<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

         For the quarterly period ended March 31, 2005.
                                        --------------

                                       OR

[ ]      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: 0-24611

                                CFS Bancorp, Inc.
             (Exact name of registrant as specified in its charter)

                     Delaware                             35-2042093
           (State or other jurisdiction                (I.R.S. Employer
         of incorporation or organization)            Identification No.)


                     707 Ridge Road, Munster, Indiana 46321
                    (Address of principal executive offices)

                                 (219) 836-9990
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports 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 [X]     NO [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

The Registrant had 12,382,411 shares of Common Stock issued and outstanding as
of May 6, 2005.


<PAGE>
                                CFS BANCORP, INC.

                                TABLE OF CONTENTS
<Table>
<Caption>
                                                                                              Page No.
                                                                                              --------
<S>           <C>                                                                             <C>
                          PART I FINANCIAL INFORMATION

Item 1.       Financial Statements (Unaudited)..............................................      3

Item 2.       Management's Discussion and Analysis of Financial Condition
              and Results of Operations.....................................................     10

Item 3.       Quantitative and Qualitative Disclosures About Market Risk....................     27

Item 4.       Controls and Procedures.......................................................     28


                            PART II OTHER INFORMATION

Item 1.       Legal Proceedings.............................................................     29

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds...................     29

Item 3.       Defaults upon Senior Securities...............................................     30

Item 4.       Submission of Matters to a Vote of Security Holders...........................     30

Item 5.       Other Information.............................................................     30

Item 6.       Exhibits......................................................................     31

Signature Page    ..........................................................................     33

Certifications for Principal Executive Officer and Principal Financial Officer..............     34
</Table>


                                       2
<PAGE>
                                CFS BANCORP, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<Table>
<Caption>
                                                                           MARCH 31, 2005     DECEMBER 31, 2004
                                                                         -----------------    -----------------
                                                                            (Unaudited)
                                                                                 (Dollars in thousands)
<S>                                                                      <C>                  <C>
ASSETS
Cash and amounts due from depository institutions ....................   $          16,215    $          16,878
Interest-bearing deposits ............................................                 304               11,217
Federal funds sold ...................................................               1,429                9,999
                                                                         -----------------    -----------------
   Cash and cash equivalents .........................................              17,948               38,094
Securities available-for-sale, at fair value .........................             214,692              202,219
Investment in Federal Home Loan Bank stock, at cost ..................              27,960               27,665
Loans receivable, net of unearned fees ...............................             978,179              988,085
   Allowance for losses on loans .....................................             (13,435)             (13,353)
                                                                         -----------------    -----------------
     Net loans .......................................................             964,744              974,732
Accrued interest receivable ..........................................               6,089                5,456
Other real estate owned ..............................................                 790                  525
Office properties and equipment ......................................              15,251               15,511
Investment in bank-owned life insurance ..............................              33,724               33,362
Prepaid expenses and other assets ....................................              15,786               15,721
Intangible assets ....................................................               1,413                1,429
                                                                         -----------------    -----------------
     Total assets ....................................................   $       1,298,397    $       1,314,714
                                                                         =================    =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits .............................................................   $         843,085    $         863,178
Borrowed money, net of unamortized deferred premium on early
  extinguishment of debt .............................................             291,302              286,611
Advance payments by borrowers for taxes and insurance ................               9,308                8,177
Other liabilities ....................................................               8,610                8,837
                                                                         -----------------    -----------------
     Total liabilities ...............................................           1,152,305            1,166,803

Stockholders' equity:
Preferred stock, $0.01 par value; 15,000,000 shares authorized .......                  --                   --
Common stock, $0.01 par value; 85,000,000 shares authorized;
   23,423,306 shares issued as of March 31, 2005 and December 31,
   2004; 12,370,572 and 12,385,322 shares outstanding as of
   March 31, 2005 and December 31, 2004, respectively ................                 234                  234
Additional paid-in capital ...........................................             190,109              189,991
Retained earnings, substantially restricted ..........................              93,792               94,904
Treasury stock, at cost: 11,052,734 and 11,037,984 shares as of
   March 31, 2005 and December 31, 2004, respectively ................            (130,909)            (130,689)
Unallocated common stock held by ESOP ................................              (5,660)              (5,959)
Unearned common stock acquired by RRP ................................                (148)                (148)
Accumulated other comprehensive income, net of tax ...................              (1,326)                (422)
                                                                         -----------------    -----------------
   Total stockholders' equity ........................................             146,092              147,911
                                                                         -----------------    -----------------
     Total liabilities and stockholders' equity ......................   $       1,298,397    $       1,314,714
                                                                         =================    =================
</Table>


                             See accompanying notes.

                                       3
<PAGE>

                                CFS BANCORP, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                                 THREE MONTHS ENDED
                                                                                     MARCH 31,
                                                                       ---------------------------------------
                                                                           2005                       2004
                                                                       ------------               ------------
                                                                                      (Unaudited)
                                                                       (Dollars in thousands, except share and
                                                                                    per share data)
<S>                                                                    <C>                        <C>
Interest income:
   Loans ...........................................................   $     14,573               $     14,116
   Securities ......................................................          1,721                      2,670
   FHLB dividends ..................................................            302                        330
   Other ...........................................................             67                        346
                                                                       ------------               ------------
     Total interest income .........................................         16,663                     17,462
Interest expense:
   Deposits ........................................................          3,005                      3,836
   Borrowings ......................................................          7,604                      6,263
                                                                       ------------               ------------
     Total interest expense ........................................         10,609                     10,099
                                                                       ------------               ------------
Net interest income before provision for losses on loans ...........          6,054                      7,363
Provision for losses on loans ......................................            255                        739
                                                                       ------------               ------------
Net interest income after provision for losses on loans ............          5,799                      6,624
Non-interest income:
   Service charges and other fees ..................................          1,713                      1,677
   Commission income ...............................................            165                        152
   Net realized gains (losses) on available-for-sale securities ....            (65)                       321
   Impairment on available-for-sale securities .....................           (240)                        --
   Net gain (loss) on sale of other assets .........................             62                         (1)
   Income from bank-owned life insurance ...........................            362                        358
   Other income ....................................................            484                        625
                                                                       ------------               ------------
     Total non-interest income .....................................          2,481                      3,132
Non-interest expense:
   Compensation and employee benefits ..............................          4,593                      4,859
   Net occupancy expense ...........................................            723                        643
   Professional fees ...............................................            355                        391
   Data processing .................................................            680                        655
   Furniture and equipment expense .................................            443                        462
   Marketing .......................................................            197                        295
   Amortization of core deposit intangibles ........................             16                         16
   Other general and administrative expenses .......................          1,253                      1,212
                                                                       ------------               ------------
     Total non-interest expense ....................................          8,260                      8,533
                                                                       ------------               ------------
Income before income taxes .........................................             20                      1,223
Income tax benefit .................................................           (246)                       (21)
                                                                       ------------               ------------
     Net income ....................................................   $        266               $      1,244
                                                                       ============               ============

Per share data:
   Basic earnings per share ........................................   $       0.02               $       0.11
   Diluted earnings per share ......................................           0.02                       0.11
   Cash dividends declared per share ...............................           0.12                       0.11
Weighted average shares outstanding ................................     11,786,828                 11,400,544
Weighted average diluted shares outstanding ........................     12,051,942                 11,805,671
</Table>

See accompanying notes.


                                       4
<PAGE>

                                CFS BANCORP, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                                                                           UNALLOC.  UNEARNED    ACCUM.
                                                                                            COMMON    COMMON     OTHER
                                                       ADDITIONAL                           STOCK     STOCK     COMPRE-
                                             COMMON     PAID IN     RETAINED    TREASURY    HELD     ACQUIRED   HENSIVE
                                             STOCK      CAPITAL     EARNINGS     STOCK     BY ESOP    BY RRP     INCOME    TOTAL
                                             ------    ----------   --------   ---------   -------   --------   -------   --------
                                                                                   (Unaudited)
                                                                      (Dollars in thousands, except per share data)
<S>                                         <C>        <C>          <C>        <C>         <C>       <C>        <C>       <C>
Balance January 1, 2004 .................   $   234    $  189,879   $106,354   $(132,741)  $(7,158)  $ (1,523)  $   908   $155,953
Net income ..............................        --            --      1,244          --        --         --        --      1,244
Other comprehensive income, net of tax:
   Change in unrealized appreciation on
   available-for-sale securities, net of
   reclassification adjustment ..........                                                                         1,341      1,341
                                                                                                                          --------
Total comprehensive income ..............                                                                                    2,585
Purchase of treasury stock ..............        --            --         --         (77)       --         --        --        (77)
Shares earned under ESOP ................        --            --         --          --        --         --        --         --
Amortization of award under RRP .........        --            (6)        --          --        --        168        --        162
Exercise of stock options ...............        --          (191)        --       1,231        --         --        --      1,040
Tax benefit related to stock options
  exercised .............................        --            62         --          --        --         --        --         62
Dividends declared on common stock
  ($0.11 per share) .....................        --            --     (1,208)         --        --         --        --     (1,208)
                                             ------    ----------   --------   ---------   -------   --------   -------   --------
Balance March 31, 2004 ..................    $  234    $  189,744   $106,390   $(131,587)  $(7,158)  $ (1,355)  $ 2,249   $158,517
                                             ======    ==========   ========   =========   =======   ========   =======   ========

Balance January 1, 2005 .................    $  234    $  189,991   $ 94,904   $(130,689)  $(5,959)  $   (148)  $  (422)  $147,911
Net income ..............................        --            --        266          --        --         --        --        266
Other comprehensive loss, net of tax:
   Change in unrealized appreciation on
   available-for-sale securities, net of
   reclassification adjustment ..........                                                                          (904)      (904)
                                                                                                                           -------
Total comprehensive loss ................                                                                                     (638)
Purchase of treasury stock ..............        --            --         --        (283)       --         --        --       (283)
Shares earned under ESOP ................        --           123         --          --       299         --        --        422
Amortization of award under RRP .........        --            --         --          --        --         --        --         --
Exercise of stock options ...............        --           (10)        --          63        --         --        --         53
Tax benefit related to stock options
  exercised .............................        --             5         --          --        --         --        --          5
Dividends declared on common stock
  ($0.12 per share) .....................        --            --     (1,378)         --        --         --        --     (1,378)
                                             ------    ----------   --------   ---------   -------   --------   -------   --------
Balance March 31, 2005 ..................    $  234    $  190,109   $ 93,792   $(130,909)  $(5,660)  $   (148)  $(1,326)  $146,092
                                             ======    ==========   ========   =========   =======   ========   =======   ========
</Table>


See accompanying notes.


