment including management, human and capital resources, economic conditions, competition, regulation, and product innovation/obsolescence.  The collateral securing these loans may also fluctuate in value and generally has advance rates between 50-80% of the collateral value.  Most C&I loans are secured by business assets being financed such as equipment, accounts receivable, and/or inventory and generally incorporate a secured or unsecured personal guarantee.  Occasionally, some loans may be made on an unsecured basis.  In the case of loans secured by accounts receivable and/or inventory, the collateral securing the advances is generally monitored through a borrowing base certificate submitted by the borrower which may identify deterioration in collateral value.  The ability of the borrower to collect amounts due from its customers may be affected by its customers’ economic and financial condition.  The availability of funds for the repayment of these loans may be substantially dependent on each of the factors described above.

Commercial Real Estate – Owner Occupied, Non-Owner Occupied, and Multifamily

These types of commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.  Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent upon the cash flows from the successful operation of the property securing the loan or the cash flows from the owner occupied business conducted on the property securing the loan.  A borrower’s business and/or the property securing the loan may be adversely affected by business conditions generally, and fluctuations in the real estate markets or in the general economy, which if adverse, can negatively affect the borrowers’ ability to repay the loan.  The value and cash flow of the property can be influenced by changes in market rental rates, changes in interest rates or investors’ required rates of return, the condition of the property, zoning, or environmental issues.  The properties securing the commercial real estate portfolio are diverse in terms of type and are generally located in the Chicagoland/Northwest Indiana market.  Owner occupied loans are generally a borrower purchased building where the borrower occupies at least 51% of the space with the primary source of repayment dependent on sources other than the underlying collateral.  Non-owner occupied and single tenant properties may have higher risk than owner occupied loans since the primary source of repayment is dependent upon the ability to lease out the collateral as well as the financial stability of the businesses occupying the collateral.  Multifamily loans can also be impacted by vacancy/collection losses and tenant turnover due to generally shorter term leases or even month-to-month leases.  Management monitors and evaluates commercial real estate loan portfolio concentrations based upon cash flow, collateral, geography, and risk grade criteria.  As a general rule, management avoids financing single purpose projects unless other underwriting factors mitigate the credit risk to an acceptable level.  The Company’s loan policy generally requires lower loan-to-value ratios against these types of properties.

Commercial Construction and Land Development Loans

Construction loans are underwritten utilizing feasibility studies, independent appraisals, sensitivity analysis of absorption and lease rates, presale or prelease/Letters of Intent analysis, and financial analysis of the developers and property owners.  Construction loans are generally based on the estimated cost to construct and cash flows associated with the completed project or stabilized value.  These estimates are subjective in nature and if erroneous, may preclude the borrower from being able to repay the loan.  Construction loans often involve the disbursement of substantial funds with repayment dependent on the success of the completed project.  These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, the ability to sell the property, and the availability of long-term financing.

Commercial Participation Loans

Participation loans generally have larger principal balances, portions of which are sold to multiple participant banks in order to spread credit risk.  The collateral securing these loans is often real estate and is often located outside of the Company’s geographic footprint.  Loans outside of the Company’s geographical footprint pose additional risk due to the lack of knowledge of general economic conditions where the project is located along with various project specific risks regarding buyer demand and project specific risks regarding project competition risks.  The participant banks are required to underwrite these credits utilizing their own internal analysis techniques

and their own credit standards.  However, the participant banks are reliant upon the information about the borrowers and the collateral provided by the lead bank.  These loans carry higher levels of risk due to the participant banks being dependent on the lead bank for monitoring and managing the credit relationship, including the workout and/or foreclosure process should the borrower default.

Retail Loans

The Company’s retail loans include one-to-four family residential mortgage loans, home equity loans and lines of credit, retail construction, and other consumer loans.  Management has established a maximum loan-to-value ratio (LTV) of 80% for one-to-four family residential mortgages and home equity loans and lines of credit that are secured by a first or second mortgage on owner and non-owner occupied residences.  Loan applications exceeding 80% LTV require private mortgage insurance (PMI) from a mortgage insurance company deemed acceptable by management.  Residential construction loans are underwritten to the same standards and generally require an end loan financing commitment either from the Company or another financial institution acceptable to the Company.  Other consumer loans are generally small dollar auto and personal loans based on the credit score and income of the applicant.  These loans are homogeneous in nature and are rated in pools based on similar characteristics.

The Company, as a matter of good risk management practices, utilizes objective loan grading matrices to assign risk ratings to all commercial loans.  The risk rating criteria is supported by core credit attributes that emphasize debt service coverage, operating trends, collateral, and guarantor liquidity, and further removes subjective criteria and bias from the analysis.  Retail loans are rated pass until they become 90 days or more delinquent, put on non-accrual status, and generally rated substandard.  The Company uses the following definitions for risk ratings:

• Pass.  Loans that meet the conservative underwriting guidelines that include core credit attributes noted above as measured by the loan grading matrices at levels that are in excess of the minimum amounts required to adequately service the loans.

• Pass Watch.  Loans which are performing per their contractual terms and are not necessarily demonstrating signs of credit or operational weakness, including but not limited to delinquency.  Loans in this category are monitored by management for timely payments.  Current financial information may be pending or, based upon the most recent analysis of the loan, possess credit attributes that are sufficient to adequately service the loan, but are less than the parameters required for a pass risk rating.  This rating is considered transitional because management does not have current financial information to determine the appropriate risk grade or the quality of the loan appears to be changing.  Loans may be graded as pass watch when a single event may have occurred that could be indicative of an emerging issue or indicate trending that would warrant a change in the risk rating.

• Special Mention.  Loans that have a potential weakness that will be closely monitored by management.  A credit graded special mention does not expose the Company to elevated risk that would warrant an adverse classification.

• Substandard.  Loans that are inadequately protected by the current net worth and paying capacity of the borrower, guarantor, or the collateral pledged.  Loans classified as substandard have a well-defined weakness or weaknesses, characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

• Doubtful.  Loans that have the same weaknesses as those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans and Leases Receivable, Nonaccrual Loan and Lease Status, Policy [Policy Text Block]

For all loan categories, past due status is based on the contractual terms of the loan.  Interest income is generally not accrued on loans which are delinquent 90 days or more, or for loans which management believes, after giving consideration to a number of factors, including economic and business conditions and collection efforts, collection of interest is doubtful.  In all cases, loans are placed on non-accrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued but not received for loans placed on non-accrual is reversed against interest income.  Interest subsequently received on non-accrual loans is accounted for using the cost-recovery basis for commercial loans and the cash-basis for retail loans until qualifying for return to accrual status.

Commercial loans are generally placed on non-accrual once they become 90 days past due.  Management reviews all current financial information of the borrower and guarantor(s) and action plans to bring the loan current before determining if the loan should be placed on non-accrual.  Management requires appropriate justification to maintain a commercial loan on accrual status once 90 days past due.  Occasionally commercial loans are placed on non-accrual status before the loan becomes significantly past due if current information indicates that future repayment of principal and interest may be doubtful.

