2. Achieve success through our employees' efforts.

3. Stockholder satisfaction will enable us to continue serving our customers.

4. Support the communities we serve.

5. Combine business success with integrity. The Company is subject to examination and supervision by the Office of Thrift Supervision ("OTS"), although the Company's activities are not limited by the OTS as long as certain conditions are met. The Company's assets consist of cash, interest-earning deposits, the building in which the Company's corporate offices are located and investments in Franklin and DirectTeller Systems Inc. ("DirectTeller"). Franklin is an Ohio stock savings and loan association headquartered in Cincinnati, Ohio. It was originally chartered in 1883 as the Green Street Number 2 Loan and Building Company. Franklin's business consists primarily of attracting deposits from the general public and using those deposits, together with borrowings and other funds, to originate real estate loans and purchase investments. Franklin operates seven banking offices in Hamilton County, Ohio through which it offers a full range of consumer banking services, including mortgage loans, home equity and commercial lines of credit, credit and debit cards, checking accounts, auto loans, savings accounts, automated teller machines, a voice response telephone inquiry system and an internet-based banking system which allows its customers to transfer funds between Franklin accounts and accounts at other financial institutions, pay bills, download account and transaction information into financial management software programs and inquire about account balances and transactions. To generate additional fee income and enhance the products and services available to its customers, Franklin also offers annuities, mutual funds and discount brokerage services in its offices through an agreement with a third party broker dealer. Franklin has one wholly-owned subsidiary, Madison Service Corporation ("Madison"). Madison was formed in 1972 to allow Franklin to diversify into certain types of business that, by regulation, savings and loans were unable to enter at that time. At the present time, Madison has no operations. Madison's only assets are cash and interest-earning deposits, and its only source of income is the interest earned on these deposits. First Franklin owns 51% of DirectTeller's outstanding common stock. DirectTeller was formed in 1989 by the Company and DataTech Services Inc. to develop and market a voice response telephone inquiry system to allow financial institution customers to access information about their accounts via the telephone and a facsimile machine. Franklin currently offers this service to its customers, and it is currently in operation at Harland Financial Solutions, Inc. ("Harland"), a computer service bureau which offers the DirectTeller system to the financial institutions it services. The agreement with Harland gives DirectTeller a portion of the profits generated by the use of the inquiry system by Harland's clients. Harland customers switching to its new teller platform must also switch to a different voice response system. It is anticipated that Harland will totally phase out the use of the DirectTeller system over the next two to three years. During the first nine months of 2008, DirectTeller received royalty payments of approximately $33,000 from Harland.

In October 2008, the U.S Treasury implemented, as part of the Emergency Economic Stabilization Act, programs to invest in preferred stock issued by financial institutions and to purchase loans held by various banks and financial institutions. The Company is evaluating these programs to determine if it would be beneficial to participate in them.
Statements included in this document, which are not historical or current facts, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results. Factors that could cause financial performance to differ materially from that expressed in any forward-looking statement include, but are not limited to, credit risk, interest rate risk, competition, changes in the regulatory environment and changes in general business and economic trends.
CRITICAL ACCOUNTING POLICIES
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Changes in the overall local economy in which the Company operates may impact the allowance for loan losses. Generally, the Company establishes a specific reserve, instead of a charge-off, on a loan if the underlying collateral is valued less than the book value. This allows some flexibility in the future if the collateral value increases. Any decline in the value of real estate owned is recognized by a write-down of the book value.
Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms of the loan. While a loan is classified as non-accrual, interest income is generally recognized on a cash basis.
A loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company considers its investment in one to-four family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification of impairment. With respect to the Company's investment in non-residential and multifamily residential real estate loans the evaluation of impairment on such loans is based on the lower of cost or fair value of the underlying collateral.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Consolidated assets decreased $1.83 million (0.6%) from $318.92 million at December 31, 2007 to $317.09 million at September 30, 2008, compared to a $11.71 million (3.5%) decrease for the same period in 2007. During 2008, the Company experienced increases of $4.00 million in mortgage-backed securities and $7.62 million in borrowings, and decreases of $6.49 million in cash and investments, $557,000 in loans outstanding and $7.87 million in deposits.