                                       5
<PAGE>

                                CFS BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                              THREE MONTHS ENDED
                                                                                   MARCH 31,
                                                                            ----------------------
                                                                              2005          2004
                                                                            ---------    ---------
                                                                                 (Unaudited)
                                                                            (Dollars in thousands)
<S>                                                                         <C>          <C>
Operating activities:
   Net income ...........................................................   $     266    $   1,244
   Adjustments to reconcile net income to net cash provided by
     Operating activities:
       Provision for losses on loans ....................................         255          739
       Depreciation and amortization ....................................         384          375
       Premium amortization on early extinguishment of debt .............       4,724           --
       Net premium amortization on securities available-for-sale ........         328          716
       Impairment of securities available-for-sale ......................         240           --
       Deferred income tax benefit ......................................      (1,377)        (526)
       Amortization of cost of stock benefit plans ......................         422          162
       Tax benefit from exercises of nonqualified stock options .........           5           62
       Proceeds from sale of loans held-for-sale ........................       5,426        3,005
       Origination of loans held-for-sale ...............................      (4,673)      (2,839)
       Net loss (gain) realized on sale of securities ...................          65         (321)
       Dividends received on Federal Home Loan Bank stock ...............        (295)        (336)
       Net (gain) loss realized on sale of other assets .................         (62)           1
       Increase in cash surrender value of bank-owned life insurance ....        (362)        (358)
       Decrease in prepaid expenses and other assets ....................       1,124          612
       (Decrease) increase in other liabilities .........................        (306)       1,406
                                                                            ---------    ---------
         Net cash provided by operating activities ......................       6,164        3,942
                                                                            ---------    ---------

Investing activities:
Securities:
   Proceeds from sales ..................................................      16,754       15,068
   Proceeds from maturities and paydowns ................................      11,822       34,245
   Purchases ............................................................     (43,071)     (46,340)
Net loan fundings and principal payments received .......................       8,641       (4,204)
Proceeds from sale of real estate owned .................................         241          517
Purchases of property and equipment .....................................        (124)      (1,366)
Disposal of property and equipment ......................................          15        1,088
                                                                            ---------    ---------
     Net cash used for investing activities .............................      (5,722)        (992)
                                                                            ---------    ---------

Financing activities:
Proceeds from exercise of stock options .................................          52        1,040
Dividends paid on common stock ..........................................      (1,362)      (1,484)
Purchase of treasury stock ..............................................        (283)         (77)
Net decrease in deposit accounts ........................................     (20,093)     (18,088)
Net increase in advance payments by borrowers for taxes and
   Insurance ............................................................       1,131        1,445
Net decrease in borrowed funds ..........................................         (33)         (32)
                                                                            ---------    ---------
     Net cash flows used for financing activities .......................     (20,588)     (17,196)
                                                                            ---------    ---------
Decrease in cash and cash equivalents ...................................     (20,146)     (14,246)
Cash and cash equivalents at beginning of period ........................      38,094      177,751
                                                                            ---------    ---------
Cash and cash equivalents at end of period ..............................   $  17,948    $ 163,505
                                                                            =========    =========

Supplemental disclosure of non-cash activities:
   Loans transferred to real estate owned ...............................   $     443    $   1,148
   Cash paid for interest on deposits ...................................       2,993        4,065
   Cash paid for interest on borrowings .................................       2,872        6,263
   Cash paid for taxes ..................................................          --           --
</Table>

See accompanying notes.

                                       6
<PAGE>

                                CFS BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BASIS OF FINANCIAL STATEMENTS PRESENTATION

         The consolidated financial statements of CFS Bancorp, Inc. (including
its consolidated subsidiaries, the Company) as of March 31, 2005 and for the
three months ended March 31, 2005 and March 31, 2004 are unaudited; however, the
financial information reflects all adjustments (consisting only of normal
recurring adjustments), which are, in the opinion of management, necessary for a
fair presentation for the interim periods. The 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.

         The results of operations for the three months ended March 31, 2005 are
not necessarily indicative of the results expected for the full year ending
December 31, 2005. The accompanying consolidated financial statements do not
include 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. The March 31, 2005 consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes for the year ended December 31, 2004 included in
the Company's Annual Report on Form 10-K.

         The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the consolidated financial statements and the
disclosures provided. The allowance for losses on loans is particularly subject
to change.

         Some items in the prior period financial statements were reclassified
to conform to the current period's presentation.

2. STOCK-BASED COMPENSATION

         The Company accounts for its stock options in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued by
Employees (APB No. 25). Under APB No. 25, as the exercise price of the Company's
employees' stock options which have been granted equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Compensation expense for shares granted under the Company's Recognition and
Retention Plan (RRP) is ratably recognized over the period of service, usually
the vesting period, based on the fair value of the stock on the date of grant.

         Pursuant to Financial Accounting Standards Board (FASB) Statement No.
123, Accounting for Stock-Based Compensation (SFAS No. 123), pro forma net
income and pro forma earnings per share are presented in the following table as
if the fair value method of accounting for stock-based compensation plans had
been utilized. The effects of applying SFAS No. 123 in this pro forma disclosure
are not indicative of future amounts of compensation expense to be recognized.


                                       7
<PAGE>

<Table>
<Caption>
                                                       THREE MONTHS ENDED
                                                            MARCH 31,
                                                   ---------------------------
                                                     2005               2004
                                                   ---------         ---------
                                                   (Dollars in thousands except
                                                        per share data)
<S>                                                <C>               <C>
Net income (as reported) .......................   $     266         $   1,244
Stock-based compensation expense determined
   using fair value method, net of tax .........         143               242
                                                   ---------         ---------
Pro forma net income ...........................   $     123         $   1,002
                                                   =========         =========

Basic earnings  per share (as reported) ........   $    0.02         $    0.11
Pro forma basic earnings per share .............        0.01              0.09
Diluted earnings per share (as reported) .......        0.02              0.11
Pro forma diluted earnings per share ...........        0.01              0.08
</Table>

         The Company did not grant any options during the three months ended
March 31, 2005 or 2004.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. Option valuation models such as the Black-Scholes
require the input of highly subjective assumptions including the expected stock
price volatility.

3. OTHER COMPREHENSIVE INCOME

         The related income tax effect and reclassification adjustments to the
components of other comprehensive income for the periods indicated are as
follows:

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                            ----------------------
                                                               2005        2004
                                                            ---------    ---------
                                                            (dollars in thousands)
<S>                                                          <C>        <C>
Unrealized holding gains (losses) arising during the
  period:
     Unrealized net securities gains (losses) ...........   $  (1,693)   $   2,409
     Related tax (expense) benefit ......................         602         (872)
                                                            ---------    ---------
     Net ................................................      (1,091)       1,537
Less:  reclassification adjustment for net gains
   realized during the period:
     Realized net securities gains (losses) .............        (305)         321
     Related tax (expense) benefit ......................         118         (125)
                                                            ---------    ---------
     Net ................................................        (187)         196
                                                            ---------    ---------
Total other comprehensive income (loss) .................   $    (904)   $   1,341
                                                            =========    =========
</Table>


                                       8
<PAGE>


4.  EARNINGS PER SHARE

         The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 2005 and 2004:

<Table>
<Caption>
                                                       THREE MONTHS ENDED
                                                              MARCH 31,
                                                  -----------------------------
                                                      2005             2004
                                                  -----------       -----------
                                                  (Dollars in thousands, except
                                                          per share data)
<S>                                               <C>               <C>
Net income ....................................   $       266       $     1,244
                                                  ===========       ===========

Weighted average common shares outstanding ....    11,786,828        11,400,544
Common share equivalents (1) ..................       265,114           405,127
                                                  -----------       -----------
Weighted average common shares and common
  share equivalents outstanding ...............    12,051,942        11,805,671
                                                  ===========       ===========

Basic earnings per share ......................   $      0.02       $      0.11
Diluted earnings per share ....................          0.02              0.11
</Table>

(1) Assumes exercise of dilutive stock options and also a portion of the
unearned awards under the RRP.

         For the quarter ended March 31, 2005, the Company had 301,000
anti-dilutive options which were not included in the above calculation. The
Company had no anti-dilutive options for the quarter ended March 31, 2004.