Commercial loans are returned to accrual status when management, based on a thorough analysis of the borrower, can expect the full repayment of principal and interest. The analysis will reflect the borrower’s capacity to service the debt and/or the guarantor’s ability and willingness to make the required debt service payments, either under the original note agreement and terms, or, in the case of an A/B note structure, under the terms of the new A note. Analysis may also include the proceeds from the disposition of the collateral as a potential repayment source based upon the net realizable value of the property.

In addition, a note may be considered for return to accrual status when payments (equal to or greater than those required in the final A note structure) have been made by the borrower for a minimum of six months and the borrower is in compliance with all other terms of the applicable agreement.

Retail loans are returned to accrual status primarily based on the payment status of the loan.  A retail loan is automatically placed on non-accrual status immediately upon becoming 90 days past due.  The loan remains on non-accrual status, with interest income recognized on a cash basis when a payment is made, until the loan is paid current.  Once current, the loan is automatically returned to accrual status.  If management identifies other information to indicate that future repayment of the loan balance may still be questionable, the loan may be manually moved to non-accrual status until management determines otherwise.

Loans and Leases Receivable, Troubled Debt Restructuring Policy [Policy Text Block]

Management monitors the TDRs based on the type of modification or concession granted to the borrower.  These types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions.  Of the various noted concessions, management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal.  Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure.

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a TDR.  The Company may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations.  Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.  TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports.  Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

For one-to-four family residential loans and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure.  There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

When considering a loan restructure, management will determine if:  (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

When a loan is restructured, the new terms often require a reduced monthly debt service payment. For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt.  If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status.  To date, there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.

For retail loans, an analysis of the individual’s ability to service the new required payments is performed.  If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status.  The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status.  Retail TDRs remain on non-accrual status until sufficient payments have been made to bring the past due principal and interest current, at which point the loan would be transferred to accrual status.

Default occurs when a TDR is 90 days or more past due, transferred to non-accrual status, or transferred to other real estate owned within twelve months of restructuring.

Fair Value of Financial Instruments, Policy [Policy Text Block]

The Company measures fair value according to ASC 820-10: Fair Value Measurements and Disclosures.  ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques, but not the valuation techniques themselves.  The fair value hierarchy is designed to indicate the relative reliability of the fair value measure.  The highest priority is given to quoted prices in active markets and the lowest to unobservable data such as the Company’s internal information.  ASC 820-10 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  There are three levels of inputs into the fair value hierarchy (Level 1 being the highest priority and Level 3 being the lowest priority):

Level 1 – Unadjusted quoted prices for identical instruments in active markets;

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable; and

Level 3 – Instruments whose significant value drivers or assumptions are unobservable and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Fair Value of Financial Instruments, Fair Value Hierarchy [Policy Text Block]

Level 1 investment securities are valued using quoted prices in active markets for identical assets.  The Company uses Level 1 prices for its GSE preferred stock.

Level 2 investment securities are valued by a third-party pricing service commonly used in the banking industry utilizing observable inputs.  The pricing provider utilizes evaluated pricing models that vary based on asset class.  These models incorporate available market information including quoted prices of investment securities with similar characteristics and, because many fixed-income investment securities do not trade on a daily basis, apply available information through processes such as benchmark yield curves, benchmarking of like investment securities, sector groupings, and matrix pricing.  In addition, model processes, such as an option adjusted spread model, are used to develop prepayment estimates and interest rate scenarios for investment securities with prepayment features.

Management uses a recognized third-party pricing service to obtain market values for the Company’s fixed-income securities portfolio.  Documentation is maintained as to the methodology and summary of inputs used by the pricing service for the various types of securities, and management notes that the servicer maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs.  Management does not have access to all of the individual specific assumptions and inputs used for each security.  The significant observable inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

Management validates the market values against fair market curves and other available pricing sources. Bloomberg pricing is used to compare the reasonableness of the third-party pricing service prices for U.S. Treasury securities and GSE bonds.  For all securities, the Company’s Investment Officer, who is in the market on a regular basis, monitors the market and is familiar with where similar securities are trading and where specific bonds in specific sectors should be priced.  All monthly output from the third-party provider is reviewed against expectations as to pricing based on fair market curves, ratings, coupon, structure, and recent trade reports or offerings.

Based on management’s review of the methodology and summary of inputs used, management has concluded these assets are properly classified as Level 2 assets.

Fair value determinations for Level 3 measurements of securities are the responsibility of the Company’s Investment Officer with review and approval by the Asset/Liability Management Committee. Level 3 models are utilized when quoted prices are not available for certain investment securities or in markets where trading activity has slowed or ceased.  When quoted prices are not available and are not provided by third-party pricing services, management judgment is necessary to determine fair value.  As such, fair value is determined using discounted cash flow analysis models, incorporating default rate assumptions, estimations of prepayment characteristics, and implied volatilities.

The Company determined that Level 3 pricing models should be utilized for valuing its pooled trust preferred investment securities.  The markets for these securities and for similar securities at June 30, 2012 were illiquid.  There have been a limited number of observable transactions in the secondary market, however, a new issue market does not exist.  Management has determined a valuation approach that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is more representative of fair value than the market approach valuation technique.

For its Level 3 pricing model, the Company uses externally produced fair values provided by a third-party pricing service and compares them to other external pricing sources. Other external sources provided similar prices, both higher and lower, than those used by the Company.  The external model uses observed prices from limited transactions on similar securities to estimate liquidation values.

Fair Value of Financial Instruments, Fair Value Measurements of Impaired Loans and Other Real Estate Owned [Policy Text Block]

Loans for which it is probable that the Bank will not collect all principal and interest due according to their contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.  If the impaired loan is identified as collateral-dependent, then the fair value method of measuring the amount of impairment is utilized. Impaired loans that are collateral-dependent are classified within Level 3 of the fair value hierarchy.

When the Bank determines a loan is collateral-dependent, the Bank’s Asset Management Committee (AMC) obtains appraisals on the underlying collateral securing the loan. The Senior Credit Officer (SCO) reviews the appraisals for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by the SCO with input from the Bank’s Loan Committee. For purchased participation loans, management is dependent upon the lead bank to order and provide appraisals, which occasionally are broker’s opinions.

In determining the estimated fair value of the real estate, senior liens such as unpaid and current real estate taxes and any perfected liens are subtracted from the appraised value.  In addition, the Company generally applies a 10% discount to the current appraisal to allow for reasonable selling expenses, including sales commissions and closing costs.  

Fair value measurements for impaired loans are performed pursuant to ASC 310-10, Receivables, and are measured on a non-recurring basis.  Certain impaired loans were partially charged-off or re-evaluated during the second quarter of 2012.  These impaired loans were carried at fair value as estimated using current and prior appraisals, discounting factors, the borrowers’ financial results, estimated cash flows generated from the property, and other factors.  The change in the fair value of impaired loans that were valued based upon Level 3 inputs was approximately $880,000 and $771,000 for the three months ended June 30, 2012 and 2011, respectively, and $1.7 million and $1.6 million for the six months ended June 30, 2012 and 2011, respectively.  These losses are not recorded directly as an adjustment to current earnings or other comprehensive income (loss), but rather as a component in determining the overall adequacy of the allowance for loan losses.  These adjustments to the estimated fair value of impaired loans may result in increases or decreases to the provision for loan losses recorded in future earnings.