Loan disbursements were $41.88 million during the current nine-month period compared to $40.31 million during the nine months ended September 30, 2007. During the current nine month period, Franklin also purchased $2.87 million in loan participations. Disbursements during the third quarter of 2008 were $12.22 million, compared to $16.30 million during the same quarter in 2007. Mortgage loan sales were $8.68 million during the current nine-month period compared to $7.26 million during the nine months ended September 30, 2007. The increase in loan sales is the result of an increase in the percentage of fixed-rate one- to four-family mortgage loans originated. At September 30, 2008, commitments to originate mortgage loans were $955,000, and $3.52 million of undisbursed loan funds were being held on various construction loans. Franklin also had undisbursed lines of credit on consumer and commercial loans of approximately $18.90 million. Management believes that sufficient cash flow and borrowing capacity exist to fund these commitments.
Liquid assets decreased $6.49 million during the nine months ended September 30, 2008, to $17.44 million. This decrease reflects a decrease in deposits of $7.87 million, loan disbursements of $41.88 million and purchases of mortgage-backed securities of $4.99 million and loan participations of $2.87 million, which were partially offset by loan and mortgage-backed securities repayments of $35.76 million, mortgage loan sales of $8.68 million and borrowings of $7.62 million. At September 30, 2008, liquid assets were 5.50% of total assets.
The Company's investment and mortgage-backed securities are classified based on the Company's current intention to hold to maturity or have available for sale, if necessary. The following table shows the gross unrealized gains or losses on mortgage-backed securities and investment securities as of September 30, 2008. No securities are classified as trading.

                                 Amortized       Unrealized       Unrealized       Market
                                   Cost            Gains            Losses         Value
                                                  (Dollars in thousands)
   Available-for-sale
   Investment securities        $    13,985     $          5     $        366     $ 13,624
   Mortgage-backed securities         2,389                2               19        2,372
   Held-to-maturity
   Mortgage-backed securities         5,138               17               71        5,084

                                $    21,512     $         24     $        456     $ 21,080

Management has the intent to hold these securities for the foreseeable future. The decline in market value is due to an increase in market interest rates. The fair value is expected to recover as the securities approach their maturity dates.
At September 30, 2008, deposits were $218.65 million, compared to $226.52 million at December 31, 2007, a decrease of $7.87 million. During the current nine month period, core deposits decreased $3.37 million and certificates decreased $4.50 million. Interest of $5.38 million was credited to accounts during the current nine months, after eliminating the effect of interest credited, deposits decreased $13.25 million during the nine months ended September 30, 2008.
At September 30, 2008, Franklin had outstanding Federal Home Loan Bank ("FHLB") advances of $70.97 million at an average cost of 4.20%. During the next twelve months, required principal reduction on the FHLB advances will be $35.08 million. Depending on cashflows, the majority of the maturing advances will be refinanced with new borrowings. The Company had no other borrowings outstanding at September 30, 2008.
At September 30, 2008, $7.30 million of assets were classified substandard, no assets were classified doubtful, $1.65 million were classified loss and $5.69 million were designated by management as special mention, compared to $6.68 million as substandard, $506,000 as loss and $1.96 million designated as

special mention at December 31, 2007. The increase in the assets classified loss is a result of a decrease in the value of the underlying collateral which necessitated the establishment of $1.36 million in specific reserves during the second quarter of 2008. See "Critical Accounting Policies" for a discussion of the use of specific reserves. The increase in assets designated special mention is due to an increase in loans with delinquent real estate taxes, forced-placed homeowners insurance and in bankruptcy. Non-accruing loans and accruing loans delinquent ninety days or more, net of reserves, were $5.34 million at September 30, 2008 and $4.98 million at December 31, 2007. At September 30, 2008, the recorded investment in loans for which impairment has been recognized was approximately $2.94 million with related reserves of $1.30 million. Real estate owned, net of any reserves, was $1.65 million at September 30, 2008 compared to $948,000 at December 31, 2007. During the current nine month period, Franklin acquired title to 13 properties with an approximate book value of $1.15 million and sold 3 properties having a book value of $276,000. The following table shows the activity that has occurred on loan loss reserves during the nine months ended September 30, 2008.

    .