5. NEW ACCOUNTING PRONOUNCEMENTS

The Meaning of Other-Than-Temporary and Its Application to Certain Investments

         In January 2003, the Emerging Issues Task Force (EITF) began a project
to provide additional guidance on when a market value decline on debt and
marketable equity securities should be considered other-than-temporary.
Currently, declines in market value that are considered to be
other-than-temporary require that a loss be recognized through the income
statement. In March 2004, the FASB ratified the consensus reached by the EITF in
Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments" (EITF 03-1). EITF 03-1 provides guidance for determining
when an investment is considered impaired, whether impairment is
other-than-temporary, and measurement of an impairment loss. In September 2004,
the FASB issued FSP 03-1-1 which delayed the effective date for the measurement
and recognition guidance of Issue 03-1 due to additional proposed guidance. At
March 31, 2005, gross unrealized losses on available for sale securities were
$2.4 million. In addition, the Company recognized a $240,000 impairment during
the first quarter of 2005. See the discussion under the heading "Changes in
Financial Condition - Securities" in the Management's Discussion and Analysis of
Financial Condition and Results of Operations section in Item 2 of this Form
10-Q. The Company will continue to evaluate the impact of EITF 03-1. The amount
of other-than-temporary impairment to be recognized, if any, will be dependent
on market conditions, management's intent and ability to hold investments until
a forecasted recovery, and the finalization of the proposed guidance by the
FASB.


                                       9
<PAGE>

Share-Based Payment

         In December 2004, the FASB issued SFAS No. 123, Revised, Share-Based
Payment, which requires all public companies to record compensation cost for
stock options and other awards provided to employees in return for employee
service. The cost of the options is measured at the fair value of the options
when granted, and this cost is to be expensed over the employee service period,
which is normally the vesting period of the options granted. This statement will
apply to awards that vest, are granted or are modified after the first quarter
or year beginning after June 15, 2005.

         On April 14, 2005, the SEC amended the compliance date for SFAS No.
123(R) from the beginning of the first interim or annual period that begins
after June 15, 2005 to the next fiscal year beginning after June 15, 2005. Early
adoption is permitted in periods in which financial statements have not yet been
issued. The Company expects to adopt SFAS No. 123(R) as of January 1, 2006. The
effect on the Company's results of operations will depend on the level of future
option grants and the calculation of the fair value of the options granted at
such future date, as well as the vesting periods provided, and so cannot
currently be predicted for future awards. Existing options that will vest after
the Company adopts SFAS No. 123(R) are expected to result in additional
compensation expense as indicated in the table below.

<Table>
<Caption>
                                                        ADDITIONAL
                                                     COMPENSATION COST
                                                     -----------------
                                                   (dollars in thousands)
<S>                                                <C>
Years ended December 31,
    2006 ......................................          $   428
    2007 ......................................              323
    2008 ......................................              197
    2009 ......................................               29
                                                         -------
                                                         $   977
                                                         =======
</Table>


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

FORWARD LOOKING STATEMENTS

When used in this Form 10-Q or future filings by the Company with the SEC, in
the Company's press releases or other public or stockholder communications, the
words or phrases "would be," "will allow," "intends to," "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions, or the negative thereof, are intended to identify
"forward-looking statements" within the meaning of the Private Litigation Reform
Act of 1995.

         The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit and other risks
which are inherent in the Company's lending and investment activities,
legislative changes, changes in operations, changes in the cost of funds, demand
for loan products and financial services, changes in accounting principles and


                                       10
<PAGE>

competitive and regulatory factors, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected. Such forward-looking
statements are not guarantees of future performance. The Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.

OVERVIEW

         The Company's net income totaled $266,000 or $0.02 per diluted share
for the quarter ended March 31, 2005. Net interest income before the provision
for losses on loans was $6.1 million and the Company's net interest margin was
2.00% for the same period. The Company's net income for the first quarter of
2005 was adversely affected by a charge to interest expense totaling $4.7
million ($2.9 million net of tax or $0.24 per diluted share) which reflects the
amortization of the deferred premium on the early extinguishment of debt
relating to the Company's fourth quarter 2004 restructuring of $400.0 million of
Federal Home Loan Bank (FHLB) borrowings. However, the restructuring reduced the
average contractual interest rates paid by the Company on its FHLB borrowings
and, on a cash basis, the Company's interest payments on such borrowings were
$3.4 million less ($2.1 million net of tax or $0.17 per diluted share) in the
quarter ended March 31, 2005 compared to the quarter ended March 31, 2004.

         Total borrowings at the end of March 31, 2005 were $291.3 million which
is net of the unamortized premium on the early extinguishment of debt of $25.4
million. The weighted average contractual interest rate on the FHLB borrowings
as of March 31, 2005 was 3.65%, a substantial decrease from the weighted average
contractual interest rate of 5.92% as of March 31, 2004.

CRITICAL ACCOUNTING POLICIES

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

         The Company's significant accounting policies are presented in Note 1
to the consolidated financial statements included in Item 8 of its Annual Report
on Form 10-K. These policies, along with the disclosures presented in the other
financial statement notes and in this management's discussion and analysis,
provide information on how significant assets and liabilities are valued in the
financial statements and how those values are determined. Management views
critical accounting policies to be those which 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 the financial
statements. Management currently views the determination of the allowance for
losses on loans to be a critical accounting policy.


                                       11
<PAGE>

         ALLOWANCE FOR LOSSES ON LOANS. The Company maintains an allowance for
losses on loans at a level management believes is sufficient to absorb credit
losses inherent in the loan portfolio. The allowance for losses on loans
represents the Company's estimate of probable incurred losses in the loan
portfolio at each balance sheet date and is based on the review of available and
relevant information.

         One component of the allowance for losses on loans contains allocations
for probable inherent but undetected losses within various pools of loans with
similar characteristics pursuant to SFAS No. 5, Accounting for Contingencies.
This component is based in part on certain loss factors applied to various loan
pools as stratified by the Company. In determining the appropriate loss factors
for these loan pools, 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.

              The second component of the allowance for losses on loans contains
allocations for probable losses that have been identified relating to specific
borrowing relationships pursuant to SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. This component of the allowance for losses on loans
consists of expected losses resulting in specific credit allocations for
individual loans not considered within the above mentioned loan pools. The
analysis on 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.

         Loan losses are charged off against the allowance, while recoveries of
amounts previously charged off are credited to the allowance. The Company
assesses the adequacy of the allowance for losses on loans on a quarterly basis
and adjusts the allowance for losses on loans by recording a provision for
losses on loans in an amount sufficient to maintain the allowance at an
appropriate level. The evaluation of the adequacy of the allowance for losses on
loans is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available or as future events
occur. To the extent that actual outcomes differ from management estimates, an
additional provision for losses on loans could be required that could adversely
affect earnings or the Company's financial position in future periods. In
addition, various regulatory agencies, as an integral part of their examination
processes, periodically review the provision for losses on loans for the Bank
and the carrying value of its other non-performing assets, based on information
available to them at the time of their examinations. Any of these agencies could
require the Bank to make additional provisions for losses on loans in the
future.

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

         The following table provides information regarding (i) the Company's
interest income recognized from interest-earning assets and their related
average yields; (ii) the amount of interest expense realized on interest-bearing
liabilities and their related average rates; (iii) net interest income; (iv)
interest rate spread; and (v) net interest margin. Information is based on
average daily balances during the indicated periods.


                                       12
<PAGE>


<Table>
<Caption>
                                                                   THREE MONTHS ENDED MARCH 31,
                                           -------------------------------------------------------------------------------
                                                            2005                                    2004
                                           --------------------------------------    -------------------------------------
                                            AVERAGE                     AVERAGE       AVERAGE                    AVERAGE
                                            BALANCE       INTEREST     YIELD/COST     BALANCE      INTEREST     YIELD/COST
                                           ----------    ----------    ----------    ----------   ----------    ----------
                                                                    (Dollars in thousands)
<S>                                        <C>           <C>           <C>           <C>          <C>           <C>
Interest-earning assets:
   Loans receivable (1) ................   $  983,286    $   14,573          6.01%   $  985,101   $   14,116          5.76%
   Securities (2) ......................      204,167         1,721          3.42%      330,242        2,670          3.25%
   FHLB stock ..........................       27,885           302          4.39%       27,018          330          4.91%
   Other interest-earning assets(3) ....       11,312            67          2.40%      144,668          346           .96%
                                           ----------    ----------                  ----------   ----------
     Total interest-earning assets .....    1,226,650        16,663          5.51%    1,487,029       17,462          4.72%

Non-interest earning assets ............       74,641                                    71,501
                                           ----------                                ----------
Total assets ...........................   $1,301,291                                $1,558,530
                                           ==========                                ==========

Interest-bearing liabilities:
   Deposits:
     Checking accounts .................   $   97,913            85           .35%   $   93,069           66           .29%
     Money market accounts .............      144,116           388          1.09%      125,418          289           .93%
     Savings accounts ..................      196,406           160           .33%      205,826          210           .41%
     Certificates of deposit ...........      359,828         2,372          2.67%      501,825        3,271          2.62%
                                           ----------    ----------                  ----------   ----------
       Total deposits ..................      798,263         3,005          1.53%      926,138        3,836          1.67%

   Borrowings (4) ......................      289,082         7,604         10.67%      418,463        6,263          6.02%
                                           ----------    ----------                  ----------   ----------
     Total interest-bearing
       Liabilities .....................    1,087,345        10,609          3.96%    1,344,601       10,099          3.02%
                                                         ----------                               ----------

Non-interest bearing deposits ..........       48,538                                    39,547
Non-interest bearing liabilities .......       18,172                                    17,504
                                           ----------                                ----------
Total liabilities ......................    1,154,055                                 1,401,652
Stockholders' equity ...................      147,236                                   156,878
                                           ----------                                ----------
Total liabilities and
stockholders' equity ...................   $1,301,291                                $1,558,530
                                           ==========                                ==========
Net interest-earning assets ............   $  139,305                                $  142,428
                                           ==========                                ==========
Net interest income / interest rate
  spread ...............................                 $    6,054          1.55%                $    7,363          1.70%
                                                         ==========    ==========                 ==========    ==========
Net interest margin ....................                                     2.00%                                    1.99%
                                                                       ==========                               ==========
Ratio of average interest-earning
assets to average
   interest-bearing liabilities ........                                   112.81%                                  110.59%
                                                                       ==========                               ==========
</Table>

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

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

(3)  Includes money market accounts, federal funds sold and interest-earning
     bank deposits.

