----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**OR**

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

**CFS      Bancorp, Inc.**

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

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**CFS      BANCORP, INC.**

**TABLE      OF CONTENTS**

|                                                                                                         |                                                                                                                | Page   |
|--------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                         | **PART                I - FINANCIAL INFORMATION**                                                                   |   |
|                                                                                                         |                                                                                                                |   |
| Item                1.                                                                                       | Financial                Statements (Unaudited)                                                                     |   |
|                                                                                                         | Consolidated                Statements of Financial Condition                                                       | 2      |
|                                                                                                         | Consolidated                Statements of Income                                                                    | 3      |
|                                                                                                         | Consolidated                Statements of Changes in Stockholders’ Equity                                     | 4      |
|                                                                                                         | Consolidated                Statements of Cash Flows                                                                | 5      |
|                                                                                                         | Notes                to Consolidated Financial Statements                                                           | 6      |
|                                                                                                         |                                                                                                                |   |
| Item                2.                                                                                       | Management's                Discussion and Analysis of Financial Condition and Results of                Operations | 10     |
|                                                                                                         |                                                                                                                |   |
| Item                3.                                                                                       | Quantitative                and Qualitative Disclosures About Market Risk                                           | 30     |
|                                                                                                         |                                                                                                                |   |
| Item                4.                                                                                       | Controls                and Procedures                                                                              | 31     |
|                                                                                                         |                                                                                                                |   |
|                                                                                                         |                                                                                                                |   |
|                                                                                                         | **PART                II - OTHER INFORMATION**                                                                      |   |
|                                                                                                         |                                                                                                                |   |
| Item                1.                                                                                       | Legal                Proceedings                                                                                    | 32     |
|                                                                                                         |                                                                                                                |   |
| Item                2.                                                                                       | Unregistered                Sales of Equity Securities and Use of Proceeds                                          | 32     |
|                                                                                                         |                                                                                                                |   |
| Item                3.                                                                                       | Defaults                upon Senior Securities                                                                      | 33     |
|                                                                                                         |                                                                                                                |   |
| Item                4.                                                                                       | Submission                of Matters to a Vote of Security Holders                                                  | 33     |
|                                                                                                         |                                                                                                                |   |
| Item                5.                                                                                       | Other                Information                                                                                    | 33     |
|                                                                                                         |                                                                                                                |   |
| Item                6.                                                                                       | Exhibits                                                                                                            | 34     |
|                                                                                                         |                                                                                                                |   |
| Signature                Page                                                                                | 35                                                                                                                  |
|                                                                                                         |                                                                                                                |   |
| Certifications                for Principal Executive Officer and Principal Financial                Officer | 36                                                                                                                  |
| Exhibit                31.1                                                                                  |                                                                                                                |
| Exhibit                31.2                                                                                  |                                                                                                                |
| Exhibit                32.0                                                                                  |                                                                                                                |

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*Table          of Contents*

**CFS      BANCORP, INC.**

**Consolidated      Statements of Financial      Condition**

|                                                                                                                                                                                                                                                                                                                                                        |   | **September                  30, 2005** |      | **December                  31, 2004** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                        |   | (Unaudited)                             |      |                                   |   |
|                                                                                                                                                                                                                                                                                                                                                        |   | (Dollars                  in thousands) |      |
| **Assets**                                                                                                                                                                                                                                                                                                                                                  |   |                                    |      |                                   |   |   |   |
| Cash                  and amounts due from depository institutions                                                                                                                                                                                                                                                                                     |   | $                                       | 21,078    |                                   | $      | 16,878 |   |
| Interest-bearing                  deposits                                                                                                                                                                                                                                                                                                             |   |                                    | 2,730     |                                   |   | 11,217 |   |
| Federal                  funds sold                                                                                                                                                                                                                                                                                                                    |   |                                    | 11,277    |                                   |   | 9,999 |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                                                                                                             |   |                                    | 35,085    |                                   |   | 38,094 |   |