The estimated fair value of other real estate owned is based on current or prior appraisals, less estimated costs to sell of 10%. Other real estate owned is classified within Level 3 of the fair value hierarchy. Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by the AMC. The SCO reviews the appraisals for accuracy and consistency. Appraisers are selected from the list of approved appraisers maintained by the SCO with input from the Bank’s Loan Committee. The reduction in fair value of other real estate owned was $199,000 and $1.8 million, respectively, for the three months ended June 30, 2012 and 2011 and $684,000 and $2.2 million, respectively, for the six months ended June 30, 2012 and 2011.  The changes were recorded as adjustments to current earnings through other real estate owned related expenses.

Fair Value of Financial Instruments, Unobservable Inputs [Policy Text Block]

The value of the pooled trust preferred securities is determined using multiple pricing models or similar techniques from third-party sources as well as significant unobservable inputs such as judgment or estimations by the Company in the weighting of the models. The unobservable inputs used in the fair value measurement of the Company’s investment in pooled trust preferred securities are offered quotes and comparability adjustments. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, changes in either of those inputs will not affect the other input.

The Company has the option to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the Fair Value Option) according to ASC 825-10, Financial Instruments.  The Company is not currently engaged in any hedging activities and, as a result, did not elect to measure any financial instruments at fair value under ASC 825-10.

Fair Value of Financial Instruments, Balance Sheet Groupings [Policy Text Block]

The carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, and advance payments by borrowers.  Investment securities fair values are based on quotes received from a third-party pricing source and discounted cash flow analysis models.  The fair value of Federal Home Loan Bank stock is based on its redemption value.  The fair values for loans receivable are estimated using discounted cash flow analyses. Cash flows are adjusted for estimated prepayments, where appropriate, and are discounted using interest rates currently being offered by the Bank for loans with similar terms and collateral to borrowers of similar credit quality. The carrying amount of loans held for sale is the amount funded and approximates fair value due to the insignificant time between origination and date of sale.

The fair value of core deposits (checking, savings, and money market accounts) is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered by the Bank for deposits of similar remaining maturities.  The fair value of borrowed funds is estimated based on rates currently available to the Company for debt with similar terms and remaining maturities.  The fair value of the Company’s off-balance sheet instruments, including lending commitments, letters of credit, and credit enhancements, approximates their book value and is not included in the above table.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

The Company accounts for its share-based compensation in accordance with ASC 718-10, Compensation – Stock Based Compensation.  ASC 718-10 addresses all forms of share-based payment awards, including shares under employee stock purchase plans, stock options, restricted stock, and stock appreciation rights.  ASC 718-10 requires all share-based payments to be recognized as expense, based upon their fair values, in the financial statements over the service period of the awards.

For additional details on the Company’s share-based compensation plans and related disclosures, see “Note 9.  Share-Based Compensation” in the consolidated financial statements as presented in the Company’s 2011 Annual Report on Form 10-K.

Stock Options

The Company’s 2008 Equity Incentive Plan allows for the grant of both incentive and non-qualified stock options to directors, officers, and employees.  The stock option vesting periods and exercise and expiration dates are determined by the Compensation Committee at the time of the grant.  The exercise price of the stock options is equal to the fair market value of the common stock on the grant date.

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Allowance for Loan Losses Schedule of Loans Receivable by Risk Rating Category (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Commercial loans:
Commercial and industrial	$ 89,479	$ 85,160
Commercial real estate:
Owner occupied	102,149	93,833
Non-owner occupied	184,284	188,293
Multifamily	76,647	71,876
Commercial construction and land development	23,353	22,045
Commercial participations	6,453	12,053
Total commercial loans	482,365	473,260
Retail loans:
One-to-four family residential	177,830	181,698
Home equity lines of credit	49,476	52,873
Retail construction	1,518	1,022
Other	2,724	2,771
Total retail loans	231,548	238,364
Total loans receivable	713,913	711,624
Pass
Commercial loans:
Commercial and industrial	75,420	76,554
Commercial real estate:
Owner occupied	76,866	69,029
Non-owner occupied	131,996	147,678
Multifamily	69,340	65,920
Commercial construction and land development	17,296	16,412
Commercial participations	4,114	9,698
Total commercial loans	375,032	385,291
Retail loans:
One-to-four family residential	172,267	176,763
Home equity lines of credit	48,927	52,332
Retail construction	1,199	853
Other	2,724	2,771
Total retail loans	225,117	232,719
Total loans receivable	600,149	618,010
Pass Watch
Commercial loans:
Commercial and industrial	7,692	6,534
Commercial real estate:
Owner occupied	11,760	12,036
Non-owner occupied	5,643	9,219
Multifamily	3,184	3,119
Commercial construction and land development	1,290	805
Commercial participations	9	0
Total commercial loans	29,578	31,713
Retail loans:
One-to-four family residential	0	0
Home equity lines of credit	0	0
Retail construction	0	0
Other	0	0
Total retail loans	0	0
Total loans receivable	29,578	31,713
Special Mention
Commercial loans:
Commercial and industrial	5,857	1,476
Commercial real estate:
Owner occupied	1,727	1,540
Non-owner occupied	17,916	7,347
Multifamily	599	2,331
Commercial construction and land development	0	1,450
Commercial participations	0	0
Total commercial loans	26,099	14,144
Retail loans:
One-to-four family residential	0	0
Home equity lines of credit	0	0
Retail construction	0	0
Other	0	0
Total retail loans	0	0
Total loans receivable	26,099	14,144
Substandard
Commercial loans:
Commercial and industrial	510	596
Commercial real estate:
Owner occupied	11,796	11,228
Non-owner occupied	28,585	24,049
Multifamily	3,524	506
Commercial construction and land development	4,160	3,378
Commercial participations	2,330	2,355
Total commercial loans	50,905	42,112
Retail loans:
One-to-four family residential	5,563	4,935
Home equity lines of credit	549	541
Retail construction	319	169
Other	0	0
Total retail loans	6,431	5,645
Total loans receivable	57,336	47,757
Doubtful
Commercial loans:
Commercial and industrial	0	0
Commercial real estate:
Owner occupied	0	0
Non-owner occupied	144	0
Multifamily	0	0
Commercial construction and land development	607	0
Commercial participations	0	0
Total commercial loans	751	0
Retail loans:
One-to-four family residential	0	0
Home equity lines of credit	0	0
Retail construction	0	0
Other	0	0
Total retail loans	0	0
Total loans receivable	$ 751	$ 0

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

The following tables set forth the Company’s financial assets by level within the fair value hierarchy that were measured at fair value on a recurring basis at the dates indicated.