(4)  The 2005 period includes $28.1 million average unamortized deferred premium
     on early extinguishment of debt which offsets total average FHLB borrowings
     of $317.1 million. Interest expense on borrowings for the 2005 period
     includes $4.7 million of amortization of the deferred premium on early
     extinguishment of debt. The amortization of the deferred premium for the
     2005 period increased the average cost of borrowings as reported to 10.67%
     compared to an average contractual rate of 3.65%.


                                       13
<PAGE>

RATE /VOLUME ANALYSIS

         The following table details the effects of changing rates and volumes
on the Company's net interest income. Information is provided with respect to
(i) effects on interest income attributable to changes in rate (changes in rate
multiplied by prior volume); (ii) effects on interest income attributable to
changes in volume (changes in volume multiplied by prior rate); and (iii)
changes in rate/volume (changes in rate multiplied by changes in volume).

<Table>
<Caption>
                                                       THREE MONTHS ENDED MARCH 31,
                                                           2005 COMPARED TO 2004
                                           -----------------------------------------------------
                                                         INCREASE (DECREASE) DUE TO
                                           -----------------------------------------------------
                                                                                     TOTAL NET
                                                                         RATE/       INCREASE /
                                              RATE        VOLUME         VOLUME      (DECREASE)
                                           ----------    ----------    ----------    ----------
                                                        (Dollars in thousands)
<S>                                        <C>           <C>           <C>           <C>
Interest-earning assets:
   Loans receivable ....................   $      484    $      (26)   $       (1)   $      457
   Securities ..........................          114        (1,020)          (43)         (949)
   FHLB stock ..........................          (38)           11            (1)          (28)
   Other interest-earning assets .......          511          (319)         (471)         (279)
                                           ----------    ----------    ----------    ----------
     Total net change in income on
       interest-earning assets .........        1,071        (1,354)         (516)         (799)
Interest-bearing liabilities:
   Deposits:
     Checking accounts .................           15             3             1            19
     Money market accounts .............           49            43             7            99
     Savings accounts ..................          (42)          (10)            2           (50)
     Certificates of deposit ...........           37          (926)          (10)         (899)
                                           ----------    ----------    ----------    ----------
       Total deposits ..................           59          (890)           --          (831)
   Borrowings ..........................        4,744        (1,936)       (1,467)        1,341
                                           ----------    ----------    ----------    ----------
     Total net change in expense on
       interest-bearing liabilities ....        4,803        (2,826)       (1,467)          510
                                           ----------    ----------    ----------    ----------
Net change in net interest income ......   $   (3,732)   $    1,472    $      951    $   (1,309)
                                           ==========    ==========    ==========    ==========
</Table>

RESULTS OF OPERATIONS

         Net Income. The Company's net income for the first quarter of 2005 was
$266,000 (or $0.02 per diluted share) compared to $1.2 million (or $0.11 per
diluted share) reported during the comparable 2004 period. The Company's net
income during the first quarter of 2005 was adversely affected by a pre-tax
charge to interest expense of $4.7 million ($2.9 million net of tax or $0.24 per
diluted share) related to the amortization of the deferred premium on the early
extinguishment of debt. This amortization was partially offset by a $3.4 million
($2.1 million net of tax or $0.17 per diluted share) decrease in interest
expense as a result of the Company's lower contractual interest rates on the
restructured borrowings for the first quarter of 2005 as compared to the first
quarter of 2004.

         Net Interest Income. Net interest income is the principal source of
earnings for the Company and consists of interest income earned on loans and
investment securities less interest


                                       14
<PAGE>

expense paid on deposits and borrowed funds. Net interest income is a function
of the Company's interest rate spread, which is the difference between the
average yield earned on the Company's interest-earning assets and the average
rate paid on its interest-bearing liabilities, and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Company's net
interest spread for the first quarter of 2005 was 1.55% as compared to 1.70% for
the first quarter of 2004.

         The Company's net interest income before the provision for losses on
loans for the first quarter of 2005 was $6.1 million, a decrease of $1.3 million
from the first quarter of 2004. The Company's net interest margin (which is net
interest income as a percentage of average interest-earning assets) remained
stable at 2.00% for the first quarter of 2005 as compared to the first quarter
of 2004. Both the net interest income and net interest margin were negatively
impacted by the $4.7 million premium amortization previously discussed. The net
interest margin was also negatively affected by the average unamortized deferred
premium which is classified as an offset to the Company's average borrowings
outstanding. The average unamortized portion of the deferred premium totaled
$28.1 million for the first quarter of 2005. The effect of the unamortized
deferred premium and the related quarterly amortization was to reduce the
Company's net interest margin by 156 basis points for the first quarter of 2005.
Partially offsetting the effects of the deferred premium amortization was a 79
basis point increase in the average yield on earning assets combined with a 14
basis point decrease in the average cost of deposits during the first three
months of 2005 compared to the first three months of 2004.

         Interest Income. Total interest income was $16.7 million for the three
months ended March 31, 2005, a decrease of 4.6% from $17.5 million for the
comparable 2004 period. The decrease in interest income was primarily the result
of a decrease of $126.1 million in the average balance of its securities and a
$133.4 million decrease in the average balance of its other interest-earning
assets from the three months ended March 31, 2004 due to the Company utilizing
its low yielding interest-earning assets to reduce the total amount of its
borrowings, pay the prepayment penalties associated with the FHLB debt
restructuring, and to allow runoff of high cost certificates of deposit. The
effects of this decrease in the average balances was partially offset by a 79
basis point increase in the yields on interest-earning assets to 5.51% during
the first quarter of 2005 from the first quarter of 2004 as the Company's
adjustable-rate assets reflected higher market interest rates.

         Interest Expense. Total interest expense was $10.6 million for the
three months ended March 31, 2005, a 5.1% increase from the comparable 2004
period. The increase in the Company's interest expense for the first quarter of
2005 from the comparable 2004 period was primarily a result of the $4.7 million
premium amortization expense related to the early extinguishment of debt which
is recorded as a charge to interest expense. The non-cash amortization was
partially offset by a $3.4 million decrease in interest expense related to the
Company's lower contractual interest rates on its restructured FHLB borrowings
coupled with an $831,000 decrease in interest expense on deposits.

         The weighted average cost of deposits decreased to 1.53% for the first
quarter of 2005 as compared to 1.67% for the first quarter of 2004. The average
balance of interest-bearing liabilities decreased 19.1% as a result of the lower
average balances on certificates of deposit combined with the reduction in the
average balance of borrowings resulting from the repayment in 2004 of $75.0
million of FHLB borrowings together with the average balance of the


                                       15
<PAGE>

unamortized deferred premium. The average cost of interest-bearing liabilities
increased 94 basis points for the quarter ended March 31, 2005 when compared to
the first quarter of 2004. The increase in the weighted average cost of
interest-bearing liabilities was primarily a result of the premium amortization
expense recognized during the first quarter of 2005. The interest expense
related to the deferred premium amortization is expected to be $4.0 million,
$2.9 million and $2.8 million before taxes in the quarters ended June 30, 2005,
September 30, 2005 and December 31, 2005, respectively.

         Provision for losses on loans. The Company's provision for losses on
loans was $255,000 for the first quarter of 2005, a decrease of $484,000 from
the comparable 2004 period. During the first quarter of 2004, the Company
increased its provision due to a non-performing commercial real estate loan
secured by a motel. During the second quarter of 2004, this loan was transferred
to other real estate owned and sold.

         Non-interest income. The Company's first quarter of 2005 non-interest
income was $2.5 million, a decrease of $651,000 from the first quarter of 2004.
The decrease was primarily related to net realized losses on securities
available-for-sale of $65,000 coupled with an "other-than-temporary" impairment
of $240,000 realized on the Company's $1.5 million investment in Freddie Mac
fixed-rate preferred stock. (For further discussion related to this impaired
security, see the "Securities" section in this Form 10-Q.) These losses were
partially offset by net realized gains of $62,000 on the sale of other real
estate owned during the first quarter of 2005. Net realized gains on the sales
of securities available-for-sale was $321,000 for the first quarter of 2004.

         The remaining components of non-interest income remained relatively
stable during the first quarter of 2005 as compared to the first quarter of 2004
with an increase in service charges and other fees of $36,000 partially
offsetting the decrease of $141,000 in other income.

         Non-interest expense. Non-interest expense for the first quarter of
2005 was $8.3 million, a decrease of $273,000 from $8.5 million for the
comparable period in 2004. The decrease was primarily a result of decreased
compensation and employee benefit expenses of $314,000 during the first quarter
of 2005 due to reduced expense associated with the vesting of stock issued under
the Company's Recognition and Retention Plan (RRP). The Company's marketing
expense also decreased $98,000 during the first quarter of 2005 as compared to
the comparable 2004 period due to a decrease in the use of newspaper advertising
and direct mail campaigns. The above mentioned decreases were partially offset
by increases in net occupancy expense related to the Company's new offices which
opened during the second and third quarters of 2004 and data processing charges
related to the increased usage of electronic banking services that the Company
offers to its customers.