                                               (Dollars in thousands)
            Balance at beginning of period    $                  1,101
            Charge offs                                             75
            Additions charged to operations                      1,541
            Transfers to real estate owned                          15
            Recoveries                                               0

            Balance at end of period          $                  2,552

The Company's capital supports business growth, provides protection to depositors, and represents the investment of stockholders. At September 30, 2008, net worth was $24.25 million, which was 7.65% of assets. At the same date, book value per share was $14.43, compared to $15.30 per share at December 31, 2007. The reduction in net worth and the book value per share is the result of the operating loss experienced during the nine months ended September 30, 2008. The following table summarizes, as of September 30, 2008, Franklin's regulatory capital position in dollars and as a percentage of assets.

      Capital Standard     Actual      Required      Excess      Actual      Required      Excess
                                (Dollars in thousands)
      Core               $ 23,508     $ 12,667       10,841        7.42 %        4.00 %     3.42 %
      Risk-based           24,600       17,326        7,274       11.36 %        8.00 %     3.36 %

COMPREHENSIVE INCOME
Comprehensive income (loss) for the nine months ended September 30, 2008 and 2007 was $(1.08) million and $393,000, respectively. The difference between net income and comprehensive income consists solely of the effect of unrealized gains and losses, net of taxes, on available-for-sale securities.
RESULTS OF OPERATIONS
The Company had a net loss of $39,000 ($0.02 per basic share) for the current quarter and a net loss of $809,000 ($0.48 per basic share) for the nine months ended September 30, 2008, after its subsidiary, Franklin Savings, established general and specific loan loss reserves of approximately $1.36 million on 20 loans and real estate owned in its portfolio with a book value of approximately $3.29 million, during the second quarter of 2008. Net income for the third quarter of 2007 was $104,000 ($0.06 per basic share) and $367,000 ($0.22 per basic share) for the nine months ended September 30, 2007. The loss, during

the current nine-month period, reflects increases of $516,000 in operating expenses and $1.36 million in loan loss provisions, $191,000 losses on real estate owned and a decrease of $138,000 in net interest income, which were partially offset by increases of $51,000 in checking account fees, $21,000 in gains on loans sold and $94,000 in gains on the sale of investments. Net interest income, before provisions for loan losses, was $1.56 million for the current quarter and $4.53 million for the first nine months of 2008, compared to $1.52 million and $4.67 million, respectively, for the same periods in 2007. The following rate/volume analysis describes the extent to which changes in interest rates and the volume of interest related assets and liabilities have affected net interest income during the periods indicated.

                                                               For the nine month periods ended September 30,
                                                                                2008 vs 2007
                                                                                                             Total
                                                               Increase (decrease) due to                  increase
                                                            Volume                    Rate                (decrease)
                                                                           (Dollars in thousands)
Interest income attributable to:
Loans receivable (1)                                    $            25                    ($612 )              ($587 )
Mortgage-backed securities                                           77                      (20 )                 57
Investment securities                                              (351 )                    (18 )               (369 )
FHLB stock                                                            4                      (41 )                (37 )

Total interest-earning assets                                     ($245 )                  ($691 )              ($936 )

Interest expense attributable to:
Demand deposits                                                     ($9 )                  ($108 )              ($117 )
Savings accounts                                                     (9 )                   (144 )               (153 )
Certificates                                                       (110 )                   (178 )               (288 )
FHLB advances and other borrowings                                  (31 )                   (209 )               (240 )

Total interest-bearing liabilities                                ($159 )                  ($639 )              ($798 )

Decrease in net interest income                                    ($86 )                   ($52 )              ($138 )

(1) Includes non-accruing loans.

Managing interest rate risk is fundamental to banking. Financial institutions must manage the inherently different maturity and repricing characteristics of their lending and deposit products to achieve a desired level of earnings and limit their exposure to changes in interest rates. Franklin is subject to interest rate risk to the degree that its interest-bearing liabilities, consisting principally of customer deposits and FHLB advances, mature or reprice more or less frequently, or on a different basis, than its interest-earning assets, which consist principally of loans, mortgage-backed securities and investment securities. While having assets that mature or reprice more rapidly than liabilities may be beneficial in times of rising interest rates, such an asset structure may have the opposite effect during periods of declining interest rates. Conversely, having liabilities that reprice or mature more rapidly than assets may adversely affect net interest income during periods of rising interest rates. As of June 30, 2008, Franklin's assets repriced or matured more rapidly than its liabilities, causing more interest-earning assets than interest-costing liabilities to reprice when interest rates were declining, this caused net interest income to decline during the six month period. As of June 30, 2008, Franklin was rated in the most favorable interest rate risk category under OTS guidelines.
As the tables below illustrate, average interest-earning assets decreased $5.62 million to $302.03 million during the nine months ended September 30, 2008, from $307.65 million for the nine months ended September 30, 2007. Average interest-bearing liabilities decreased $5.69 million from $296.95 million for the nine months ended September 30, 2007, to $291.26 million for the current nine-month period. Thus, average net interest-earning assets increased $69,000 when comparing the two periods. The interest rate spread (the yield on interest-earning assets less the cost of interest-bearing liabilities) was 1.82% for the