			Fair Value Measurements at  June 30, 2012
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
	(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury securities	$	14,905	$	—	$	14,905	$	—
GSE securities	38,765		—		38,765		—
Corporate bonds	5,169		—		5,169		—
Collateralized mortgage obligations	87,124		—		87,124		—
Commercial mortgage-backed securities	61,495		—		61,495		—
Asset backed securities	4,217		—		4,217		—
Pooled trust preferred securities	14,946		—		—		14,946
GSE preferred stock	4		4		—		—

			Fair Value Measurements at  December 31, 2011
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)
	(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury securities	$	15,414	$	—	$	15,414	$	—
GSE securities	48,382		—		48,382		—
Corporate bonds	5,027		—		5,027		—
Collateralized mortgage obligations	70,884		—		70,884		—
Commercial mortgage-backed securities	76,118		—		76,118		—
Pooled trust preferred securities	18,555		—		—		18,555
GSE preferred stock	1		1		—		—

Fair Value Assets Measured on Recurring Basis Unobservable Input Reconciliation Table [Table Text Block]

The following is a reconciliation of the beginning and ending balances for the periods indicated of recurring fair value measurements recognized in the accompanying consolidated statements of condition using Level 3 inputs:

	Pooled Trust Preferred Securities
	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning balance	$	15,467		$	19,262		$	18,555		$	18,125
Total realized and unrealized gains and losses:
Included in accumulated other comprehensive income (loss)	469			99			(2,062		)	1,322
Principal repayments	(1,141		)	(1,126		)	(1,810		)	(1,250		)
Discount accretion	151			136			263			174
Ending balance	$	14,946		$	18,371		$	14,946		$	18,371

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Table Text Block]

The following table sets forth the Company’s financial and non-financial assets by level within the fair value hierarchy that were measured at fair value on a non-recurring basis at the dates indicated.

			Fair Value Measurements at  June 30, 2012
	Fair  Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans (collateral-dependent)	$	11,836	$	—	$	—	$	11,836
Other real estate owned	2,356		—		—		2,356

			Fair Value Measurements at  December 31, 2011
	Fair  Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Impaired loans (collateral-dependent)	$	17,180	$	—	$	—	$	17,180
Other real estate owned	2,462		—		—		2,462

Fair Value, Measurement Inputs, Disclosure [Table Text Block]

The following table sets forth quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at June 30, 2012 (dollars in thousands):

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Averages)
Pooled trust preferred securities	$	14,946	Consensus pricing	Weighting of pricing	Varies by security 42.4% - 83.4% (57.9%)
Impaired loans (collateral-dependent)	11,836		Market comparable properties	Marketability discount	10%
Other real estate owned	2,356		Market comparable properties	Marketability discount	10%

Fair Value, by Balance Sheet Grouping [Table Text Block]

Disclosure of fair value information about financial instruments for which it is practicable to estimate their value, whether or not recognized in the condensed consolidated statements of condition, is summarized below and identified within the fair value hierarchy at the dates indicated.  The aggregate fair value amounts presented do not represent the underlying value of the Company.

	June 30, 2012
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	85,533	$	85,533	$	—	$	—
Investment securities, available-for-sale	226,625		4		211,675		14,946
Investment securities, held-to-maturity	13,965		—		14,194		—
Federal Home Loan Bank stock	6,188		6,188		—		—
Loans receivable, net of allowance for loan losses	701,534		—		—		707,434
Loans held for sale	610		—		610		—
Interest receivable	2,801		—		2,801		—
Total financial assets	$	1,037,256	$	91,725	$	229,280	$	722,380
Financial Liabilities:
Deposits	$	967,154	$	604,504	$	—	$	364,325
Borrowed funds	51,306		—		54,270		—
Advance payments by borrowers	4,243		—		4,243		—
Interest payable	84		—		84		—
Total financial liabilities	$	1,022,787	$	604,504	$	58,597	$	364,325

	December 31, 2011
	Carrying Amount		Fair Value
	(Dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	92,072	$	92,072
Investment securities, available-for-sale	234,381		234,381
Investment securities, held-to-maturity	16,371		16,703
Federal Home Loan Bank stock	6,188		6,188
Loans receivable, net of allowance for loan losses	698,802		702,987
Loans held for sale	1,124		1,124
Interest receivable	3,011		3,011
Total financial assets	$	1,051,949	$	1,056,466
Financial Liabilities:
Deposits	$	977,424	$	979,483
Borrowed funds	54,200		57,241
Advance payments by borrowers	4,275		4,275
Interest payable	90		90
Total financial liabilities	$	1,035,989	$	1,041,089

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Investment Securities Schedule of Available-for-sale Securities by Maturity (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale Securities
Amortized Cost	$ 231,073	$ 237,497
Fair Value	226,625	234,381
U.S. Treasury securities - Due in one year or less
Available-for-sale Securities
Amortized Cost	2,500
Fair Value	2,500
U.S. Treasury securities - Due after one year through five years
Available-for-sale Securities
Amortized Cost	11,969
Fair Value	12,405
GSE securities - Due in one year or less
Available-for-sale Securities
Amortized Cost	800
Fair Value	805
GSE securities - Due after one year through five years
Available-for-sale Securities
Amortized Cost	37,026
Fair Value	37,960
Corporate bonds - Due after one year through five years
Available-for-sale Securities
Amortized Cost	5,069
Fair Value	5,169
Collateralized mortgage obligations - Due after five years through ten years
Available-for-sale Securities
Amortized Cost	8,940
Fair Value	9,423
Collateralized mortgage obligations - Due after ten years
Available-for-sale Securities
Amortized Cost	77,131
Fair Value	77,701
Commercial mortgage-backed securities - Due after ten years
Available-for-sale Securities
Amortized Cost	60,155
Fair Value	61,495
Asset backed securities - Due after ten years
Available-for-sale Securities
Amortized Cost	4,226
Fair Value	4,217
Pooled trust preferred securities - Due after ten years
Available-for-sale Securities
Amortized Cost	23,257
Fair Value	14,946
GSE preferred stock
Available-for-sale Securities
Amortized Cost	0	0
Fair Value	$ 4	$ 1

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Share-Based Compensation (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012 Years	Jun. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Expense			$ 6,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested [Roll Forward]
Unvested at December 31, 2011			175,639
Granted			48,186
Vested			(52,596)
Forfeited			(50,242)
Unvested at June 30, 2012	120,987		120,987
Unvested at December 31, 2011			$ 4.97
Granted			$ 5.96
Vested			$ 6.18
Forfeited			$ 5.21
Unvested at June 30, 2012	$ 4.72		$ 4.72
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options outstanding at December 31, 2011			515,995
Granted			20,000
Exercised			0
Forfeited			(56,000)
Expired unexercised			(60,200)
Options outstanding at June 30, 2012	419,795		419,795
Options outstanding at December 31, 2011			$ 14.01
Granted	$ 4.40		$ 4.40
Exercised	$ 0.00		$ 0.00
Forfeited	$ 13.91		$ 13.91
Expired unexercised	$ 13.73		$ 13.73
Options outstanding at June 30, 2012	$ 13.60		$ 13.60
Intrinsic Value of Exercisable Options that are Out-of-the-Money	0		0
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Expense	49,000	79,000	70,000	145,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Unamortized Cost of Restricted Stock Awards in Additional Paid In Captial	572,000		572,000
Weighted-Average Period in Years of Restricted Stock Award Cost Amortization			3.0
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Expense	3,000	0	6,000	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Exercised	0	0	0	0
Low Exercise Price of Stock Options Outstanding			$ 4.40
High Exercise Price of Stock Options Outstanding			$ 14.76
Weighted-Average Remaining Contractual Term of Stock Options Outstanding			2.1
Number of Exercisable Stock Options that are Out-of-the-Money	399,795		399,795
Number of Unvested, In-the-Money Stock Options			20,000
Intrinsic Value of Unvested In-the-Money Stock Options	$ 11,600		$ 11,600
2003 Stock Option Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares of Common Stock Available from the 2003 Stock Option Plan and Authorized for Future Grant in the 2008 Onmibus Equity Incentive Plan	64,500		64,500
2008 Omnibus Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares of Common Stock Authorized under the 2008 Omnibus Equity Incentive Plan	270,000		270,000
Shares of Common Stock Available for Grant under the 2008 Omnibus Equity Incentive Plan	209,501		209,501