| Securities                  available-for-sale, at fair value                                                                                                                                                                                                                                                                                          |   |                                    | 196,062   |                                   |   | 202,219 |   |
| Investment                  in Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                                                                                   |   |                                    | 28,252    |                                   |   | 27,665 |   |
| Loans                  receivable, net of unearned fees                                                                                                                                                                                                                                                                                                |   |                                    | 943,761   |                                   |   | 988,085 |   |
| Allowance                  for losses on loans                                                                                                                                                                                                                                                                                                         |   |                                    | (13,711   | )                                      |   | (13,353 | ) |
| Net                  loans                                                                                                                                                                                                                                                                                                                             |   |                                    | 930,050   |                                   |   | 974,732 |   |
| Accrued                  interest receivable                                                                                                                                                                                                                                                                                                           |   |                                    | 5,439     |                                   |   | 5,456 |   |
| Other                  real estate owned                                                                                                                                                                                                                                                                                                               |   |                                    | 627       |                                   |   | 525 |   |
| Office                  properties and equipment                                                                                                                                                                                                                                                                                                       |   |                                    | 15,094    |                                   |   | 15,511 |   |
| Investment                  in bank-owned life insurance                                                                                                                                                                                                                                                                                               |   |                                    | 34,497    |                                   |   | 33,362 |   |
| Prepaid                  expenses and other assets                                                                                                                                                                                                                                                                                                     |   |                                    | 13,702    |                                   |   | 15,721 |   |
| Intangible                  assets                                                                                                                                                                                                                                                                                                                     |   |                                    | 1,381     |                                   |   | 1,429 |   |
| Total                  assets                                                                                                                                                                                                                                                                                                                          |   | $                                       | 1,260,189 |                                   | $      | 1,314,714 |   |
|                                                                                                                                                                                                                                                                                                                                                        |   |                                    |      |                                   |   |   |   |
| **Liabilities                  and Stockholders’ Equity**                                                                                                                                                                                                                                                                                             |   |                                    |      |                                   |   |   |   |
| Deposits                                                                                                                                                                                                                                                                                                                                               |   | $                                       | 824,991   |                                   | $      | 863,178 |   |
| Borrowed                  money, net of unamortized deferred premium on early extinguishment                  of                  debt                                                                                                                                                                                                                 |   |                                    | 274,020   |                                   |   | 286,611 |   |
| Advance                  payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                 |   |                                    | 8,539     |                                   |   | 8,177 |   |
| Other                  liabilities                                                                                                                                                                                                                                                                                                                     |   |                                    | 8,924     |                                   |   | 8,837 |   |
| Total                  liabilities                                                                                                                                                                                                                                                                                                                     |   |                                    | 1,116,474 |                                   |   | 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 September 30, 2005 and December                  31, 2004; 12,135,465 and 12,385,322 shares outstanding as of September                  30,                  2005 and December 31, 2004, respectively  |   |                                    | 234       |                                   |   | 234 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                                                                            |   |                                    | 190,215   |                                   |   | 189,991 |   |
| Retained                  earnings, substantially restricted                                                                                                                                                                                                                                                                                           |   |                                    | 93,899    |                                   |   | 94,904 |   |
| Treasury                  stock, at cost: 11,287,841 and 11,037,984 shares as of September                  30, 2005                  and December 31, 2004, respectively                                                                                                                                                                              |   |                                    | (134,218  | )                                      |   | (130,689 | ) |
| Unallocated                  common stock held by ESOP                                                                                                                                                                                                                                                                                                 |   |                                    | (5,061    | )                                      |   | (5,959 | ) |
| Unearned                  common stock acquired by RRP                                                                                                                                                                                                                                                                                                 |   |                                    | (111      | )                                      |   | (148 | ) |
| Accumulated                  other comprehensive loss, net of tax                                                                                                                                                                                                                                                                                      |   |                                    | (1,243    | )                                      |   | (422 | ) |
| Total                  stockholders’ equity                                                                                                                                                                                                                                                                                                      |   |                                    | 143,715   |                                   |   | 147,911 |   |
| Total                  liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                      |   | $                                       | 1,260,189 |                                   | $      | 1,314,714 |   |