nine months ended September 30, 2008, compared to 1.88% for the same period in 2007. The decrease in the interest rate spread was the result of a decrease in the yield on interest-earning assets from 5.98% for the nine months ended September 30, 2007 to 5.70% for the current nine month period, due to decreases in the yield on loans from 6.01% to 5.72% and in the yield on the FHLB stock from 6.45% to 5.33%. During the current nine month period the cost of interest-bearing liabilities decreased from 4.10% to 3.88% due to a decrease in the cost of FHLB advances from 5.08% to 4.66%, savings deposits from 1.78% to 1.12% and checking accounts from 1.22% to 0.75%. The decline in the yield on interest-earning assets and the cost of interest-bearing liabilities is the result of a general decline in market interest rates. The composition of the assets, amount of 1-4 family mortgage loans vs. commercial and consumer loans, and the liabilities, amount of certificates of deposit and borrowed fund vs. core deposits, can have a negative impact on the interest rate spread.

                                                                     For the nine months ended September 30, 2008
                                                                           Average
                                                                         outstanding                    Yield/cost
                                                                   (Dollars in thousands)
Average interest-earning assets
Loans                                                             $                 274,811                      5.72 %
Mortgage-backed securities                                                            6,822                      4.77 %
Investment securities                                                                15,513                      5.47 %
FHLB stock                                                                            4,882                      5.33 %

Total                                                             $                 302,028                      5.70 %

Average interest-bearing liabilities
Demand deposits                                                   $                  30,394                      0.75 %
Savings accounts                                                                     28,783                      1.12 %
Certificates                                                                        165,585                      4.50 %
FHLB advances                                                                        66,496                      4.66 %

Total                                                             $                 291,258                      3.88 %

Net interest-earning assets/interest rate spread                  $                  10,770                      1.82 %



                                                                     For the nine months ended September 30, 2007
                                                                           Average
                                                                         outstanding                    Yield/cost
                                                                   (Dollars in thousands)
Average interest-earning assets
Loans                                                             $                 274,263                      6.01 %
Mortgage-backed securities                                                            4,543                      5.49 %
Investment securities                                                                24,046                      5.58 %
FHLB stock                                                                            4,797                      6.45 %

Total                                                             $                 307,649                      5.98 %

Average interest-bearing liabilities
Demand deposits                                                   $                  31,349                      1.22 %
Savings accounts                                                                     29,507                      1.78 %
Certificates                                                                        168,772                      4.64 %
FHLB advances                                                                        67,320                      5.08 %

Total                                                             $                 296,948                      4.10 %

Net interest-earning assets/interest rate spread                  $                  10,701                      1.88 %

Noninterest income was $481,000 for the quarter and $1.44 million for the nine months ended September 30, 2008 compared to $427,000 for the same quarter in 2007 and $1.26 million for the nine months ended September 30, 2007. During the current nine-month period, checking account fees increased $51,000, profits on the sale of loans increased $21,000 and the Company realized $106,000 in profits on the sale/call of investment securities.

Noninterest expenses were $2.08 million for the current quarter and $5.79 million for the current nine-month period compared to $1.80 million for the same quarter in 2007 and $5.27 million for the nine months ended September 30, 2007. As a percentage of average assets, this is 2.42% for the nine months ended September 30, 2008 compared to 2.16% for the first nine months of 2007. The increase in noninterest expense is partially due to the legal and professional fees associated with the proposed Oak Hill branch purchase, which was terminated on February 29, 2008, $115,000 of expenses associated with a data breach that was previously communicated to customers, losses on real estate owned of $191,000 and increases in service bureau costs, real estate owned expenses due to the increase in real estate owned discussed previously, the reserve established on overdrawn checking account and advertising. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required