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Allowance for Loan Losses Schedule of Troubled Debt Restructurings by Loan Category and Concession Type (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	$ 1,181		$ 805
Payment extension	6,449		7,881
Rate reduction and payment extension	3,444		2,659
Rate reduction and interest only	3,272		9,309
Payment extension and interest only	289		297
Forbearance	4,627		4,851
Rate reduction, payment extension, interest only, and forbearance	46		47
A/B note structure	5,860
Total troubled debt restructurings	25,168	25,883	25,849	36,451	39,708	39,581
Commercial and industrial
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	0		0
Payment extension	1,188		2,426
Rate reduction and payment extension	0		0
Rate reduction and interest only	0		0
Payment extension and interest only	0		0
Forbearance	0		0
Rate reduction, payment extension, interest only, and forbearance	0		0
A/B note structure	0
Total troubled debt restructurings	1,188		2,426
Commercial real estate - owner occupied
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	0		0
Payment extension	2,268		2,297
Rate reduction and payment extension	304		0
Rate reduction and interest only	0		0
Payment extension and interest only	289		297
Forbearance	0		0
Rate reduction, payment extension, interest only, and forbearance	46		47
A/B note structure	0
Total troubled debt restructurings	2,907		2,641
Commercial real estate - non-owner occupied
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	0		0
Payment extension	2,221		2,210
Rate reduction and payment extension	619		542
Rate reduction and interest only	3,018		9,054
Payment extension and interest only	0		0
Forbearance	2,879		3,103
Rate reduction, payment extension, interest only, and forbearance	0		0
A/B note structure	5,860
Total troubled debt restructurings	14,597		14,909
Commercial real estate - multifamily
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	0		0
Payment extension	0		0
Rate reduction and payment extension	256		259
Rate reduction and interest only	0		0
Payment extension and interest only	0		0
Forbearance	0		0
Rate reduction, payment extension, interest only, and forbearance	0		0
A/B note structure	0
Total troubled debt restructurings	256		259
Commercial participations
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	0		0
Payment extension	0		0
Rate reduction and payment extension	0		0
Rate reduction and interest only	0		0
Payment extension and interest only	0		0
Forbearance	1,748		1,748
Rate reduction, payment extension, interest only, and forbearance	0		0
A/B note structure	0
Total troubled debt restructurings	1,748		1,748
One-to-four family residential
Financing Receivable, Modifications, Consession Type [Line Items]
Rate reduction	1,181		805
Payment extension	772		948
Rate reduction and payment extension	2,265		1,858
Rate reduction and interest only	254		255
Payment extension and interest only	0		0
Forbearance	0		0
Rate reduction, payment extension, interest only, and forbearance	0		0
A/B note structure	0
Total troubled debt restructurings	$ 4,472		$ 3,866

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Consolidated Statement of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Statement of Income and Comprehensive Income [Abstract]
Net income	$ 1,354	$ 1,233	$ 1,844	$ 1,705
Unrealized holding gains (losses) arising during the period:
Unrealized net gains (losses)	(291)	1,859	(609)	3,109
Related income tax (expense) benefit	90	(675)	376	(1,124)
Net unrealized gains (losses)	(201)	1,184	(233)	1,985
Less: reclassification adjustment for net gains realized during the period:
Realized net gains	305	173	723	692
Related income tax expense	(119)	(64)	(270)	(253)
Net realized gains	186	109	453	439
Other comprehensive income (loss)	(387)	1,075	(686)	1,546
Comprehensive income	$ 967	$ 2,308	$ 1,158	$ 3,251

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Earnings Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the year.  Restricted stock shares which have not vested and shares held in Rabbi Trust accounts are not considered to be outstanding for purposes of calculating basic EPS.  Diluted EPS is computed by dividing net income by the average number of common shares outstanding during the year and includes the dilutive effect of stock options, unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts pursuant to deferred compensation plans.  The dilutive common stock equivalents are computed based on the treasury stock method using the average market price for the period.

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(Dollars in thousands, except per share data)
Net income	$	1,354	$	1,233	$	1,844	$	1,705
Weighted-average common shares:
Outstanding	10,750,313		10,691,424		10,724,103		10,671,196
Equivalents (1)	56,242		67,908		52,373		61,953
Total	10,806,555		10,759,332		10,776,476		10,733,149
Earnings per share:
Basic	$	.13	$	.12	$	.17	$	.16
Diluted	.13		.11		.17		.16
Number of anti-dilutive stock options excluded from the diluted earnings per share calculation	399,795		516,495		425,895		581,882
Weighted-average exercise price of anti-dilutive option shares	$	14.06	$	14.01	$	14.06	$	13.71

(1) Assumes exercise of dilutive stock options, a portion of the unearned restricted stock awards, and treasury shares held in Rabbi Trust accounts.

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Investment Securities Schedule of Held-to-maturity Securities by Maturity (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Held-to-maturity Securities
Amortized Cost	$ 13,965	$ 16,371
Fair Value	14,194	16,703
Asset backed securities - Due after five years through ten years
Held-to-maturity Securities
Amortized Cost	7,525
Fair Value	7,708
Municipal securities - Due in one year or less
Held-to-maturity Securities
Amortized Cost	2,500
Fair Value	2,512
Municipal securities - Due after one year through five years
Held-to-maturity Securities
Amortized Cost	3,940
Fair Value	$ 3,974

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Allowance for Loan Losses Schedule of Average Recorded Investment and Interest Income Recognized on Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	$ 63,660	$ 67,890	$ 64,775	$ 68,931
Interest Income Recognized	240	216	396	358
Average Recorded Investment, Commercial	55,704	60,236	56,801	61,264
Interest Income Recognized, Commercial	156	155	271	252
Average Recorded Investment, Retail	7,956	7,654	7,974	7,667
Interest Income Recognized, Retail	84	61	125	106
Commercial real estate - owner occupied
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	0	2,639	0	2,709
Interest Income Recognized	0	0	0	0
Commercial real estate - non-owner occupied
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	2,592	17,102	2,593	17,172
Interest Income Recognized	0	0	0	0
Commercial construction and land development
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	1,450	0	1,450	0
Interest Income Recognized	0	0	0	0
Commercial participations
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	0	5,302	0	5,302
Interest Income Recognized	0	0	0	0
Total loans with a specific valuation allowance
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	4,042	25,043	4,043	25,183
Interest Income Recognized	0	0	0	0
One-to-four family residential
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	7,086	6,892	7,103	6,905
Interest Income Recognized	79	60	118	105
Home equity lines of credit
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	550	589	550	589
Interest Income Recognized	5	1	7	1
Retail construction
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	320	169	321	169
Interest Income Recognized	0	0	0	0
Other
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	0	4	0	4
Interest Income Recognized	0	0	0	0
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	1,835	3,208	2,066	3,574
Interest Income Recognized	20	44	47	90
Commercial real estate - owner occupied
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	11,811	13,092	11,792	13,130
Interest Income Recognized	13	0	21	0
Commercial real estate - non-owner occupied
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	28,547	7,557	29,179	7,695
Interest Income Recognized	113	98	182	145
Commercial real estate - multifamily
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,703	678	3,890	678
Interest Income Recognized	10	13	21	17
Commercial construction and land development
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	3,316	7,171	3,316	7,171
Interest Income Recognized	0	0	0	0
Commercial participations
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	2,450	3,487	2,515	3,833
Interest Income Recognized	0	0	0	0
Total loans without a specific valuation allowance
Financing Receivable, Impaired [Line Items]
Average Recorded Investment	59,618	42,847	60,732	43,748
Interest Income Recognized	$ 240	$ 216	$ 396	$ 358

