Summary of AMB FINANCIAL CORP

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

Cautionary Statement Regarding Forward-Looking Information

This report in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere, contains, and other periodic reports and press releases of the Company may contain, certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1973, as amended, and Section 21E of the Securities Exchanged Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company are generally identifiable by the words "believe, intend, anticipate, estimate, project, plan" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. Factors which could have a material adverse effect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to changes in interest rates, general national and local economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the Company's loan or investment portfolios, demand for loans, deposits and other products, deposit flows, cost and availability of borrowings, competition, demand for financial services in the Company's market area, real estate values in the Company's primary market area, the Company's stock price, our holding costs for real estate, the possible short-term dilutive effect of potential acquisitions, and tax and financial accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Financial Condition. The total assets of the Company were $181.8 million at June 30, 2008, an increase of $7.0 million, or 4.0%, from $174.8 million at December 31, 2007. The increase in assets was primarily the result of a $5.6 million increase in cash and cash equivalents, a $1.1 million increase in net loans receivable and a $1.5 million increase in office properties and equipment. Asset growth was funded by an $8.3 million increase in deposits. Cash and cash equivalents totaled a combined $8.5 million at June 30, 2008, as compared to $2.9 million at December 31, 2007.

Investment securities, available for sale, decreased by $1.0 million, totaling $719,000 at June 30, 2008, as compared to December 31, 2007, due to investment maturities. This portfolio consists primarily of U.S. government agency obligations. At June 30, 2008, the Company had an unrealized gain on available for sale investment securities of $20,000 compared to an unrealized gain of $24,000 at December 31, 2007.

Trading account securities, which are held at the Holding Company level, decreased by $96,000 to $211,000 at June 30, 2008, as compared to $307,000 at December 31, 2007. The decrease is attributable to sales of securities totaling $59,000 as well as a $37,000 decrease in the unrealized appreciation of the portfolio. The trading account portfolio consists primarily of holdings in small thrift and community bank stocks.

Mortgage-backed securities increased $756,000, to $1.6 million at June 30, 2008, as compared to $858,000 at December 31, 2007. The increase was the result of purchases totaling $1.1 million, offset in part by repayments totaling $258,000. Purchases consisted of Fannie Mae and Freddie Mac, fixed rate pass through securities. At June 30, 2008, the Company had an unrealized loss on available for sale mortgage-backed securities of $56,000 compared to a $4,000 unrealized loss at December 31, 2007.

Loans receivable increased $1.1 million, or 0.7%, to $149.1 million at June 30, 2008, from $148.0 million at December 31, 2007. Loan originations and purchases increased to $24.2 million for the six month period ended June 30, 2008, as compared to $21.9 million in the prior year's six month period. Included in the current period loan purchases were $2.4 million of participation interests in non-residential real estate loans. Offsetting the originations and purchases were amortization and prepayments of loans totaling $22.8 million and $27.9 million for the six month periods ended June 30, 2008 and 2007, respectively. The current period loan demand was primarily concentrated in one-to four family residential lending, which was favorably impacted during the first quarter of 2008 by a decline in mortgage rates. During the most recent quarter, the weak demand in the local real estate market as well as a slight increase in long-term mortgage rates has slowed loan origination activity to $8.5 million as compared to $15.7 million of loan originations during the prior quarter ended March 31, 2008.

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

The allowance for loan losses totaled $829,000 at June 30, 2008, an increase of $91,000, or 12.3% from the $738,000 allowance at December 31, 2007. The Bank's allowance for loan losses to net loans receivable was 0.55% at June 30, 2008, compared to 0.50% at December 31, 2007. Non-performing loans totaled $3.4 million, or 2.22% of total loans receivable at June 30, 2008, compared to $2.6 million, or 1.72% of total loans receivable at December 31, 2007. Included in non-performing loans at June 30, 2008, were one single family construction loan totaling $234,000, sixteen one-to four family mortgage loans totaling $1.9 million, two multi-family mortgage loans totaling $723,000, one non-residential mortgage loan totaling $354,000, one secured commercial business loan totaling $10,000, five secured consumer loans totaling $86,000 and five unsecured consumer loans totaling $20,000. The ratio of allowance for loan losses to non-performing loans was 24.6% at June 30, 2008, compared to 28.5% at December 31, 2007.