*See      accompanying notes.*

----

*Table          of Contents*

**CFS      **
**BANCORP,      INC.**

**Consolidated      Statements of      Income**

|                                                                                |   | **Three                  Months Ended****September                  30,** |       | **Nine                  Months Ended****September                  30,** |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|--------|
|                                                                                |   | **2005**                                                                  |       | **2004**                                                                 |   | **2005** |   | **2004** |   |
|                                                                                |   | (Unaudited)                                                               |       |
|                                                                                |   | (Dollars                  in thousands, except share and per share data)  |       |
| Interest                  income:                                                   |   |                                                                      |       |                                                                     |   |   |   |   |   |   |   |   |   |
| Loans                                                                          |   | $                                                                         | 15,165     |                                                                     | $      | 14,541 |   | $ | 44,896 |   | $ | 42,388 |   |
| Securities                                                                     |   |                                                                      | 1,776      |                                                                     |   | 2,712 |   |   | 5,348 |   |   | 7,983 |   |
| Other                                                                          |   |                                                                      | 267        |                                                                     |   | 338 |   |   | 969 |   |   | 1,514 |   |
| Total                  interest income                                         |   |                                                                      | 17,208     |                                                                     |   | 17,591 |   |   | 51,213 |   |   | 51,885 |   |
| Interest                  expense:                                                  |   |                                                                      |       |                                                                     |   |   |   |   |   |   |   |   |   |
| Deposits                                                                       |   |                                                                      | 3,494      |                                                                     |   | 2,818 |   |   | 9,706 |   |   | 9,839 |   |
| Borrowings                                                                     |   |                                                                      | 5,801      |                                                                     |   | 6,340 |   |   | 20,340 |   |   | 18,866 |   |
| Total                  interest expense                                        |   |                                                                      | 9,295      |                                                                     |   | 9,158 |   |   | 30,046 |   |   | 28,705 |   |
| Net                  interest income before provision for losses on loans      |   |                                                                      | 7,913      |                                                                     |   | 8,433 |   |   | 21,167 |   |   | 23,180 |   |
| Provision                  for losses on loans                                 |   |                                                                      | 545        |                                                                     |   | 6,172 |   |   | 1,312 |   |   | 8,829 |   |
| Net                  interest income after provision for losses on loans       |   |                                                                      | 7,368      |                                                                     |   | 2,261 |   |   | 19,855 |   |   | 14,351 |   |
| Non-interest                  income:                                               |   |                                                                      |       |                                                                     |   |   |   |   |   |   |   |   |   |
| Service                  charges and other fees                                |   |                                                                      | 1,956      |                                                                     |   | 1,922 |   |   | 5,592 |   |   | 5,474 |   |
| Commission                  income                                             |   |                                                                      | 159        |                                                                     |   | 204 |   |   | 428 |   |   | 527 |   |
| Net                  realized gains (losses) on available-for-sale securities  |   |                                                                      | (25        | )                                                                        |   | 711 |   |   | (113 | ) |   | 1,009 |   |
| Impairment                  of available-for-sale securities                   |   |                                                                      | -          |                                                                     |   | (585 | ) |   | (240 | ) |   | (928 | ) |
| Net                  realized gains (losses) on sales of other assets          |   |                                                                      | 287        |                                                                     |   | - |   |   | 369 |   |   | (1 | ) |
| Income                  from bank-owned life insurance                         |   |                                                                      | 409        |                                                                     |   | 355 |   |   | 1,138 |   |   | 1,078 |   |
| Other                  income                                                  |   |                                                                      | 563        |                                                                     |   | 453 |   |   | 1,558 |   |   | 1,583 |   |
| Total                  non-interest income                                     |   |                                                                      | 3,349      |                                                                     |   | 3,060 |   |   | 8,732 |   |   | 8,742 |   |
| Non-interest                  expense:                                              |   |                                                                      |       |                                                                     |   |   |   |   |   |   |   |   |   |
| Compensation                  and employee benefits                            |   |                                                                      | 4,625      |                                                                     |   | 5,772 |   |   | 13,751 |   |   | 15,235 |   |
| Net                  occupancy expense                                         |   |                                                                      | 628        |                                                                     |   | 501 |   |   | 2,055 |   |   | 1,759 |   |
| Professional                  fees                                             |   |                                                                      | 413        |                                                                     |   | 775 |   |   | 1,228 |   |   | 2,420 |   |
| Data                  processing                                               |   |                                                                      | 646        |                                                                     |   | 644 |   |   | 1,998 |   |   | 2,096 |   |
| Furniture                  and equipment expense                               |   |                                                                      | 433        |                                                                     |   | 258 |   |   | 1,288 |   |   | 1,176 |   |
| Marketing                                                                      |   |                                                                      | 245        |                                                                     |   | 229 |   |   | 640 |   |   | 812 |   |
| Amortization                  of core deposit intangibles                      |   |                                                                      | 16         |                                                                     |   | 16 |   |   | 49 |   |   | 49 |   |
| Other                  general and administrative expenses                     |   |                                                                      | 1,192      |                                                                     |   | 2,488 |   |   | 3,828 |   |   | 4,948 |   |
| Total                  non-interest expense                                    |   |                                                                      | 8,198      |                                                                     |   | 10,683 |   |   | 24,837 |   |   | 28,495 |   |
| Income                  (loss) before income taxes                             |   |                                                                      | 2,519      |                                                                     |   | (5,362 | ) |   | 3,750 |   |   | (5,402 | ) |
| Income                  tax expense (benefit)                                  |   |                                                                      | 632        |                                                                     |   | (2,581 | ) |   | 585 |   |   | (3,508 | ) |
| Net                  income (loss)                                             |   | $                                                                         | 1,887      |                                                                     | $      | (2,781 | ) | $ | 3,165 |   | $ | (1,894 | ) |
|                                                                                |   |                                                                      |       |                                                                     |   |   |   |   |   |   |   |   |   |
| Per                  share data:                                                    |   |                                                                      |       |                                                                     |   |   |   |   |   |   |   |   |   |
| Basic                  earnings (loss) per share                               |   | $                                                                         | 0.16       |                                                                     | $      | (0.24 | ) | $ | 0.27 |   | $ | (0.16 | ) |
| Diluted                  earnings (loss) per share                             |   |                                                                      | 0.16       |                                                                     |   | (0.24 | ) |   | 0.26 |   |   | (0.16 | ) |
| Cash                  dividends declared per share                             |   |                                                                      | 0.12       |                                                                     |   | 0.11 |   |   | 0.36 |   |   | 0.33 |   |
| Weighted                  average shares outstanding                           |   |                                                                      | 11,718,907 |                                                                     |   | 11,648,808 |   |   | 11,778,729 |   |   | 11,555,801 |   |
| Weighted                  average diluted shares outstanding                   |   |                                                                      | 11,943,913 |                                                                     |   | 11,905,252 |   |   | 12,015,243 |   |   | 11,866,131 |   |