XML

Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2012

Receivables [Abstract]

Allowance for Credit Losses on Financing Receivables [Table Text Block]

The following tables provide other information regarding the allowance for loan and lease losses and balances by portfolio segment and impairment method at the dates indicated.

	At June 30, 2012
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to- four Family Residential		HELOC		Retail Construction		Other		Total
	(Dollars in thousands)
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	195	$	—	$	148	$	—	$	—	$	—	$	—	$	—	$	343
Collectively evaluated for impairment	1,284		2,347		3,604		600		1,294		651		1,348		468		4		119		11,719
Total evaluated for impairment	$	1,284	$	2,347	$	3,799	$	600	$	1,442	$	651	$	1,348	$	468	$	4	$	119	$	12,062
Loans receivable:
Individually evaluated for impairment	$	1,240	$	11,783	$	31,032	$	3,691	$	4,766	$	2,330	$	2,890	$	483	$	169	$	—	$	58,384
Collectively evaluated for impairment	88,239		90,366		153,252		72,956		18,587		4,123		174,940		48,993		1,349		2,724		655,529
Total loans receivable	$	89,479	$	102,149	$	184,284	$	76,647	$	23,353	$	6,453	$	177,830	$	49,476	$	1,518	$	2,724	$	713,913

	At December 31, 2011
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Construction and Land Development		Commercial Participations		One-to- four Family Residential		HELOC		Retail Construction		Other		Total
	(Dollars in thousands)
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	718	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	718
Collectively evaluated for impairment	1,236		2,129		3,217		370		1,198		1,467		1,521		442		3		123		11,706
Total evaluated for impairment	$	1,236	$	2,129	$	3,935	$	370	$	1,198	$	1,467	$	1,521	$	442	$	3	$	123	$	12,424
Loans receivable:
Individually evaluated for impairment	$	2,479	$	11,203	$	25,518	$	673	$	2,781	$	2,355	$	—	$	—	$	—	$	—	$	45,009
Collectively evaluated for impairment	82,681		82,630		162,775		71,203		19,264		9,698		181,698		52,873		1,022		2,771		666,615
Total loans receivable	$	85,160	$	93,833	$	188,293	$	71,876	$	22,045	$	12,053	$	181,698	$	52,873	$	1,022	$	2,771	$	711,624

The following tables present the activity in the allowance for loan losses for the three and six months ended June 30, 2012 and 2011.

	Three Months Ended June 30, 2012
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied		Non-Owner Occupied			Multifamily		Construction and Land Development		Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction		Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,063		$	2,196	$	3,697		$	600	$	1,313	$	951		$	1,459		$	374		$	4	$	111		$	11,768
Provision for loan losses	645			151		163			—		129		(275		)	(43		)	334			—		46			1,150
Loans charged-off:
Current period charge-offs	(436		)	—		(75		)	—		—		(25		)	(70		)	(243		)	—		(43		)	(892		)
Previously established specific reserves	—			—		—			—		—		—			—			—			—		—			—
Total loans charged-off	(436		)	—		(75		)	—		—		(25		)	(70		)	(243		)	—		(43		)	(892		)
Recoveries	12			—		14			—		—		—			2			3			—		5			36
Balance at end of period	$	1,284		$	2,347	$	3,799		$	600	$	1,442	$	651		$	1,348		$	468		$	4	$	119		$	12,062

	Six Months Ended June 30, 2012
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied		Non-Owner Occupied			Multifamily			Construction and Land Development		Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction		Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,236		$	2,129	$	3,935		$	370		$	1,198	$	1,467		$	1,521		$	442		$	3	$	123		$	12,424
Provision for loan losses	578			218		981			608			244		(791		)	1			317			1		43			2,200
Loans charged-off:
Current period charge-offs	(555		)	—		(436		)	(378		)	—		(25		)	(184		)	(295		)	—		(60		)	(1,933		)
Previously established specific reserves	—			—		(718		)	—			—		—			—			—			—		—			(718		)
Total loans charged-off	(555		)	—		(1,154		)	(378		)	—		(25		)	(184		)	(295		)	—		(60		)	(2,651		)
Recoveries	25			—		37			—			—		—			10			4			—		13			89
Balance at end of period	$	1,284		$	2,347	$	3,799		$	600		$	1,442	$	651		$	1,348		$	468		$	4	$	119		$	12,062

	Three Month Ended June 30, 2011
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to- four Family Residential			HELOC			Retail Construction			Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,268		$	1,012		$	6,717		$	461		$	154		$	4,719		$	1,323		$	1,327		$	9		$	105		$	17,095
Provision for loan losses	435			(58		)	(208		)	(20		)	(61		)	673			230			(44		)	(4		)	53			996
Loans charged-off:
Current period charge-offs	(153		)	(125		)	—			—			—			(605		)	(168		)	—			—			(22		)	(1,073		)
Previously established specific reserves	—			—			—			—			—			—			—			—			—			—			—
Total loans charged-off	(153		)	(125		)	—			—			—			(605		)	(168		)	—			—			(22		)	(1,073		)
Recoveries	4			—			6			—			—			—			2			1			—			8			21
Balance at end of period	$	1,554		$	829		$	6,515		$	441		$	93		$	4,787		$	1,387		$	1,284		$	5		$	144		$	17,039

	Six Months Ended June 30, 2011
				Commercial Real Estate
	Commercial and Industrial			Owner Occupied			Non-Owner Occupied			Multifamily			Construction and Land Development			Commercial Participations			One-to-four Family Residential			HELOC			Retail Construction			Other			Total
	(Dollars in thousands)
Balance at beginning of period	$	1,279		$	1,090		$	6,906		$	350		$	188		$	4,559		$	1,356		$	1,309		$	7		$	135		$	17,179
Provision for loan losses	422			(136		)	(405		)	295			(91		)	1,536			219			21			(2		)	40			1,899
Loans charged-off:
Current period charge-offs	(153		)	(125		)	—			(204		)	(4		)	(1,308		)	(191		)	(52		)	—			(50		)	(2,087		)
Previously established specific reserves	—			—			—			—			—			—			—			—			—			—			—
Total loans charged-off	(153		)	(125		)	—			(204		)	(4		)	(1,308		)	(191		)	(52		)	—			(50		)	(2,087		)
Recoveries	6			—			14			—			—			—			3			6			—			19			48
Balance at end of period	$	1,554		$	829		$	6,515		$	441		$	93		$	4,787		$	1,387		$	1,284		$	5		$	144		$	17,039