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

Net real estate owned at June 30, 2008 totaled $619,000. Real estate owned consisted of one residential parcel totaling $272,000 located in Chicago, Illinois and thirty-two vacant land parcels located near Indianapolis, Indiana totaling $347,000. The real estate owned properties are valued at the lower of cost or managements' estimate of net realizable value.

The Company's investment in a limited partnership decreased $22,000 to $690,000 at June 30, 2008, as compared to $712,000 as of December 31, 2007. The decline represents the Company's share of the operating losses generated by the partnership, which consists of an investment in an apartment development, which generates low-income housing tax credits to offset federal income tax liabilities.

Stock in the FHLB of Indianapolis increased by $214,000, or 12.2%, totaling $2.0 million at June 30, 2008. The Company is required to hold stock in the FHLB of Indianapolis in order to obtain advances. The amount of FHLB stock required to be held by the Company is determined by the amount of borrowed funds from the FHLB of Indianapolis.

Office properties and equipment increased $1.5 million, to $7.7 million at June 30, 2008, as compared to $6.2 million at December 31, 2007. The increase was due to the ongoing construction of a three-story office building located in Schererville, Indiana, which will be partially utilized by the Bank as a full service branch office. The Bank will attempt to lease the remaining portion of the building. Construction of the banking facility is near completion and anticipated to be open to the public in the fourth quarter of 2008. Construction costs incurred through June 30, 2008, totaled $5.0 million. Remaining costs to complete the construction project are anticipated to be approximately $500,000.

The Company had previously acquired, in conjunction with an agreement with a local builder, vacant lots on which to construct single-family residences in St. John and Munster, Indiana. At June 30, 2008, the Company's $1.7 million investment in real estate development projects consisted of three completed single-family dwelling units and four vacant lots. Due to the slowdown in the real estate market, the Company has decided not to build on the remaining vacant lots. All of the completed units and vacant lots are currently listed for sale. During the three month period ended June 30, 2008, the Company reduced the carrying amount of the properties by $318,000, to $1.7 million based upon current market conditions. In view of the current weak real estate market, there can be no assurance whether, when, and at what price the Company will be able to sell these assets.

Bank owned life insurance increased $64,000 to $3.8 million at June 30, 2008, as compared to December 31, 2007. The change represents the increase in the cash surrender value of the life insurance policies purchased in connection with deferred compensation plans utilized by directors and officers of the Company.

Prepaid expenses and other assets decreased $558,000 to $4.5 million at June 30, 2008, as compared to December 31, 2007. The decrease was due in part to a $475,000 reduction in the Company's purchased accounts receivable program, which totaled $3.2 million at June 30, 2008. The program involves the purchase and subsequent management of the accounts receivables of credit-worthy business customers.

Deposits increased $8.2 million, or 6.9%, to $127.1 million at June 30, 2008, from $118.9 million at December 31, 2007. The increase in deposits is due to an increase in checking and money market deposits totaling $5.5 million, passbook accounts totaling $275,000 and certificates of deposits totaling $2.5 million. At June 30, 2008, the Bank's non-certificate accounts (passbook, checking and money market accounts) comprised $46.0 million, or 36.2% of deposits, compared to $40.3 million, or 33.9% of deposits at December 31, 2007. The increase in non-certificate deposits during the current period is attributable in part to a $3.0 million deposit balance increase related to one business customer while the increase in certificates of deposits is due in part to a $2.0 million short-term municipal deposit.

Borrowed money, which consisted primarily of FHLB of Indianapolis advances, decreased by $1.1 million, or 3.0%, to $34.8 million at June 30, 2008, as compared to $35.9 million at December 31, 2007. The Company was able to reduce borrowings due in part to the aforementioned increase in deposit balances. Borrowings from the FHLB of Indianapolis totaled $32.2 million at June 30, 2008, compared with $33.4 million at December 31, 2007. As of June 30, 2008, the weighted average rate for the FHLB of Indianapolis borrowings was 4.65%, compared to a weighted average rate of 4.87%, as of December 31, 2007, while the weighted term to maturity of the Company's FHLB of Indianapolis borrowings at June 30, 2008 was 2.1 years. Borrowings scheduled to mature during the next twelve months total $8.2 million at a weighted average rate of 4.73%. During the first quarter of 2008, the Company repaid $2.0 million in other borrowed funds, which had an adjustable interest rate and an annual renewal term and replaced it with a new $2.0 million borrowing at a fixed rate of interest and a five-year term.