*See      accompanying notes.*

----

*Table          of Contents*

**CFS      BANCORP, INC.**

**Consolidated      Statement**
**s      of Changes in Stockholders' Equity**

|                                                                                                                                                                                                                     |   | **Common****Stock**                                              |   | **Additional                    Paid In****Capital** |   | **Retained****Earnings** |   | **Treasury****Stock** |    | **Unalloc.                    Common****Stock                    Held****By                    ESOP** |   | **Unearned****Common                    Stock Acquired****By                    RRP** |   | **Accum.                    Other Compre-hensive Income****(Loss)** |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|------------------------------------------------------|--------|--------------------------|--------|-----------------------|---------|-------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|-----------|--------|
|                                                                                                                                                                                                                     |   | (Unaudited)                                                      |   |
|                                                                                                                                                                                                                     |   | (Dollars                    in thousands, except per share data) |   |
| Balance                    January 1, 2004                                                                                                                                                                          |   | $                                                                | 234    |                                                 | $      | 189,879                  |   | $                     | 106,354 |                                                                                                  | $      | (132,741                                                                              | )      | $                                                                   | (7,158 | )         | $      | (1,523 | ) | $ | 908 |   | $ | 155,953 |   |
| Net                    loss                                                                                                                                                                                         |   |                                                             | -      |                                                 |   | -                        |   |                  | (1,894  | )                                                                                                     |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | (1,894 | ) |
| Other                    comprehensive loss, net of tax: Change                    in unrealized appreciation on available-for-sale securities,                    net of                    reclassification adjustment |   |                                                             |   |                                                 |   |                     |   |                  |    |                                                                                                  |   |                                                                                  |   |                                                                |   |      |   |   |   |   | (370 | ) |   | (370 | ) |
| Total                    comprehensive loss                                                                                                                                                                         |   |                                                             |   |                                                 |   |                     |   |                  |    |                                                                                                  |   |                                                                                  |   |                                                                |   |      |   |   |   |   |   |   |   | (2,264 | ) |
| Purchase                    of treasury stock                                                                                                                                                                       |   |                                                             | -      |                                                 |   | -                        |   |                  | -       |                                                                                                  |   | (869                                                                                  | )      |                                                                | -      |      |   | - |   |   | - |   |   | (869 | ) |
| Shares                    earned under ESOP                                                                                                                                                                         |   |                                                             | -      |                                                 |   | -                        |   |                  | -       |                                                                                                  |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | - |   |
| Amortization                    of award under RRP                                                                                                                                                                  |   |                                                             | -      |                                                 |   | (20                      | )      |                  | -       |                                                                                                  |   | -                                                                                     |   |                                                                | -      |      |   | 1,375 |   |   | - |   |   | 1,355 |   |
| Exercise                    of stock options                                                                                                                                                                        |   |                                                             | -      |                                                 |   | (296                     | )      |                  | -       |                                                                                                  |   | 2,032                                                                                 |   |                                                                | -      |      |   | - |   |   | - |   |   | 1,736 |   |
| Tax                    benefit related to stock options exercised                                                                                                                                                   |   |                                                             | -      |                                                 |   | 138                      |   |                  | -       |                                                                                                  |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | 138 |   |
| Dividends                    declared on common stock ($0.33 per share)                                                                                                                                             |   |                                                             | -      |                                                 |   | -                        |   |                  | (3,647  | )                                                                                                     |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | (3,647 | ) |
| Balance                    September 30, 2004                                                                                                                                                                       |   | $                                                                | 234    |                                                 | $      | 189,701                  |   | $                     | 100,813 |                                                                                                  | $      | (131,578                                                                              | )      | $                                                                   | (7,158 | )         | $      | (148 | ) | $ | 538 |   | $ | 152,402 |   |
|                                                                                                                                                                                                                     |   |                                                             |   |                                                 |   |                     |   |                  |    |                                                                                                  |   |                                                                                  |   |                                                                |   |      |   |   |   |   |   |   |   |   |   |
| Balance                    January 1, 2005                                                                                                                                                                          |   | $                                                                | 234    |                                                 | $      | 189,991                  |   | $                     | 94,904  |                                                                                                  | $      | (130,689                                                                              | )      | $                                                                   | (5,959 | )         | $      | (148 | ) | $ | (422 | ) | $ | 147,911 |   |
| Net                    income                                                                                                                                                                                       |   |                                                             | -      |                                                 |   | -                        |   |                  | 3,165   |                                                                                                  |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | 3,165 |   |
| Other                    comprehensive loss, net of tax: Change                    in unrealized appreciation on available-for-sale securities,                    net of                    reclassification adjustment |   |                                                             |   |                                                 |   |                     |   |                  |    |                                                                                                  |   |                                                                                  |   |                                                                |   |      |   |   |   |   | (821 | ) |   | (821 | ) |
| Total                    comprehensive income                                                                                                                                                                       |   |                                                             |   |                                                 |   |                     |   |                  |    |                                                                                                  |   |                                                                                  |   |                                                                |   |      |   |   |   |   |   |   |   | 2,344 |   |
| Purchase                    of treasury stock                                                                                                                                                                       |   |                                                             | -      |                                                 |   | -                        |   |                  | -       |                                                                                                  |   | (4,256                                                                                | )      |                                                                | -      |      |   | - |   |   | - |   |   | (4,256 | ) |
| Shares                    earned under ESOP                                                                                                                                                                         |   |                                                             | -      |                                                 |   | 333                      |   |                  | -       |                                                                                                  |   | -                                                                                     |   |                                                                | 898    |      |   | - |   |   | - |   |   | 1,231 |   |
| Amortization                    of award under RRP                                                                                                                                                                  |   |                                                             | -      |                                                 |   | 12                       |   |                  | -       |                                                                                                  |   | -                                                                                     |   |                                                                | -      |      |   | 37 |   |   | - |   |   | 49 |   |
| Exercise                    of stock options                                                                                                                                                                        |   |                                                             | -      |                                                 |   | (255                     | )      |                  | -       |                                                                                                  |   | 727                                                                                   |   |                                                                | -      |      |   | - |   |   | - |   |   | 472 |   |
| Tax                    benefit related to stock options exercised                                                                                                                                                   |   |                                                             | -      |                                                 |   | 134                      |   |                  | -       |                                                                                                  |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | 134 |   |
| Dividends                    declared on common stock ($0.36 per share)                                                                                                                                             |   |                                                             | -      |                                                 |   | -                        |   |                  | (4,170  | )                                                                                                     |   | -                                                                                     |   |                                                                | -      |      |   | - |   |   | - |   |   | (4,170 | ) |
| Balance                    September 30, 2005                                                                                                                                                                       |   | $                                                                | 234    |                                                 | $      | 190,215                  |   | $                     | 93,899  |                                                                                                  | $      | (134,218                                                                              | )      | $                                                                   | (5,061 | )         | $      | (111 | ) | $ | (1,243 | ) | $ | 143,715 |   |