         Management has historically used an efficiency ratio that is a non-GAAP
financial measure of operating expense control and efficiency of operations. The
efficiency ratio is typically defined as the ratio of non-interest expense to
the sum of net interest income before the provision for losses on loans and
non-interest income. Many financial institutions, in calculating the efficiency
ratio, adjust non-interest income (as calculated under generally accepted
accounting principles) to exclude certain component elements, such as gains or
losses on sales of securities and assets. Management follows this practice to
calculate its efficiency ratio and utilizes this non-GAAP measure in its
analysis of the Company's performance. The non-GAAP measure is different from
the GAAP-based efficiency ratio which is also presented in this Form 10-Q. The
GAAP-based measure is calculated using non-

                                       16
<PAGE>
interest expense, net interest income before the provision for losses on loans
and non-interest income as presented on the Consolidated Statements of Income.

         Management computes a core efficiency ratio which is calculated as
non-interest expense, excluding any prepayment penalties on early extinguishment
of debt, divided by the sum of net interest income before the provision for
losses on loans, excluding the deferred premium amortization, and non-interest
income, adjusted for gains or losses on the sale of securities and other assets
and other-than-temporary impairments. Management believes that the non-GAAP core
efficiency ratio enhances investors' understanding of its business and
performance. The measure is also believed to be useful in understanding the
Company's performance trends and to facilitate comparisons with the performance
of others in the financial services industry. Management further believes the
presentation of the core efficiency ratio provides useful supplemental
information, a clearer understanding of the Company's financial performance and
better reflects the Company's core operating activities.

         The limitations associated with utilizing operating measures (such as
the efficiency ratio) are the risk that different persons might disagree as to
the appropriateness of items comprising these measures and that other companies
might calculate these measures differently. Management of the Company
compensates for these limitations by providing detailed reconciliations between
GAAP information and its core efficiency ratio. These disclosures should not be
considered as an alternative to GAAP.

         The Company's efficiency ratio for the first quarter of 2005 was 97% as
compared to 81% for the first quarter of 2004. The Company's core efficiency
ratio was 61% for the first quarter of 2005 as compared to 84% for the first
quarter of 2004. The calculations of the efficiency ratio are presented below.

<Table>
<Caption>
                                                              THREE MONTHS ENDED MARCH 31,
                                                                2005               2004
                                                              --------           --------
                                                                 (Dollars in thousands)
<S>                                                           <C>                <C>
Non-interest expense ......................................   $  8,260           $  8,533
                                                              ========           ========
Net interest income before the provision for losses on
  loans plus non-interest income ..........................   $  8,535           $ 10,495
                                                              ========           ========
Efficiency ratio ..........................................         97%                81%

Non-interest expense ......................................   $  8,260           $  8,533
                                                              ========           ========
Net interest income before the provision for losses on
  loans plus non-interest income ..........................   $  8,535           $ 10,495
  Adjustments:
    Net (gain) loss on securities .........................         65               (321)
    Other-than-temporary impairment .......................        240                 --
    Net (gain) loss on sale of assets .....................        (62)                 1
                                                              --------           --------
    Amortization of deferred premium ......................      4,724                 --
                                                              --------           --------
      Net interest income before the provision for
        losses on loans plus non-interest income - as
        adjusted ..........................................   $ 13,502           $ 10,175
                                                              ========           ========
Core efficiency ratio .....................................         61%                84%
</Table>


                                       17
<PAGE>

         Income Tax Expense. The Company's income tax benefit for the first
quarter of 2005 was $246,000 compared to the income tax benefit of $21,000 for
the comparable period in 2004. The increased tax benefit was a result of the
lower pre-tax earnings, the effects of permanent tax differences primarily
related to the Company's investment in Bank-owned life insurance and the
application of available tax credits. The permanent tax differences and
available tax credits are expected to continue to have a favorable impact on
income tax expense throughout 2005.

CHANGES IN FINANCIAL CONDITION

         General. At March 31, 2005, the Company's total assets had decreased by
$16.3 million to $1.30 billion from $1.31 billion at December 31, 2004. The
significant changes in the Company's total assets were mainly a result of a
decrease in cash and cash equivalents coupled with a decrease in loans
receivable, net of unearned fees which were partially offset by increases in
securities available-for-sale as the Company utilized its lower yielding cash
and the repayments on loans to purchase securities.

         Securities. The amortized cost of the Company's securities and their
fair values were as follows at March 31, 2005 and December 31, 2004:

<Table>
<Caption>
                                                                      GROSS         GROSS
                                                       AMORTIZED    UNREALIZED    UNREALIZED      FAIR
                                                           COST       GAINS         LOSSES        VALUE
                                                       ----------   ----------    ----------    ----------
                                                                         (Dollars in thousands)
<S>                                                    <C>          <C>           <C>           <C>
At March 31, 2005:
   Government Sponsored Entity (GSE) securities ....   $  124,136   $        1    $   (1,710)   $  122,427
   Mortgage-backed securities ......................       50,409          306          (393)       50,322
   Collateralized mortgage obligations .............       40,711           56          (306)       40,461
   Trust preferred securities ......................           90           12            --           102
   Equity securities ...............................        1,386           --            (6)        1,380
                                                       ----------   ----------    ----------    ----------
                                                       $  216,732   $      375    $   (2,415)   $  214,692
                                                       ==========   ==========    ==========    ==========

At December 31, 2004:
   Government Sponsored Entity (GSE) securities ....   $   96,663   $       45    $     (793)   $   95,915
   Mortgage-backed securities ......................       55,602          522          (141)       55,983
   Collateralized mortgage obligations .............       48,815           94          (171)       48,738
   Trust preferred securities ......................           90           --            --            90
   Equity securities ...............................        1,701            2          (210)        1,493
                                                       ----------   ----------    ----------    ----------
                                                       $  202,871   $      663    $   (1,315)   $  202,219
                                                       ==========   ==========    ==========    ==========
</Table>

         During the first quarter of 2005, approximately $16.8 million of
available-for-sale securities were sold realizing a net loss on the sales of
$65,000. The Company also identified a $240,000 impairment in a Freddie Mac
fixed-rate perpetual preferred stock that had an original cost basis of $1.5
million. The impairment was identified based on the facts and circumstances
surrounding the security and its issuer at the time of the impairment, including
the duration and severity of the unrealized loss in the security and the
uncertainty as to the timing of a full recovery.


                                       18
<PAGE>

         Management does not believe that any other unrealized loss on the
Company's securities as of March 31, 2005 represents an other-than-temporary
impairment. The unrealized losses reported for the remainder of the portfolio
were attributable to changes in interest rates.

         Loans. Loans receivable, net of unearned fees, and the percentage of
loans by category are presented below as of March 31, 2005 and December 31,
2004:

<Table>
<Caption>
                                                MARCH 31, 2005           DECEMBER 31, 2004
                                           -----------------------    -----------------------
                                             AMOUNT     PERCENTAGE      AMOUNT     PERCENTAGE
                                           ----------   ----------    ----------   ----------
                                                        (Dollars in thousands)
<S>                                        <C>          <C>           <C>          <C>
Commercial and construction loans:
  Commercial real estate ...............   $  414,792         42.4%   $  396,420         40.1%
  Construction and land development ....      119,955         12.3       145,162         14.7
  Commercial and industrial ............       62,889          6.4        58,682          5.9
                                           ----------   ----------    ----------   ----------
  Total commercial loans ...............      597,636         61.1       600,264         60.7

Retail loans:
  Single-family residential ............      268,591         27.5       277,501         28.1
  Home equity loans ....................      105,267         10.7       102,981         10.5
  Other ................................        6,685          0.7         7,339          0.7
                                           ----------   ----------    ----------   ----------
  Total retail loans ...................      380,543         38.9       387,821         39.3
                                           ----------   ----------    ----------   ----------

Total loans receivable .................   $  978,179        100.0%   $  988,085        100.0%
                                           ==========   ==========    ==========   ==========
</Table>

         Total loans decreased 1% as of March 31, 2005 from December 31, 2004.
The decrease was mainly a result of loan repayments in construction and land
development loans and in single-family residential mortgage loans. Total loan
repayments were partially offset by increased fundings of commercial real estate
loans totaling $5.9 million and increased usage of home equity lines of credit
totaling $2.3 million.

         Allowance for Losses on Loans. At March 31, 2005, the Bank's allowance
for losses on loans amounted to $13.4 million and remained relatively stable
compared to December 31, 2004. The allowance for losses on loans represented
51.2% and 48.3%, respectively, of the Bank's non-performing loans and 1.37% and
1.35%, respectively, of its total loans receivable as of March 31, 2005 and
December 31, 2004. Management of the Bank believes that, as of March 31, 2005,
the allowance for losses on loans was adequate.

         As of March 31, 2005, the Company had nine impaired loans with
aggregate outstanding balances totaling $25.3 million with impairment
allocations related to these loans totaling $6.2 million. Seven of the impaired
loans are commercial real estate loans, of which four are secured by hotels and
as of March 31, 2005, had an aggregate carrying value of $20.8 million with
aggregate impairment allocations of $4.1 million. The other three impaired
commercial real estate loans are secured by a golf course and as of March 31,
2005, total $3.4 million with an impairment allocation of $1.4 million. The two
remaining impaired loans are commercial loans, one of which is secured by
business assets and the other by improved land. As of March 31, 2005, these two
loans total $1.1 million with an aggregate impairment allocation of $694,000.

         The following is a summary of changes in the allowance for losses on
loans for the periods presented:


                                       19
<PAGE>

<Table>
<Caption>
                                      THREE MONTHS ENDED MARCH 31,
                                         2005                2004
                                      --------            --------
                                          (Dollars in thousands)
<S>                                   <C>                 <C>
Balance at beginning of period ....   $ 13,353            $ 10,453
Provision for losses on loans .....        255                 739
Charge-offs .......................       (238)                (70)
Recoveries ........................         65                 173
                                      --------            --------
Balance at end of period ..........   $ 13,435            $ 11,295
                                      ========            ========
</Table>

         See additional discussion for the decreased provision for losses on
loans under the sub-heading "Provision for Losses on Loans" above.