Financing Receivable Credit Quality Indicators [Table Text Block]

	Risk Rating at December 31, 2011
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	76,554	$	6,534	$	1,476	$	596	$	—	$	85,160
Commercial real estate:
Owner occupied	69,029		12,036		1,540		11,228		—		93,833
Non-owner occupied	147,678		9,219		7,347		24,049		—		188,293
Multifamily	65,920		3,119		2,331		506		—		71,876
Commercial construction and land development	16,412		805		1,450		3,378		—		22,045
Commercial participations	9,698		—		—		2,355		—		12,053
Total commercial loans	385,291		31,713		14,144		42,112		—		473,260
Retail loans:
One-to-four family residential	176,763		—		—		4,935		—		181,698
Home equity lines of credit	52,332		—		—		541		—		52,873
Retail construction	853		—		—		169		—		1,022
Other	2,771		—		—		—		—		2,771
Total retail loans	232,719		—		—		5,645		—		238,364
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624

The Company’s loans receivable portfolio is summarized by risk rating category as follows:

	Risk Rating at June 30, 2012
	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	75,420	$	7,692	$	5,857	$	510	$	—	$	89,479
Commercial real estate:
Owner occupied	76,866		11,760		1,727		11,796		—		102,149
Non-owner occupied	131,996		5,643		17,916		28,585		144		184,284
Multifamily	69,340		3,184		599		3,524		—		76,647
Commercial construction and land development	17,296		1,290		—		4,160		607		23,353
Commercial participations	4,114		9		—		2,330		—		6,453
Total commercial loans	375,032		29,578		26,099		50,905		751		482,365
Retail loans:
One-to-four family residential	172,267		—		—		5,563		—		177,830
Home equity lines of credit	48,927		—		—		549		—		49,476
Retail construction	1,199		—		—		319		—		1,518
Other	2,724		—		—		—		—		2,724
Total retail loans	225,117		—		—		6,431		—		231,548
Total loans	$	600,149	$	29,578	$	26,099	$	57,336	$	751	$	713,913

Delinquency Status of Financing Receivable Credit Quality Indicators [Table Text Block]

	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	595,119	$	25,384	$	25,199	$	1,739	$	607	$	648,048
Delinquent:
30-59 days	3,685		2,182		900		1,183		—		7,950
60-89 days	1,345		1,157		—		2,717		—		5,219
90 days or more	—		846		—		—		—		846
Non-accrual	—		9		—		51,697		144		51,850
Total loans	$	600,149	$	29,578	$	26,099	$	57,336	$	751	$	713,913

	Pass		Pass Watch		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
Current	$	610,127	$	29,528	$	11,670	$	1,568	$	—	$	652,893
Delinquent:
30-59 days	6,083		1,285		93		597		—		8,058
60-89 days	1,800		900		2,381		—		—		5,081
90 days or more	—		—		—		5		—		5
Non-accrual	—		—		—		45,587		—		45,587
Total loans	$	618,010	$	31,713	$	14,144	$	47,757	$	—	$	711,624

Past Due Financing Receivables [Table Text Block]

The Company’s loan portfolio delinquency status and its non-accrual loans are presented in the tables below at the dates indicated. The Company’s loans that are current and in non-accrual status include loans that have been restructured as troubled debt restructurings (TDRs) and have not yet met the required six months of payments under the restructured terms to be returned to accrual status.

	Delinquency at June 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable		Current Non-accrual Loans
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	300	$	917	$	130	$	510	$	1,857	$	87,622	$	89,479	$	264
Commercial real estate:
Owner occupied	1,894		553		716		11,492		14,655		87,494		102,149		779
Non-owner occupied	1,903		1,423		—		24,791		28,117		156,167		184,284		9,687
Multifamily	312		1,590		—		1,521		3,423		73,224		76,647		—
Commercial construction and land development	827		—		—		4,766		5,593		17,760		23,353		1,450
Commercial participations	—		—		—		2,339		2,339		4,114		6,453		—
Total commercial loans	5,236		4,483		846		45,419		55,984		426,381		482,365		12,180
Retail loans:
One-to-four family residential	2,572		736		—		5,562		8,870		168,960		177,830		1,516
Home equity lines of credit	141		—		—		550		691		48,785		49,476		214
Retail construction	—		—		—		319		319		1,199		1,518		—
Other	1		—		—		—		1		2,723		2,724		—
Total retail loans	2,714		736		—		6,431		9,881		221,667		231,548		1,730
Total loans receivable	$	7,950	$	5,219	$	846	$	51,850	$	65,865	$	648,048	$	713,913	$	13,910

	Delinquency at December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Past Due and Non-accrual		Current		Total Loans Receivable		Current Non-accrual Loans
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	369	$	24	$	—	$	596	$	989	$	84,171	$	85,160	$	262
Commercial real estate:
Owner occupied	551		—		—		11,228		11,779		82,054		93,833		569
Non-owner occupied	1,622		1,173		5		22,294		25,094		163,199		188,293		6,122
Multifamily	1,856		1,732		—		91		3,679		68,197		71,876		—
Commercial construction and land development	—		502		—		3,378		3,880		18,165		22,045		—
Commercial participations	—		—		—		2,355		2,355		9,698		12,053		—
Total commercial loans	4,398		3,431		5		39,942		47,776		425,484		473,260		6,953
Retail loans:
One-to-four family residential	3,439		1,501		—		4,935		9,875		171,823		181,698		741
Home equity lines of credit	221		149		—		541		911		51,962		52,873		50
Retail construction	—		—		—		169		169		853		1,022		—
Other	—		—		—		—		—		2,771		2,771		—
Total retail loans	3,660		1,650		—		5,645		10,955		227,409		238,364		791
Total loans receivable	$	8,058	$	5,081	$	5	$	45,587	$	58,731	$	652,893	$	711,624	$	7,744

Impaired Financing Receivables [Table Text Block]

The Company’s impaired loans are summarized as follows with the majority of the interest income recognized on a cash basis at the time the payment is received. The below tables include impaired loans that are individually reviewed for impairment as well as $4.3 million of impaired retail loans at June 30, 2012 that have not had foreclosure proceedings initiated and are below management’s scope for individual impairment review due to immateriality.