*See      accompanying notes.*

----

*Table          of Contents*

**CFS      BANCORP, INC.**

**Consolidated      Statements of Cash Flows**

|                                                                                                                                      |   | **Nine                  Months Ended****September                  30,** |    |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
|                                                                                                                                      |   | **2005**                                                                 |    | **2004** |   |
|                                                                                                                                      |   | (Unaudited)                                                              |    |
|                                                                                                                                      |   | (Dollars                  in thousands)                                  |    |
| Operating                  activities:                                                                                                    |   |                                                                     |    |   |   |   |   |
| Net                  income (loss)                                                                                              |   | $                                                                        | 3,165   |   | $ | (1,894 | ) |
| Adjustments                  to reconcile net income to net cash provided by operating                  activities:                       |   |                                                                     |    |   |   |   |   |
| Provision                  for losses on loans                                                                                       |   |                                                                     | 1,312   |   |   | 8,829 |   |
| Depreciation                  and amortization                                                                                       |   |                                                                     | 1,224   |   |   | 1,150 |   |
| Premium                  amortization on early extinguishment of debt                                                                |   |                                                                     | 11,581  |   |   | - |   |
| Net                  premium amortization on securities available-for-sale                                                           |   |                                                                     | 690     |   |   | 2,044 |   |
| Impairment                  of securities available-for-sale                                                                         |   |                                                                     | 240     |   |   | 928 |   |
| Deferred                  income tax benefit                                                                                         |   |                                                                     | (1,193  | ) |   | (3,551 | ) |
| Amortization                  of cost of stock benefit plans                                                                         |   |                                                                     | 1,280   |   |   | 1,355 |   |
| Tax                  benefit from exercises of nonqualified stock options                                                            |   |                                                                     | 134     |   |   | 138 |   |
| Proceeds                  from sale of loans held-for-sale                                                                           |   |                                                                     | 18,599  |   |   | 9,415 |   |
| Origination                  of loans held-for-sale                                                                                  |   |                                                                     | (22,231 | ) |   | (8,073 | ) |
| Net                  loss (gain) realized on sale of securities                                                                      |   |                                                                     | 113     |   |   | (1,009 | ) |
| Stock                  dividends received on Federal Home Loan Bank stock                                                            |   |                                                                     | (587    | ) |   | (933 | ) |
| Net                  (gain) loss realized on sale of other assets                                                                    |   |                                                                     | (369    | ) |   | 1 |   |
| Increase                  in cash surrender value of bank-owned life insurance                                                       |   |                                                                     | (1,138  | ) |   | (1,078 | ) |
| Decrease                  in prepaid expenses and other assets                                                                       |   |                                                                     | 3,713   |   |   | 4,743 |   |
| Increase                  (decrease) in other liabilities                                                                            |   |                                                                     | 563     |   |   | (431 | ) |
| Net                  cash provided by operating activities                                                                                |   |                                                                     | 17,096  |   |   | 11,634 |   |
|                                                                                                                                      |   |                                                                     |    |   |   |   |   |
| Investing                  activities:                                                                                                    |   |                                                                     |    |   |   |   |   |
| Securities:                                                                                                                               |   |                                                                     |    |   |   |   |   |
| Proceeds                  from sales                                                                                                 |   |                                                                     | 49,149  |   |   | 130,516 |   |
| Proceeds                  from maturities and paydowns                                                                               |   |                                                                     | 33,258  |   |   | 74,516 |   |
| Purchases                                                                                                                            |   |                                                                     | (78,615 | ) |   | (166,193 | ) |
| Redemption                  of Federal Home Loan Bank Stock                                                                          |   |                                                                     | -       |   |   | 325 |   |
| Net                  loan fundings and principal payments received                                                                   |   |                                                                     | 23,766  |   |   | (35,324 | ) |
| Proceeds                  from sales of loan participations                                                                          |   |                                                                     | 22,632  |   |   | 9,090 |   |
| Proceeds                  from sale of real estate owned                                                                             |   |                                                                     | 715     |   |   | 3,585 |   |
| Purchases                  of property and equipment                                                                                 |   |                                                                     | (920    | ) |   | (4,068 | ) |
| Disposal                  of property and equipment                                                                                  |   |                                                                     | 467     |   |   | 29 |   |
| Net                  cash provided by investing activities                                                                           |   |                                                                     | 50,452  |   |   | 12,476 |   |
|                                                                                                                                      |   |                                                                     |    |   |   |   |   |
| Financing                  activities:                                                                                                    |   |                                                                     |    |   |   |   |   |
| Proceeds                  from exercise of stock options                                                                             |   |                                                                     | 472     |   |   | 1,736 |   |
| Dividends                  paid on common stock                                                                                      |   |                                                                     | (4,327  | ) |   | (3,626 | ) |
| Purchase                  of treasury stock                                                                                          |   |                                                                     | (4,256  | ) |   | (869 | ) |
| Net                  decrease in deposit accounts                                                                                    |   |                                                                     | (38,187 | ) |   | (131,087 | ) |
| Net                  (decrease) increase in advance payments by borrowers for taxes                  and                  insurance  |   |                                                                     | (87     | ) |   | 2,611 |   |
| Net                  decrease in borrowed funds                                                                                      |   |                                                                     | (24,172 | ) |   | (6,661 | ) |
| Net                  cash flows used for financing activities                                                                        |   |                                                                     | (70,557 | ) |   | (137,896 | ) |
| Net                  decrease in cash and cash equivalents                                                                                |   |                                                                     | (3,009  | ) |   | (113,786 | ) |
| Cash                  and cash equivalents at beginning of period                                                                    |   |                                                                     | 38,094  |   |   | 177,751 |   |
| Cash                  and cash equivalents at end of period                                                                          |   | $                                                                        | 35,085  |   | $ | 63,965 |   |
|                                                                                                                                      |   |                                                                     |    |   |   |   |   |
| Supplemental                  disclosure of non-cash activities:                                                                          |   |                                                                     |    |   |   |   |   |
| Loans                  transferred to real estate owned                                                                              |   | $                                                                        | 757     |   | $ | 3,919 |   |
| Cash                  paid for interest on deposits                                                                                  |   |                                                                     | 9,683   |   |   | 10,103 |   |
| Cash                  paid for interest on borrowings                                                                                |   |                                                                     | 8,831   |   |   | 18,935 |   |
| Cash                  paid for taxes                                                                                                 |   |                                                                     | -       |   |   | - |   |