Total stockholders' equity of the Company decreased by $333,000 to $13.1 million, or 7.22% of total assets, at June 30, 2008, compared to $13.5 million, or 7.70% of total assets at December 31, 2007. The decrease in stockholders' equity was the result of the Company's net loss of $123,000 for the six months ended June 30, 2008, an unrealized market value loss on available for sale investment securities during the period, net of tax, in the amount of $33,000 and the payment of $177,000 in cash dividends. The number of common shares outstanding at June 30, 2008 was 981,638 and the book value per common share outstanding was $13.36. The Bank's tangible, core and risk-based capital percentages of 8.41%, 8.41% and 13.02%, respectively, at June 30, 2008 which exceeded all regulatory requirements and categorize the Bank as well capitalized under OTS guidelines.

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

Results for the Quarter Ended June 30, 2008 Compared to the Quarter Ended June 30, 2007

General - The Company recorded a net loss totaling $212,000 for the quarter ended June 30, 2008, as compared to net income totaling $51,000 for the quarter ended June 30, 2007. The diluted loss per share totaled ($0.22) for the quarter ended June 30, 2008, as compared to diluted earnings of $0.05 per share for the quarter ended June 30, 2007. The current period loss is attributable to a $318,000 loss incurred on the write down of real estate held for development, along with holding costs totaling $52,000 consisting primarily of real estate tax expenses related to the properties.

Interest income - Total interest income decreased by $120,000, or 4.8%, to $2.4 million for the quarter ended June 30, 2008, as compared with the prior year. This decrease was the result of a $700,000 decrease in the average balance of interest-earning assets to $158.5 million for the quarter ended June 30, 2008, as compared to $159.2 million for the quarter ended June 30, 2007, as well as a decrease in the average yield on interest-earning assets to 6.03% for the quarter ended June 30, 2008, as compared to 6.30% for the quarter ended June 30, 2007.

Interest income on loans receivable decreased $18,000, or 0.8%, to $2.3 million, as compared to the prior year. The slight decrease in interest income on loans was the result of a 30 basis point decline in the average yield to 6.13% for the quarter ended June 30, 2008, from 6.43% for the quarter ended June 30, 2007, offset in part by a $6.0 million increase in the average balance of loans outstanding for the quarter ended June 30, 2008, as compared to the quarter ended June 30, 2007. The decrease in the average yield on loans receivable reflects the impact of repayments on higher rate loans, which were replaced with lower yielding new originations and purchases, along with interest rate reductions on adjustable rate loans which are indexed to Prime. The increase in the average balance was due to higher levels of new originations and purchases exceeding principal repayments Interest income on mortgage-backed securities increased $5,000, to $18,000 for the quarter ended June 30, 2008, due to a $455,000 increase in the average balance in the portfolio, and to a lesser extent, an increase in the average yield to 4.53% for the current quarter, compared to 4.51% for the prior year's quarter. The average balance increased due to purchases of $1.1 million during the current period.

Interest income on investment securities decreased $30,000, to $15,000 at June 30, 2008, as compared to the prior year. The decrease in interest income on investment securities was the result of a $2.4 million decrease in the average balance of investment securities outstanding, which was partially offset by an increase in the average yield to 5.96% for the quarter ended June 30, 2008, from 5.22% for the quarter ended June 30, 2007. The decrease in the average balance was due to maturities of investment securities. Interest income on interest bearing deposits decreased by $83,000, to $12,000 at June 30, 2008, as compared to the prior year. The decrease in interest income was the result of a $4.9 million decrease in the average balance outstanding, as well as a decrease in the average yield to 1.91% for the quarter ended June 30, 2008, from 5.14% for the quarter ended June 30, 2007. The decrease in the average balance was due in part to fund loan originations and the construction of a new branch office. The decrease in the average yield was due to lower short-term interest rates paid on overnight deposits during 2008, as compared to 2007. Dividend income on FHLB of Indianapolis stock increased by $6,000 to $24,000 at June 30, 2008, as compared to the prior year. The increase in dividend income was the result of an increase in the average yield to 4.83% for the quarter ended June 30, 2008, from 4.12% for the quarter ended June 30, 2007, while the average balance outstanding increased by $214,000 due to FHLB of Indianapolis stock purchase requirements. The increase in the average yield reflects the impact of a higher dividend rate paid in 2008, as compared to 2007.