         Non-performing Assets. The following table provides information
relating to the Company's non-performing assets as of the dates indicated. The
Company has no loans past due greater than 90 days still on accrual at either
date presented below.


<Table>
<Caption>
                                                       MARCH 31,      DECEMBER 31,
                                                          2005             2004
                                                     -------------    ------------
                                                         (Dollars in thousands)
<S>                                                  <C>              <C>
Non-accrual loans:
   Commercial loans:
     Commercial real estate ......................   $      19,360    $      19,197
     Construction and land development ...........           1,895            1,895
     Commercial and industrial ...................             478              236
                                                     -------------    -------------
     Total commercial loans ......................          21,733           21,328

   Retail loans:
     Single-family residential ...................           3,915            5,855
     Home equity .................................             586              460
     Other .......................................              27               32
                                                     -------------    -------------
     Total retail loans ..........................           4,528            6,347
                                                     -------------    -------------
     Total non-accruing loans ....................          26,261           27,675
Other real estate owned, net .....................             790              525
                                                     -------------    -------------
   Total non-performing assets ...................   $      27,051    $      28,200
                                                     =============    =============

Non-performing assets to total assets ............            2.08%            2.14%
Non-performing loans to total loans ..............            2.68             2.80
Total non-performing assets and troubled debt
   restructurings to total assets ................            2.09             2.15
</Table>

         Total non-performing loans decreased $1.4 million or 5.1% as of March
31, 2005 as compared to December 31, 2004. The primary reason for the decrease
was the transfer of seven single-family residential mortgage loans totaling
$443,000 to other real estate owned during the first quarter of 2005, of which
three of these properties were also sold during the quarter for a total gain on
sale of $63,000. The remaining decrease in non-performing loans was a result of
loan repayments offset by loans transferred to non-performing loans. With the
exception of the addition of one $400,000 commercial real estate loan secured by
a hotel in Michigan (see further

                                       20
<PAGE>

discussion below), there were no significant transfers to non-performing loans
during the first quarter of 2005.

         As of March 31, 2005, the Company's non-performing commercial real
estate loans included:

         o     Two loans totaling $9.2 million which are secured by a hotel in
               Michigan. As of March 31, 2005, these loans were considered
               impaired loans with an estimated impairment allocation of
               $811,000. In conjunction with a forbearance agreement negotiated
               during the fourth quarter of 2004, the Company loaned an
               additional $400,000 to the borrower to pay for delinquent real
               estate taxes on the properties securing the loans. During the
               first quarter of 2005, the borrower made interest payments which
               totaled $71,000 in the aggregate as agreed.

         o     One loan totaling $7.0 million secured by a hotel in the Chicago
               metropolitan area which is considered impaired and had an
               estimated impairment allocation of $1.8 million as of March 31,
               2005. During December 2004, Bank management negotiated a
               forbearance agreement extending the maturity of the loan through
               May 2005 when the loan is required to be paid off. In conjunction
               with the forbearance agreement, the borrower placed the title of
               the property in escrow. The borrowers have the opportunity for a
               120 day extension if they pay additional funds on the loan.
               Should the loan not be paid off at maturity under the terms of
               the forbearance agreement, the title to the property is to be
               transferred to the Bank. Although the borrowers filed for
               reorganization under Chapter 11 of the Bankruptcy Code during the
               first quarter of 2005, the Company does not believe the
               bankruptcy will affect the terms of the forbearance agreement.

         o     Two loans totaling $2.2 million which are secured by a golf
               course in Indiana. The Bank has filed a foreclosure action;
               however, the current owners have filed a countersuit against the
               Bank. See "Legal Proceedings" for more details. Based on the
               collateral values, the Company believes there is little risk of
               loss related to the outstanding balance of these loans as of
               March 31, 2005.


                                       21
<PAGE>


         Deposits and Borrowed Money. The following table sets forth the dollar
amount and the percentage of total deposits in each deposit category offered by
the Bank at the dates indicated.

<Table>
<Caption>
                                     MARCH 31, 2005           DECEMBER 31, 2004
                                -----------------------    -----------------------
                                  AMOUNT     PERCENTAGE       AMOUNT    PERCENTAGE
                                ----------   ----------    ----------   ----------
                                               (Dollars in thousands)
<S>                             <C>          <C>           <C>          <C>
Checking accounts:
   Non-interest bearing .....   $   47,902          5.7%   $   51,713          6.0%
   Interest-bearing .........      104,824         12.4        94,878         11.0
Money market accounts .......      142,201         16.9       147,211         17.1
Savings accounts ............      195,546         23.2       196,358         22.7
                                ----------   ----------    ----------   ----------
     Core deposits ..........      490,473         58.2       490,160         56.8
Certificates of deposit:
   $100,000 or less .........      272,275         32.3       288,597         33.4
   Over $100,000 ............       80,337          9.5        84,421          9.8
                                ----------   ----------    ----------   ----------
     Time deposits ..........      352,612         41.8       373,018         43.2
                                ----------   ----------    ----------   ----------
       Total Deposits .......   $  843,085        100.0%   $  863,178        100.0%
                                ==========   ==========    ==========   ==========
</Table>

         The Company's total deposits amounted to $843.1 million at March 31,
2005 compared to $863.2 million at December 31, 2004. The decrease of $20.1
million was primarily the result of a reduction of $20.4 million in certificates
of deposit, partially offset by an increase in core deposits of $313,000. The
Company continues to strategically focus on increasing lower cost core deposits.

         The Company's borrowed money consisted of the following at the dates
indicated:

<Table>
<Caption>
                                                               MARCH 31, 2005             DECEMBER 31, 2004
                                                         ------------------------     --------------------------
                                                          WEIGHTED                     WEIGHTED
                                                           AVERAGE                      AVERAGE
                                                         CONTRACTUAL                  CONTRACTUAL
                                                            RATE         AMOUNT          RATE           AMOUNT
                                                         -----------   ----------     -----------    -----------
                                                                         (Dollars in thousands)
<S>                                                      <C>           <C>            <C>            <C>
Secured advances from FHLB - Indianapolis:
   Maturing in 2005 - variable-rate ...................         2.92%  $   34,000            1.95%   $    34,000
   Maturing in 2005 - fixed-rate ......................         3.00       10,000            3.00         10,000
   Maturing in 2006 - fixed-rate ......................         3.41       87,000            3.41         87,000
   Maturing in 2007 - fixed-rate ......................         3.65       87,000            3.65         87,000
   Maturing in 2008 - fixed-rate ......................         3.89       72,000            3.89         72,000
   Maturing in 2009 - fixed-rate ......................         4.09       15,000            4.09         15,000
   Maturing in 2014 - fixed-rate (1) ..................         6.71        1,227            6.71          1,227
   Maturing in 2018 - fixed-rate (1) ..................         5.54        2,865            5.54          2,865
   Maturing in 2019 - fixed-rate (1) ..................         6.32        7,657            6.31          7,691
                                                                      -----------                    -----------
                                                                          316,749                        316,783
Less:  deferred premium on early extinguishment of
   debt ...............................................                   (25,447)                       (30,172)
                                                                      -----------                    -----------
                                                                      $   291,302                    $   286,611
                                                                      ===========                    ===========

Weighted-average contractual interest rate ............         3.65%                        3.55%
</Table>

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



                                       22
<PAGE>

         As of March 31, 2005, the Company had two lines of credit with a
maximum of $25.0 million and $15.0 million, respectively, in unsecured overnight
federal funds at the market rate for the purchase of federal funds at the time
of a request. During the first quarter, these lines were used for liquidity
purposes. As of March 31, 2005, these lines had a zero balance. The maximum
amount borrowed during the first quarter of 2005 was $5.0 million and the
weighted-average rate paid was 2.61%.

         On March 21, 2005, the Company obtained a $10.0 million revolving line
of credit with a maturity date of March 31, 2006 and with each borrowing
carrying an interest rate of either the Prime Rate minus 75 basis points or the
LIBOR rate at the Company's option. The line of credit was obtained by the
Holding Company and is secured by the stock of Citizens Financial Services, FSB.
The Company did not borrow any funds under this line of credit during the first
quarter of 2005.

         Capital Resources. The Company's stockholders' equity at March 31, 2005
was $146.1 million as compared to $147.9 million at December 31, 2004. The
decrease was primarily due to:

         o        a $904,000 increase in unrealized losses on available-for-sale
                  securities, net of tax;

         o        cash dividends declared during 2005 totaling $1.4 million; and

         o        repurchases of the Company's common stock during 2005 totaling
                  $283,000.

Partially offsetting the above decreases in stockholders' equity, the Company
also realized during 2005:

         o        net income of $266,000;

         o        $422,000 related to shares committed to be released under the
                  Company's Employee Stock Ownership Plan; and

         o        proceeds from stock option exercises totaling $52,000.

         During the first quarter of 2005, the Company repurchased 20,000 shares
of its common stock with an average price of $14.17 per share pursuant to the
share repurchase program announced in March 2003. Since its initial public
offering, the Company has repurchased an aggregate of 11,612,616 shares of its
common stock at an average price of $11.75 per share. As of March 31, 2005, the
Company has 1,160,156 of shares remaining to be repurchased under its current
share repurchase program.