*See      accompanying notes.*

----

*Table          of Contents*

**C**
**FS      BANCORP, INC.**

**NOTES      TO CONSOLIDATED FINANCIAL      STATEMENTS**

**(Unaudited)**

**1.      Basis of Financial Statements Presentation**

*Company*

**2.      Stock-Based Compensation**

*Accounting      for Stock Issued by Employees*
*APB      No. 25*
*RRP*

*FASB*
*Accounting      for Stock-Based Compensation *
*SFAS      No. 123*

----

*Table          of Contents*

|                                                                                                                       |   | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                                       |   | **2005**                                                                  |   | **2004**                                                                 |   | **2005** |   | **2004** |   |
|                                                                                                                       |   | (Dollars                  in thousands, except per share data)            |   |
| Net                  income (loss) (as reported)                                                                      |   | $                                                                         | 1,887  |                                                                     | $      | (2,781 | ) | $ | 3,165 |   | $ | (1,894 | ) |
| Stock-based                  compensation expense determined using fair value method, net of                  tax (1) |   |                                                                      | (1,899 | )                                                                        |   | (138 | ) |   | (2,176 | ) |   | (534 | ) |
| Pro                  forma net income (loss)                                                                          |   | $                                                                         | (12    | )                                                                        | $      | (2,919 | ) | $ | 989 |   | $ | (2,428 | ) |
|                                                                                                                       |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |
| Basic                  earnings (loss) per share (as reported)                                                        |   | $                                                                         | 0.16   |                                                                     | $      | (0.24 | ) | $ | 0.27 |   | $ | (0.16 | ) |
| Pro                  forma basic earnings (loss) per share                                                            |   |                                                                      | -      |                                                                     |   | (0.25 | ) |   | 0.08 |   |   | (0.21 | ) |
| Diluted                  earnings (loss) per share (as reported)                                                      |   |                                                                      | 0.16   |                                                                     |   | (0.24 | ) |   | 0.26 |   |   | (0.16 | ) |
| Pro                  forma diluted earnings (loss) per share                                                          |   |                                                                      | -      |                                                                     |   | (0.25 | ) |   | 0.08 |   |   | (0.21 | ) |

|                                    |   | **2005** |                     | **2004** |   |
|-----------------------------------------|--------|----------|--------------------------|----------|--------|
| Dividend                  yield         |   |     | 3.6                      | %        |   | 3.3 | % |
| Expected                  volatility    |   |     | 25.9                     |     |   | 27.4 |   |
| Risk-free                  interest     |   |     | 4.1                      |     |   | 3.9 |   |
| Original                  expected life |   |     | 6                  years |     |   | 6                  years |   |

----

*Table          of Contents*

**3.      Other Comprehensive Loss**

|                                                                                                                   |   | **Nine                  Months Ended****September                  30,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                                   |   | **2005**                                                                 |   | **2004** |   |
|                                                                                                                   |   | (Dollars                  in thousands)                                  |   |
| Unrealized                  holding losses arising during the period:                                                  |   |                                                                     |   |   |   |   |   |
| Unrealized                  net securities losses                                                                      |   | $                                                                        | (1,674 | ) | $ | (458 | ) |
| Related                  tax benefit                                                                                   |   |                                                                     | 635    |   |   | 154 |   |
| Net                                                                                                                    |   |                                                                     | (1,039 | ) |   | (304 | ) |
| Less:                  reclassification adjustment for net (losses) gains                  realized during the period: |   |                                                                     |   |   |   |   |   |
| Realized                  net securities (losses) gains                                                                |   |                                                                     | (353   | ) |   | 81 |   |
| Related                  tax benefit (expense)                                                                         |   |                                                                     | 135    |   |   | (15 | ) |
| Net                                                                                                                    |   |                                                                     | (218   | ) |   | 66 |   |
| Total                  other comprehensive loss                                                                   |   | $                                                                        | (821   | ) | $ | (370 | ) |

**4.      Earnings Per Share**

|                                                                                                          |   | **Three                    Months Ended****September                    30,** |       | **Nine                    Months Ended****September                    30,** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|--------|
|                                                                                                          |   | **2005**                                                                      |       | **2004**                                                                     |   | **2005** |   | **2004** |   |
|                                                                                                          |   | (Dollars                    in thousands, except per share data)              |       |
| Net                    income (loss)                                                                     |   | $                                                                             | 1,887      |                                                                         | $      | (2,781 | ) | $ | 3,165 |   | $ | (1,894 | ) |
|                                                                                                          |   |                                                                          |       |                                                                         |   |   |   |   |   |   |   |   |   |
| Weighted                    average common shares outstanding                                            |   |                                                                          | 11,718,907 |                                                                         |   | 11,648,808 |   |   | 11,778,729 |   |   | 11,555,801 |   |
| Common                    share equivalents (1)                                                          |   |                                                                          | 225,005    |                                                                         |   | 256,444 |   |   | 236,514 |   |   | 310,330 |   |
| Weighted                    average common shares and common share equivelants                    outstanding |   |                                                                          | 11,943,913 |                                                                         |   | 11,905,252 |   |   | 12,015,243 |   |   | 11,866,131 |   |
|                                                                                                          |   |                                                                          |       |                                                                         |   |   |   |   |   |   |   |   |   |
| Basic                    earnings (loss) per share                                                       |   | $                                                                             | 0.16       |                                                                         | $      | (0.24 | ) | $ | 0.27 |   | $ | (0.16 | ) |
| Diluted                    earnings (loss) per share                                                     |   |                                                                          | 0.16       |                                                                         |   | (0.24 | ) |   | 0.26 |   |   | (0.16 | ) |

----

*Table          of Contents*

**5.      New Accounting Pronouncements**

*EITF*
*The      Meaning of Other-Than-Temporary Impairment and Its Application to Certain      Investments*
*EITF      03-1*
*FSP      03-1-1*

*FSP*
*The      Meaning of Other-Than-Temporary Impairment and Its Application to Certain      Investments*
*Recognition      of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose      Cost Exceeds Fair Value*
*Accounting      for Certain Investments in Debt and Equity Securities*
*SFAS      No. 115*

*Share-Based      Payment *
*SFAS      123(R)*
*,      *

----

*Table          of Contents*

*Options*

*Earnings      per Share*

**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*

----

*Table          of Contents*

*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 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**