Interest Expense - Total interest expense decreased by $170,000, or 10.6%, to $1.4 million for the quarter ended June 30, 2008, as compared to the prior year. The cost of interest-bearing liabilities decreased 54 basis points to 3.54% for the quarter ended June 30, 2008, as compared to 4.08% for the quarter ended June 30, 2007, due primarily to declining short-term interest rates, which enabled management to lower the rate on repricing certificates of deposits and still remain competitive. Partially offsetting this decrease was a $5.2 million increase in the average balance of interest-bearing liabilities to $163.7 million for the quarter ended June 30, 2008, as compared to $158.5 million for the quarter ended June 30, 2007. The increase in the average balance of interest-bearing liabilities was primarily due to a $4.6 million increase in the average outstanding balance of FHLB of Indianapolis advances.

Interest expense on deposits decreased by $169,000, or 15.1%, to $950,000 for the quarter ended June 30, 2008, as compared with the prior year, as a result of a 55 basis point decrease in the average cost of deposits to 3.10% for the quarter ended June 30, 2008, offset in part by a $200,000 increase in the average balance outstanding. The decrease in the average cost of deposits was primarily impacted by a 77 basis point decrease on certificates of deposits to an average rate of 4.06% during 2008, as compared to an average rate of 4.83% for 2007. During 2008, the majority of certificates of deposits that were scheduled to reprice did so at relatively lower short-term rates.

Interest expense on borrowings decreased by $1,000 to $493,000, for the quarter ended June 30, 2008, as compared with the prior year's quarter. This slight decrease was the result of a 69 basis point decline in the average cost of borrowed funds, which was offset in part by a $4.9 million increase in the average balance of borrowings to $40.5 million for the quarter ended June 30, 2008, from $35.6 million for the quarter ended June 30, 2007. Interest expense on FHLB of Indianapolis advances decreased by $14,000 to $392,000 for the quarter ended June 30, 2008, as compared with the prior year as a result of a decrease of 86 basis points in the average cost of FHLB of Indianapolis advances to 4.51%, offset in part by a $4.6 million increase in the average balance to $34.9 million for the quarter ended June 30, 2008, from $30.3 million for the quarter ended June 30, 2007. Interest expense on other borrowings increased $13,000 to $101,000 for the quarter ended June 30, 2008, as compared to $88,000 for the prior year. The increase was due primarily to a $357,000 increase in the average balance outstanding during the current period as compared to the same period one year ago.

Net Interest Income - As a result of the changes in interest income and interest expense, net interest income increased $50,000, or 5.6%, to $940,000 for the quarter ended June 30, 2008, as compared to the prior year's quarter. The net interest rate spread increased to 2.49% during the current quarter, as compared to 2.22% for the quarter ended June 30, 2007. The net interest margin also increased to 2.38% in the current quarter, as compared to 2.26% a year ago. The net interest rate spread and net interest margin increased between the periods primarily due to a decrease in the average cost of interest-bearing liabilities, which was favorably impacted by recent federal funds rate declines.

Provision for Loan Losses - The Company recorded a provision for loan losses of $60,000 during the quarter, as compared to $29,000 during the prior year's quarter due to the aforementioned increase in non-performing loans. The provision during the current year's quarter was primarily the result of management's periodic assessment of the allowance for losses on loans. Based upon management's assessment, appropriate provisions are made to maintain the adequacy of the allowance to cover probable losses in the loan portfolio. The amount of the allowance is based on estimates and ultimate losses may vary from such estimates. During the current quarter, the Bank incurred net charge-offs of $8,000 due primarily to credit card loans.