                                       23
<PAGE>
         At March 31, 2005, the Bank's regulatory capital was in excess of
regulatory limits set by the Office of Thrift Supervision (OTS). The current
requirements and the Bank's actual levels at March 31, 2005 and at December 31,
2004 are provided below:

<Table>
<Caption>
                                                                                   TO BE WELL-CAPITALIZED
                                                                                         UNDER PROMPT
                                                         FOR CAPITAL ADEQUACY        CORRECTIVE ACTION
                                    ACTUAL                     PURPOSES                   PROVISIONS
                             ---------------------      ----------------------     ----------------------
                               AMOUNT        RATIO        AMOUNT         RATIO       AMOUNT      RATIO
                             ----------      -----      ----------      ------     ----------  ----------
                                                        (Dollars in thousands)
<S>                          <C>             <C>        <C>             <C>        <C>         <C>
As of March 31, 2005:
   Risk-based..............  $  134,036      12.41%     $   86,406      >8.00%     $  108,008    >10.00%
   Tangible................     122,385       9.47          19,385      >1.50          25,846     >2.00
   Core....................     122,385       9.47          51,693      >4.00          64,616     >5.00

As of December 31, 2004:
   Risk-based..............  $  131,660      12.23%     $   86,155      >8.00%     $  107,694    >10.00%
   Tangible................     120,075       9.24          19,485      >1.50          25,980     >2.00
   Core....................     120,075       9.24          51,961      >4.00          64,951     >5.00
</Table>

LIQUIDITY AND COMMITMENTS

         The Company's liquidity, represented by cash and cash equivalents, is a
product of operating, investing and financing activities. The Company's primary
historical sources of funds are:

         o        deposits,

         o        scheduled payments of amortizing loans and mortgage-related
                  securities,

         o        prepayments and maturities of outstanding loans and
                  mortgage-related securities,

         o        maturities of investment securities and other short-term
                  investments,

         o        funds provided from operations, and

         o        borrowings from the FHLB.

         Scheduled payments from the amortization of loans, mortgage-related
securities, 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. In addition, the Company invests excess funds in
federal funds sold and other short-term interest-earning assets which provide
liquidity to meet lending requirements.

         At March 31, 2005, the Company had cash and cash equivalents of $17.9
million which was a decrease of $20.1 million from December 31, 2004. The
decrease was mainly caused by purchases of securities available-for-sale
totaling $43.1 million and decreased deposits of $20.1 million. Cash outflows
were partially offset by proceeds from sales, maturities and paydowns on
securities available-for-sale of $28.6 million, net loan repayments of $8.6
million and cash flows from operating activities of $6.2 million.


                                       24
<PAGE>

         The Company uses its sources of funds primarily to meet its ongoing
commitments, fund loan commitments, pay maturing certificates of deposit and
savings withdrawals, and maintain a securities portfolio. The Company
anticipates that it will continue to have sufficient funds to meet its current
commitments.

         The liquidity needs of the parent company, CFS Bancorp, Inc., consist
primarily of operating expenses, dividend payments to stockholders and stock
repurchases. The primary sources of liquidity are cash and cash equivalents,
securities available-for-sale and dividends from the Bank. CFS Bancorp, Inc.
also has $10.0 million of available liquidity under its line of credit obtained
during March 2005. Under regulations of the OTS, without prior approval, the
dividends from the Bank are limited to the extent of the Bank's cumulative
earnings for the year plus the net earnings (adjusted by prior distributions) of
the prior two calendar years. On a parent company-only basis, at March 31, 2005,
the Company had $11.7 million in cash and cash equivalents along with $270,000
million in securities available-for-sale.

         CONTRACTUAL OBLIGATIONS. The following table presents significant fixed
and determinable contractual obligations to third parties by payment date as of
March 31, 2005.

<Table>
<Caption>
                                                             PAYMENTS DUE BY PERIOD
                               ----------------------------------------------------------------------------------
                                                  OVER ONE        OVER THREE
                                ONE YEAR           THROUGH          THROUGH          OVER FIVE
                                 OR LESS         THREE YEARS      FIVE YEARS            YEARS            TOTAL
                               -----------       -----------      -----------       -----------       -----------
                                                             (Dollars in thousands)
<S>                            <C>               <C>              <C>               <C>               <C>
FHLB advances (1) ..........   $    44,224       $   174,495      $    87,568       $    10,462       $   316,749
Operating leases ...........           596               662               91                 -             1,349
                               -----------       -----------      -----------       -----------       -----------
                               $    44,820       $   175,157      $    87,659       $    10,462       $   318,098
                               ===========       ===========      ===========       ===========       ===========
</Table>

(1) Does not include interest expense at the weighted-average contractual rate
of 3.65% for the periods presented.

         See the "Deposits and Borrowed Money" section for further discussion
surrounding the Company's FHLB advances. The Company's 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.

         The Company also has commitments to fund certificates of deposit which
are scheduled to mature within one year or less. These deposits totaled $258.8
million at March 31, 2005. Based on historical experience and the fact that
these deposits are at current market rates, management believes that a
significant portion of the maturing deposits will remain with the Bank.

         OFF-BALANCE SHEET OBLIGATIONS. The Company is a party to financial
instruments with off-balance sheet risk in the normal course of business to meet
the financing needs of its


                                       25
<PAGE>

customers. These financial instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
Company's exposure to credit loss in the event of non-performance by the third
party for commitments to extend credit and letters of credit is represented by
the contractual notional amount of these instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.

         The following table details the amounts and expected maturities of
significant commitments as of March 31, 2005.

<Table>
<Caption>
                                                             OVER ONE     OVER THREE
                                                ONE YEAR      THROUGH       THROUGH     OVER FIVE
                                                OR LESS     THREE YEARS    FIVE YEARS      YEARS        TOTAL
                                               ----------   -----------   -----------   ----------   ----------
                                                                     (Dollars in thousands)
<S>                                            <C>          <C>           <C>           <C>          <C>
Commitments to extend credit:
   Commercial ..............................   $   24,701   $       --    $        --   $       --   $   24,701
   Retail ..................................        9,279           --             --           --        9,279
Commitments to fund unused construction
   loans ...................................       12,029       40,152          5,012        3,275       60,468
Commitments to fund unused lines of
   credit:
   Commercial ..............................       17,083       15,036            294          653       33,066
   Retail ..................................       15,093          797            231       68,133       84,254
Letters of credit ..........................        4,512        3,806            163           --        8,481
Credit enhancements ........................           --        6,533         31,420       10,465       48,418
                                               ----------   ----------    -----------   ----------   ----------
                                               $   82,697   $   66,324    $    37,120   $   82,526   $  268,667
                                               ==========   ==========    ===========   ==========   ==========
</Table>

         The above listed commitments do not necessarily represent future cash
requirements in that these commitments often expire without being drawn upon.

         Letters of credit include credit enhancements which 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 a
triple-A rating which provides for a lower interest rate, the FHLB-IN issues, in
favor of the bond trustee, an Irrevocable Direct Pay Letter of Credit for the
account of the Bank. Since the Bank, in accordance with the terms and conditions
of a Reimbursement Agreement between the FHLB-IN and the Bank, would be required
to reimburse the FHLB-IN for draws against the Letter of Credit, these
facilities are analyzed, appraised, secured by real estate mortgages, and
monitored as if the Bank had funded the project initially.

         The Company has not used, and has no intention of using, any
significant off-balance sheet financing arrangements for liquidity purposes. In
addition, the Company has not had, and has no intention to have, any significant
transactions, arrangements or other relationships with any unconsolidated,
limited purpose entities that could materially affect the Company's liquidity or
capital resources. The Company has not traded in and has no intention of trading
in derivatives or commodity contracts.


                                       26
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The Bank, like other financial institutions, is subject to interest
rate risk (IRR). This risk relates to changes in market interest rates which
could adversely affect net interest income or the net portfolio value (NPV) of
its assets, liabilities, and off-balance sheet contracts. IRR is primarily the
result of an imbalance between the price sensitivity of the Bank's assets and
its liabilities. These imbalances can be caused by differences in the maturity,
repricing, and coupon characteristics of assets and liabilities as well as
options (such as loan prepayment options).

         The Bank maintains 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, and
liquidity. The Asset/Liability Management Policy falls under the authority of
the Board of Directors who in turn assigns its formulation, revision, and
administration to the Asset/Liability Committee (ALCO). The ALCO meets monthly
and consists of certain senior officers of the Bank and one outside director.
The results of the monthly 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 the Bank's
capital position, review the current and prospective liquidity positions, and
monitor alternative funding sources.

          While maintaining its interest rate spread objectives, the Bank
attempts to reduce interest rate risk with a variety of strategies designed to
maintain what the Bank believes to be an appropriate relationship between its
assets and liabilities. First, the Bank emphasizes real estate mortgage loans
and commercial loans with adjustable interest rates or fixed rates of interest
for an initial term of three or five years that convert to an adjustable rate
based on the one, three and five-year constant maturity of United States
Treasury obligations as the index after the initial terms and for subsequent
adjustment periods. At March 31, 2005, the Bank had approximately $718.2 million
of adjustable-rate loans in its portfolio. Second, the Bank's securities
portfolio consists of securities that have expected average lives of five years
or less at time of purchase. At March 31, 2005, the modified duration of the
securities portfolio was less than two years. Third, the Bank has a substantial
amount of savings, demand deposit and money market accounts which the Bank
believes may be less sensitive to changes in interest rates than certificate
accounts. At March 31, 2005, the Bank had $490.5 million of these types of
accounts.

         The Bank utilizes the OTS NPV model as its primary method of monitoring
its exposure to IRR. The NPV represents the excess of the present value of
expected cash flows from assets over the present value of expected cash flows
from liabilities. The NPV model estimates the sensitivity of the Bank's NPV over
a series of instantaneous and sustained parallel shifts in interest rates. On a
quarterly basis, the ALCO reviews the calculations of NPV as adjusted for
expected cash flows from off-balance sheets contracts, if any, for compliance
with Board approved tolerance limits.