*FHLB*

----

*Table          of Contents*

**Critical      Accounting Policies**

**Allowance      for Losses on Loans.**

*Accounting      for Contingencies. *
* *

*Accounting      by Creditors for Impairment of a Loan*

----

*Table          of Contents*

**Income      Tax Accounting.**

**Average      Balances, Net Interest Income, Yields Earned and Rates      Paid**

----

*Table          of Contents*

|                                                                                                                                 |   | **Three                  Months Ended September 30,** |      |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------|-----------|
|                                                                                                                                 |   | **2005**                                              |      | **2004** |   |
|                                                                                                                                 |   | **Average****Balance**                                |      | **Interest** |   | **Average****Yield/Cost** |   | **Average****Balance** |   | **Interest** |   | **Average** **Yield/Cost** |   |
|                                                                                                                                 |   | (Dollars                  in thousands)               |      |
| Interest-earning                  assets:                                                                                            |   |                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable (1)                                                                                           |   | $                                                     | 957,232   |   | $ | 15,165 |   |   | 6.29% |   | $ | 1,004,586 |   | $ | 14,541 |   |   | 5.76% |   |
| Securities                  (2)                                                                                                 |   |                                                  | 200,124   |   |   | 1,776 |   |   | 3.52% |   |   | 322,772 |   |   | 2,712 |   |   | 3.34% |   |
| Other                  interest-earning assets (3)                                                                              |   |                                                  | 35,050    |   |   | 267 |   |   | 3.02% |   |   | 51,293 |   |   | 338 |   |   | 2.62% |   |
| Total                  interest-earning assets                                                                                  |   |                                                  | 1,192,406 |   |   | 17,208 |   |   | 5.73% |   |   | 1,378,651 |   |   | 17,591 |   |   | 5.08% |   |
|                                                                                                                                 |   |                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  earning assets                                                                                    |   |                                                  | 75,111    |   |   |   |   |   |   |   |   | 71,589 |   |   |   |   |   |   |   |
| Total                  assets                                                                                                   |   | $                                                     | 1,267,517 |   |   |   |   |   |   |   | $ | 1,450,240 |   |   |   |   |   |   |   |
|                                                                                                                                 |   |                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities:                                                                                       |   |                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                            |   |                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                                                              |   | $                                                     | 111,460   |   |   | 271 |   |   | 0.96% |   | $ | 95,373 |   |   | 58 |   |   | 0.24% |   |
| Money                  market accounts                                                                                          |   |                                                  | 123,396   |   |   | 430 |   |   | 1.38% |   |   | 141,040 |   |   | 329 |   |   | 0.93% |   |
| Savings                  accounts                                                                                               |   |                                                  | 185,668   |   |   | 158 |   |   | 0.34% |   |   | 207,144 |   |   | 175 |   |   | 0.34% |   |
| Certificates                  of deposit                                                                                        |   |                                                  | 342,485   |   |   | 2,635 |   |   | 3.05% |   |   | 365,699 |   |   | 2,256 |   |   | 2.45% |   |
| Total                  deposits                                                                                                 |   |                                                  | 763,009   |   |   | 3,494 |   |   | 1.82% |   |   | 809,256 |   |   | 2,818 |   |   | 1.39% |   |
|                                                                                                                                 |   |                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                  money (4)                                                                                             |   |                                                  | 287,269   |   |   | 5,801 |   |   | 8.01% |   |   | 420,312 |   |   | 6,340 |   |   | 6.00% |   |
| Total                  interest-bearing liabilities                                                                             |   |                                                  | 1,050,278 |   |   | 9,295 |   |   | 3.51% |   |   | 1,229,568 |   |   | 9,158 |   |   | 2.96% |   |
| Non-interest                  bearing deposits                                                                                  |   |                                                  | 55,502    |   |   |   |   |   |   |   |   | 46,121 |   |   |   |   |   |   |   |
| Non-interest                  bearing liabilities                                                                               |   |                                                  | 16,564    |   |   |   |   |   |   |   |   | 19,054 |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                              |   |                                                  | 1,122,344 |   |   |   |   |   |   |   |   | 1,294,743 |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                                                           |   |                                                  | 145,173   |   |   |   |   |   |   |   |   | 155,497 |   |   |   |   |   |   |   |
| Total                  liabilities and stockholders' equity                                                                          |   | $                                                     | 1,267,517 |   |   |   |   |   |   |   | $ | 1,450,240 |   |   |   |   |   |   |   |
| Net                  interest-earning assets                                                                                    |   | $                                                     | 142,128   |   |   |   |   |   |   |   | $ | 149,083 |   |   |   |   |   |   |   |
| Net                  interest income / interest rate spread                                                                          |   |                                                  |      |   | $ | 7,913 |   |   | 2.22% |   |   |   |   | $ | 8,433 |   |   | 2.12% |   |
| Net                  interest margin                                                                                            |   |                                                  |      |   |   |   |   |   | 2.63% |   |   |   |   |   |   |   |   | 2.43% |   |
| Ratio                  of average interest-earning assets   to                  average interest-bearing liabilities  |   |                                                  |      |   |   |   |   |   | 113.53% |   |   |   |   |   |   |   |   | 112.12% |   |

| (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                Federal Home Loan Bank stock, money market accounts, federal funds                sold                and interest-earning bank deposits. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The                2005 period includes an average of $307.7 million of contractual                FHLB                borrowings, which amount was reduced by an average of $20.4 million                of                unamortized premium on early extinguishment of debt. Interest expense                on                borrowings for the 2005 period includes $2.9 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                borrowed money as reported to 8.01% compared to an average contractual                rate of 3.75%. The effect of the unamortized deferred premium and                the                related quarterly amortization was to reduce the Company’s net interest                margin by 95 basis points for the 2005                period. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