	At June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	1,240	$	2,116	$	855	$	—
Commercial real estate:
Owner occupied	11,783		15,488		2,977		—
Non-owner occupied	28,441		35,564		5,901		—
Multifamily	3,691		4,092		377		—
Commercial construction and land development	3,316		3,316		—		—
Commercial participations	2,330		7,239		4,768		—
Retail loans:
One-to-four family residential	7,013		7,236		222		—
Home equity lines of credit	550		639		90		—
Retail construction	319		319		—		—
Total	$	58,683	$	76,009	$	15,190	$	—
Loans with a specific valuation allowance:
Commercial real estate - non-owner occupied	$	2,591	$	2,591	$	—	$	195
Commercial construction and land development	1,450		1,450		—		148
Total	$	4,041	$	4,041	$	—	$	343
Total impaired loans:
Commercial	$	54,842	$	71,856	$	14,878	$	343
Retail	7,882		8,194		312		—
Total	$	62,724	$	80,050	$	15,190	$	343

	At December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Partial Charge-offs to Date		Related Allowance
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	2,479	$	2,700	$	216	$	—
Commercial real estate:
Owner occupied	11,203		14,557		2,694		—
Non-owner occupied	20,532		34,130		10,553		—
Multifamily	673		673		—		—
Commercial construction and land development	2,781		2,781		—		—
Commercial participations	2,355		1,796		1,189		—
Retail loans:
One-to-four family residential	7,202		7,504		302		—
Home equity lines of credit	540		630		89		—
Retail construction	169		169		—		—
Total	$	47,934	$	64,940	$	15,043	$	—
Loans with a specific valuation allowance:
Commercial real estate - non-owner occupied	4,986		4,986		—		718
Total	$	4,986	$	4,986	$	—	$	718
Total impaired loans:
Commercial	$	45,009	$	61,623	$	14,652	$	718
Retail	7,911		8,303		391		—
Total	$	52,920	$	69,926	$	15,043	$	718

Schedule of Average Recorded Investment and Interest income Recognized on Impaired Loans [Table Text Block]

The following table presents information related to the average recorded investment and interest income recognized on impaired loans for the periods indicated.

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Loans without a specific valuation allowance:
Commercial loans:
Commercial and industrial	$	1,835	$	20	$	3,208	$	44	$	2,066	$	47	$	3,574	$	90
Commercial real estate:
Owner occupied	11,811		13		13,092		—		11,792		21		13,130		—
Non-owner occupied	28,547		113		7,557		98		29,179		182		7,695		145
Multifamily	3,703		10		678		13		3,890		21		678		17
Commercial construction and land development	3,316		—		7,171		—		3,316		—		7,171		—
Commercial participations	2,450		—		3,487		—		2,515		—		3,833		—
Retail loans:
One-to-four family residential	7,086		79		6,892		60		7,103		118		6,905		105
Home equity lines of credit	550		5		589		1		550		7		589		1
Retail construction	320		—		169		—		321		—		169		—
Other	—		—		4		—		—		—		4		—
Total	$	59,618	$	240	$	42,847	$	216	$	60,732	$	396	$	43,748	$	358
Loans with a specific valuation allowance:
Commercial real estate:
Owner occupied	$	—	$	—	$	2,639	$	—	$	—	$	—	$	2,709	$	—
Non-owner occupied	2,592		—		17,102		—		2,593		—		17,172		—
Commercial construction and land development	1,450		—		—		—		1,450		—		—		—
Commercial participations	—		—		5,302		—		—		—		5,302		—
Total	$	4,042	$	—	$	25,043	$	—	$	4,043	$	—	$	25,183	$	—
Total impaired loans:
Commercial	$	55,704	$	156	$	60,236	$	155	$	56,801	$	271	$	61,264	$	252
Retail	7,956		84		7,654		61		7,974		125		7,667		106
Total	$	63,660	$	240	$	67,890	$	216	$	64,775	$	396	$	68,931	$	358

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

The following table summarizes the loans that have been restructured as TDRs during the three and six months ended June 30, 2012:

	Three Months Ended June 30, 2012					Six Months Ended  June 30, 2012
	Count	Balance prior to TDR		Balance after TDR		Count	Balance prior to TDR		Balance after TDR
	(Dollars in thousands)
Commercial loans:
Commercial real estate:
Owner occupied	—	$	—	$	—	2	$	259	$	305
Non-owner occupied	—	—		—		1	66		83
Total commercial loans	—	—		—		3	325		388
Retail loans – one-to-four family residential	2	386		389		8	872		906
Total loans	2	$	386	$	389	11	$	1,197	$	1,294

Troubled Debt Restructurings on Financing Receivables by Loan Category and Accruing Status [Table Text Block]

The tables below summarize the Company’s TDRs by loan category and accrual status at the dates indicated:

	June 30, 2012						December 31, 2011
	Accruing		Non-accruing		Total		Accruing		Non-accruing		Total
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	946	$	242	$	1,188	$	2,167	$	259	$	2,426
Commercial real estate:
Owner occupied	665		2,242		2,907		369		2,272		2,641
Non-owner occupied	3,879		10,718		14,597		3,814		11,095		14,909
Multifamily	256		—		256		259		—		259
Commercial participations	—		1,748		1,748		—		1,748		1,748
Total commercial	5,746		14,950		20,696		6,609		15,374		21,983
Retail loans – one-to-four family residential	1,451		3,021		4,472		2,266		1,600		3,866
Total troubled debt restructurings	$	7,197	$	17,971	$	25,168	$	8,875	$	16,974	$	25,849

Troubled Debt Restructurings on Financing Receivables by Loan Category and Concession Type [Table Text Block]

The following tables set forth the Company’s TDRs by portfolio segment to quantify the type of modification or concession provided: 

	June 30, 2012
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	1,181	$	1,181
Payment extension	1,188		2,268		2,221		—		—		772		6,449
Rate reduction and payment extension	—		304		619		256		—		2,265		3,444
Rate reduction and interest only	—		—		3,018		—		—		254		3,272
Payment extension and interest only	—		289		—		—		—		—		289
Forbearance	—		—		2,879		—		1,748		—		4,627
Rate reduction, payment extension, interest only, and forbearance	—		46		—		—		—		—		46
A/B note structure	—		—		5,860		—		—		—		5,860
Total troubled debt restructurings	$	1,188	$	2,907	$	14,597	$	256	$	1,748	$	4,472	$	25,168

	December 31, 2011
			Commercial Real Estate
	Commercial and Industrial		Owner Occupied		Non-Owner Occupied		Multifamily		Commercial Participations		One-to-four Family Residential		Total
	(Dollars in thousands)
Rate reduction	$	—	$	—	$	—	$	—	$	—	$	805	$	805
Payment extension	2,426		2,297		2,210		—		—		948		7,881
Rate reduction and payment extension	—		—		542		259		—		1,858		2,659
Rate reduction and interest only	—		—		9,054		—		—		255		9,309
Payment extension and interest only	—		297		—		—		—		—		297
Forbearance	—		—		3,103		—		1,748		—		4,851
Rate reduction, payment extension, interest only, and forbearance	—		47		—		—		—		—		47
Total troubled debt restructurings	$	2,426	$	2,641	$	14,909	$	259	$	1,748	$	3,866	$	25,849

Schedule of Troubled Debt Restructured Loans [Table Text Block]

The activity related to the Company’s TDRs is presented in the following table:

	Three Months Ended  June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(Dollars in thousands)
Beginning balance	$	25,883		$	39,708		$	25,849		$	39,581
Restructured loans identified as TDRs	389			—			1,294			1,307
Protective advances and miscellaneous	10			101			459			158
Repayments and payoffs	(1,067		)	(990		)	(2,387		)	(2,227		)
Charge-offs	(47		)	(42		)	(47		)	(42		)
Transfers to other real estate owned	—			(2,326		)	—			(2,326		)
Ending balance	$	25,168		$	36,451		$	25,168		$	36,451