         The table below presents, as of March 31, 2005 and December 31, 2004,
an analysis of the Bank's IRR as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve in 100 basis point (1%)
increments, up to 300 basis points and down 200 basis points in 2005 and 2004 in
accordance with OTS regulations. At March 31, 2005 and December 31, 2004, the
Bank was within the Board-approved tolerance limits in each rate scenario.

                                       27
<PAGE>
<Table>
<Caption>
                                                       Net Portfolio Value
                               --------------------------------------------------------------------
                                       March 31, 2005                     December 31, 2004
                               -----------------------------      ---------------------------------
                               $ Amount  $ Change   % Change      $ Amount     $ Change    % Change
                               --------  --------   --------      ---------   ---------   ---------
                                                      (dollars in thousands)
<S>                            <C>       <C>          <C>         <C>         <C>         <C>
Assumed Change in Interest
    Rates (Basis Points)
   +300                        $ 156,580 $ (9,817)      (5.9%)    $ 154,194   $  (7,441)      (4.8%)
   +200                          161,842   (4,555)      (2.7)       159,216      (2,419)      (1.5)
   +100                          165,480     (917)      (0.1)       162,128         493        0.3
      0                          166,397       --         --        161,635          --         --
   -100                          163,903   (2,494)      (1.5)       157,103      (4,532)      (2.9)
   -200(1)                       158,047   (8,350)      (5.0)
</Table>

(1) Information as of December 31, 2004 was not available from the OTS.

         This NPV model is a static model and does not consider potential
adjustments of strategies by management on a dynamic basis in a volatile rate
environment in order to protect or conserve equity values. As such, actual
results may vary from the modeled results. The above analysis includes the
assets and liabilities of the Bank only. Inclusion of Company only assets and
liabilities would increase NPV nominally at all levels.

ITEM 4. CONTROLS AND PROCEDURES

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

         Management evaluated, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, the effectiveness of its
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 upon that 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 by the Company in the reports that it files or submits
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.

         Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported


                                       28
<PAGE>

within the time periods specified in the SEC's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is accumulated and
communicated to the Company's management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         The Bank's suit that was filed against the U.S. government during 1993,
Citizens Financial Services, FSB v. United States, went to trial in June 2004 in
the U.S. Court of Claims. The Bank previously had been granted summary judgment
on its breach of contract claim, leaving for trial the issue of damages. The
trial concluded in early July 2004. On March 7, 2005, the Court of Claims
entered judgment in favor of the Government holding that the Bank was not
entitled to recover any damages. The Court of Claims also ruled that the
Government is entitled to recover certain costs from the Bank with respect to
one claim that the Bank had voluntarily dismissed during the proceeding. The
Government has indicated that these costs are less than $5,000. Management of
the Company is currently reviewing its options and whether or not to pursue an
appeal of the matter.

         On February 13, 2005, the Bank filed suit in the Lake County Superior
Court sitting in Hammond, Indiana, to foreclose on its loans made to a golf
course in the case titled Citizens Financial Services, FSB v. Innsbrook Country
Club, Inc. and the New Innsbrook Country Club, LLC and identified Case No.
45D05-0402-PL-30. The loans in question have a balance of over $2.2 million.
Subsequent to the Bank's initiation of foreclosure proceedings, the current
owners of the property counterclaimed in the same action for damages, due to the
Bank's alleged bad faith and breach of an alleged oral agreement with current
ownership. At this stage, the opposing party has not made a formal demand for a
specific amount of damages; thus, the Bank cannot, with any degree of certainty,
determine the amount of any potential loss.

         Other than the above-referenced litigation, 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 of
the Company.

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

         (a) - (b) Not applicable.

         (c) The following table presents information related to purchases made
by or on behalf of the Company of shares of the Company's common stock during
the indicated periods.

                                       29
<PAGE>
<Table>
<Caption>
                                                        TOTAL NUMBER OF     MAXIMUM NUMBER OF
                                                      SHARES PURCHASED AS   SHARES THAT MAY YET
                      TOTAL NUMBER                     PART OF PUBLICLY     BE PURCHASED UNDER
                       OF SHARES     AVERAGE PRICE      ANNOUNCED PLANS         THE PLANS OR
      PERIOD           PURCHASED     PAID PER SHARE       OR PROGRAMS          PROGRAMS (1)
-------------------   ------------   --------------   -------------------   -------------------
<S>                   <C>            <C>              <C>                   <C>
January 1-31, 2005            --       $      --                    --            1,180,156
February 1-28, 2005           --              --                    --            1,180,156
March 1-31, 2005          20,000           14.17                20,000            1,160,156
                       ---------       ---------           -----------
      Total               20,000       $   14.17                20,000            1,160,156
                       =========       =========           ===========
</Table>

(1) The Company publicly announced on March 17, 2003 a repurchase program for
1,200,000 shares. Prior to January 1, 2005, a total of 19,844 shares had been
repurchased under that program. A total of 15,361 shares were purchased in April
2005 under this program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         (a) An annual meeting of stockholders of the Company was held on April
26, 2005 (Annual Meeting).

         (b) None.

         (c) There were 12,385,087 shares of Common Stock of the Company
eligible to be voted at the Annual Meeting, and 10,663,711 shares were
represented at the meeting by the holders thereof, which constituted a quorum.
The items voted upon at the Annual Meeting and the vote for each proposal were
as follows:

         (1) Election of directors for a three-year term.

<Table>
<S>                                <C>                    <C>
         Gregory W. Blaine         9,534,361  FOR         1,129,350   WITHHELD
         Robert R. Ross            9,673,972  FOR           989,739   WITHHELD
         Joyce M. Simon            9,909,897  FOR           753,814   WITHHELD
</Table>

         (2) Approval to reincorporate the Company in the State of Indiana.

             6,758,911   FOR      655,984   AGAINST       100,592   ABSTAIN
             3,148,222   BROKER NON-VOTES

         (d) None.

ITEM 5. OTHER INFORMATION

         Not applicable.

                                       30
<PAGE>

ITEM 6.           EXHIBITS

         (a)      List of exhibits (filed herewith unless otherwise noted).

<Table>
<S>               <C>
         3.1      Certificate of Incorporation of CFS Bancorp, Inc. (1)

         3.2      Bylaws of CFS Bancorp, Inc. (1)

         4.0      Form of Stock Certificate of CFS Bancorp, Inc. (1)

         10.1     Employment Agreement entered into between Citizens Financial
                  Services, FSB and Thomas F. Prisby (2)

         10.2     Employment Agreement entered into between Citizens Financial
                  Services, FSB and James W. Prisby (2)

         10.3     Employment Agreement entered into between CFS Bancorp, Inc.
                  and Thomas F. Prisby (2)

         10.4     Employment Agreement entered into between CFS Bancorp, Inc.
                  and James W. Prisby (2)

         10.5     CFS Bancorp, Inc. Amended and Restated 1998 Stock Option Plan
                  (3)

         10.6     CFS Bancorp, Inc. Amended and Restated 1998 Recognition and
                  Retention Plan and Trust Agreement (3)

         10.7     CFS Bancorp, Inc. 2003 Stock Option Plan (4)

         10.8     Employment Agreement entered into between Citizens Financial
                  Services, FSB and Charles V. Cole (5)

         10.9     Employment Agreement entered into between Citizens Financial
                  Services, FSB and Thomas L. Darovic (5)

         10.10    Employment Agreement entered into between CFS Bancorp, Inc.
                  and Charles V. Cole (5)

         10.11    Employment Agreement entered into between CFS Bancorp, Inc.
                  and Thomas L. Darovic (5)

         10.12    Separation Agreement entered into between Citizens Financial
                  Services, FSB, CFS Bancorp and James W. Prisby (6)

         10.13    Employment Agreement entered into between Citizens Financial
                  Services, FSB and Zoran Koricanac (7)

         10.14    Employment Agreement entered into between CFS Bancorp, Inc.
                  and Zoran Koricanac (7)

         10.15    Amended and Restated Supplemental ESOP Benefit Plan of CFS
                  Bancorp, Inc. and Citizens Financial Services, FSB (7)

         10.16    CFS Bancorp, Inc. Directors' Deferred Compensation Plan (7)

         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
</Table>

-------------

(1)      Incorporated by Reference from the Company's Registration Statement on
         Form S-1 filed on March 26, 1998, as amended and declared effective on
         May 14, 1998.

(2)      Incorporated by Reference from the Company's quarterly report on Form
         10-Q for the quarterly period ended September 30, 2003.

(3)      Incorporated by Reference from the Company's Definitive Proxy Statement
         for the Annual Meeting of Stockholders filed on March 23, 2001.


                                       31
<PAGE>

(4)      Incorporated by Reference from the Company's Definitive Proxy Statement
         for the Annual Meeting of Stockholders filed on March 31, 2003.

(5)      Incorporated by Reference from the Company's annual report on Form 10-K
         for the year ended December 31, 2003.

(6)      Incorporated by Reference from the Company's quarterly report on Form
         10-Q for the quarterly period ended September 30, 2004.

(7)      Incorporated by Reference from the Company's annual report on Form 10-K
         for the year ended December 31, 2004.



                                       32
<PAGE>


SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

CFS BANCORP, INC.

Date:  May 10, 2005            By: /s/ Thomas F. Prisby
                                   ---------------------------------------------
                                   Thomas F. Prisby, Chairman and
                                   Chief Executive Officer

Date:  May 10, 2005            By: /s/ Charles V. Cole
                                   ---------------------------------------------
                                   Charles V. Cole, Executive Vice President and
                                   Chief Financial Officer



                                       33