Non-Interest Income - Non-interest income decreased by $427,000 resulting in a loss of $110,000 for the quarter ended June 30, 2008, as compared to $316,000 of non-interest income for the quarter ended June 30, 2007. The reduction was due in part to the recognition of the aforementioned $318,000 in losses in real estate held for development compared to $36,000 in gains in the prior year's quarter, $80,000 in losses on the sale of real estate owned compared to the prior year's $1,000 gain, a $36,000 increase in unrealized losses on securities held for trading and a $4,000 decline in rental income, offset in part by a $31,000 increase in other fee income. The $36,000 increase in unrealized losses on securities held for trading was due to a decline in the market value of the Company's investment in equity securities, comprised of small community bank and thrift stocks, as compared to the prior year's quarter. The $4,000 decline in rental income was due a vacancy at the Company's Dyer, Indiana branch, which leases excess space to local businesses. The $31,000 increase in other fee income was due in part to an increase in service fees related to the Company's accounts receivable program due to an increase in volume.

Non-Interest Expense - Non-interest expense increased by $22,000, or 2.0%, to $1.1 million, primarily due to a $22,000 increase in federal deposit insurance premiums due to the Bank fully utilizing its FDIC insurance credit in 2007, a $15,000 increase in other non-interest expense related to the Company's investment in the aforementioned real estate held for development, a $13,000 increase in professional fees due in part to legal fees related to delinquent loans and an $8,000 increase in advertising due to the Company undertaking more promotions during the current quarter as compared to the prior year's quarter. These increases were partially offset by a $20,000 decline in compensation expense, a $12,000 decline in data processing expense due in part to the contract renegotiation of the primary data processing vendor of the Bank and a $4,000 decrease in occupancy and equipment expenses. Included in the current period's other non-interest expense total of $207,000 is $52,000 in holding costs, consisting primarily of real estate taxes, related to the Company's investment in the aforementioned real estate held for development, which were not present in the prior year. It is anticipated that our occupancy and equipment expenses, compensation and various other expenses will increase significantly in future quarters as a result of the anticipated fourth quarter 2008 opening of our new branch office facility. The Company will attempt to lease a portion of the building that it will not utilize to offset some of these costs.

Income Taxes - The Company recorded an income tax benefit of $161,000 for the quarter ended June 30, 2008, as compared to an income tax expense of $6,000 for the quarter ended June 30, 2007. The current year's tax benefit was generated in part by the net loss generated during the current quarter.

Results for the Six Month Period Ended June 30, 2008 Compared to the Six Month Period Ended June 30, 2007

General - The Company recorded a net loss totaling $123,000 for the six month period ended June 30, 2008, as compared to net income totaling $67,000 for the six month period ended June 30, 2007. The diluted loss per share totaled ($0.13) for the six month period ended June 30, 2008, as compared to diluted earnings of $0.06 per share for the six month period ended June 30, 2007. The current period loss is primarily attributable to a $318,000 loss incurred on the write down of real estate held for development, along with holding costs totaling $79,000 consisting primarily of real estate tax expenses related to the properties.

Interest income - Total interest income decreased by $212,000, or 4.2%, to $4.9 million for the six month period ended June 30, 2008, as compared with the prior year. This decrease was the result of a $3.4 million decrease in the average balance of interest-earning assets to $157.1 million for the six month period ended June 30, 2008, as compared to $160.5 million for the six month period ended June 30, 2007, as well as a decrease in the average yield on interest-earning assets to 6.18% for the six month period ended June 30, 2008, as compared to 6.32% for the six month period ended June 30, 2007. The decrease in the average balance of interest-earning assets was primarily due to a decrease in the average balance of interest-bearing deposits. The decrease in the average yield of interest-earning assets reflects the impact of lower yields earned on interest bearing deposits due to reductions in short-term interest rates, as compared to the same period one-year ago.

Interest income on loans receivable decreased $13,000, to $4.7 million at June 30, 2008, as compared to the prior year. The decrease in interest income on loans was the result of a 17 basis point decline in the average yield to 6.27% for the six month period ended June 30, 2008, from 6.44% for the six month period ended June 30, 2007, offset in part by a $3.4 million increase in the average balance of loans outstanding for the six month period ended June 30, 2008, as compared to the six month period ended June 30, 2007. The decrease in the average yield on loans receivable reflects the impact of repayments on higher rate loans, which were replaced with lower yielding new originations and purchases, along with interest rate reductions on adjustable rate loans which are indexed to Prime. The increase in the average balance was due to higher levels of new originations and purchases exceeding principal repayments

Interest income on mortgage-backed securities remained relatively unchanged . . .