|                                                                                                                                     |   | **Nine                  Months Ended September 30,** |      |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|-----------|
|                                                                                                                                     |   | **2005**                                             |      | **2004** |   |
|                                                                                                                                     |   | **Average** **Balance**                         |      | **Interest** |   | **Average****Yield/Cost** |   | **Average****Balance** |   | **Interest** |   | **Average****Yield/Cost** |   |
|                                                                                                                                     |   | (Dollars                  in thousands)              |      |
| Interest-earning                  assets:                                                                                                |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable (1)                                                                                               |   | $                                                    | 970,883   |   | $ | 44,896 |   |   | 6.18% |   | $ | 996,515 |   | $ | 42,388 |   |   | 5.68% |   |
| Securities                  (2)                                                                                                     |   |                                                 | 205,534   |   |   | 5,348 |   |   | 3.48% |   |   | 331,704 |   |   | 7,983 |   |   | 3.21% |   |
| Other                  interest-earning assets (3)                                                                                  |   |                                                 | 36,109    |   |   | 969 |   |   | 3.59% |   |   | 106,866 |   |   | 1,514 |   |   | 1.89% |   |
| Total                  interest-earning assets                                                                                      |   |                                                 | 1,212,526 |   |   | 51,213 |   |   | 5.65% |   |   | 1,435,085 |   |   | 51,885 |   |   | 4.83% |   |
|                                                                                                                                     |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  earning assets                                                                                        |   |                                                 | 75,009    |   |   |   |   |   |   |   |   | 72,722 |   |   |   |   |   |   |   |
| Total                  assets                                                                                                       |   | $                                                    | 1,287,535 |   |   |   |   |   |   |   | $ | 1,507,807 |   |   |   |   |   |   |   |
|                                                                                                                                     |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities:                                                                                           |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                                                                  |   | $                                                    | 107,602   |   |   | 574 |   |   | 0.71% |   | $ | 95,135 |   |   | 182 |   |   | 0.26% |   |
| Money                  market accounts                                                                                              |   |                                                 | 133,861   |   |   | 1,199 |   |   | 1.20% |   |   | 134,602 |   |   | 922 |   |   | 0.91% |   |
| Savings                  accounts                                                                                                   |   |                                                 | 191,587   |   |   | 482 |   |   | 0.34% |   |   | 207,358 |   |   | 560 |   |   | 0.36% |   |
| Certificates                  of deposit                                                                                            |   |                                                 | 349,375   |   |   | 7,451 |   |   | 2.85% |   |   | 432,502 |   |   | 8,175 |   |   | 2.52% |   |
| Total                  deposits                                                                                                     |   |                                                 | 782,425   |   |   | 9,706 |   |   | 1.66% |   |   | 869,597 |   |   | 9,839 |   |   | 1.51% |   |
|                                                                                                                                     |   |                                                 |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                  money (4)                                                                                                 |   |                                                 | 289,478   |   |   | 20,340 |   |   | 9.39% |   |   | 419,075 |   |   | 18,866 |   |   | 6.01% |   |
| Total                  interest-bearing liabilities                                                                                 |   |                                                 | 1,071,903 |   |   | 30,046 |   |   | 3.75% |   |   | 1,288,672 |   |   | 28,705 |   |   | 2.98% |   |
| Non-interest                  bearing deposits                                                                                      |   |                                                 | 51,959    |   |   |   |   |   |   |   |   | 43,232 |   |   |   |   |   |   |   |
| Non-interest                  bearing liabilities                                                                                   |   |                                                 | 17,341    |   |   |   |   |   |   |   |   | 18,593 |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                                  |   |                                                 | 1,141,203 |   |   |   |   |   |   |   |   | 1,350,497 |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                                                               |   |                                                 | 146,332   |   |   |   |   |   |   |   |   | 157,310 |   |   |   |   |   |   |   |
| Total                  liabilities and stockholders' equity                                                                              |   | $                                                    | 1,287,535 |   |   |   |   |   |   |   | $ | 1,507,807 |   |   |   |   |   |   |   |
| Net                  interest-earning assets                                                                                        |   | $                                                    | 140,623   |   |   |   |   |   |   |   | $ | 146,413 |   |   |   |   |   |   |   |
| Net                  interest income / interest rate spread                                                                              |   |                                                 |      |   | $ | 21,167 |   |   | 1.90% |   |   |   |   | $ | 23,180 |   |   | 1.85% |   |
| Net                  interest margin                                                                                                |   |                                                 |      |   |   |   |   |   | 2.33% |   |   |   |   |   |   |   |   | 2.16% |   |
| Ratio                  of average interest-earning assetsto                  average interest-bearing                  liabilities  |   |                                                 |      |   |   |   |   |   | 113.12% |   |   |   |   |   |   |   |   | 111.36% |   |

| (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                Federal Home Loan Bank stock, money market accounts, federal funds                sold                and interest-earning bank deposits. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | The                2005 period includes an average of $313.5 million of contractual                FHLB                borrowings, which amount was reduced by an average of $24.0 million                of                unamortized premium on early extinguishment of debt. Interest expense                on                borrowings for the 2005 period includes $11.6 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                borrowed money as reported to 9.39% compared to an average contractual                rate of 3.75%. The effect of the unamortized deferred premium and                the                related quarterly amortization was to reduce the Company’s net interest                margin by 128 basis points for the 2005                period. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

**Rate      / Volume Analysis**

|                                                                                                |   | **Three                  Months Ended September 30, 2005 compared** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                                                                |   | **to                  Three Months Ended September 30, 2004**       |   |
|                                                                                                |   | **Increase                  (decrease) due to**                     |   |
|                                                                                                |   |  **Rate**                                                      |   |  **Volume** |   | **Rate/****Volume** |   | **Total                  Net Increase /****(Decrease)** |   |
|                                                                                                |   | (Dollars                  in thousands)                             |   |
| Interest-earning                  assets:                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable                                                              |   | $                                                                   | 1,374  |   | $ | (685 | ) | $ | (65 | ) | $ | 624 |   |
| Securities                                                                                     |   |                                                                | 152    |   |   | (1,030 | ) |   | (58 | ) |   | (936 | ) |
| Other                  interest-earning assets                                                 |   |                                                                | 53     |   |   | (107 | ) |   | (17 | ) |   | (71 | ) |
| Total                  net change in income on interest-earning                  assets        |   |                                                                | 1,579  |   |   | (1,822 | ) |   | (140 | ) |   | (383 | ) |
| Interest-bearing                  liabilities:                                                      |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                           |   |                                                                |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                             |   |                                                                | 174    |   |   | 10 |   |   | 29 |   |   | 213 |   |
| Money                  market accounts                                                         |   |                                                                | 162    |   |   | (41 | ) |   | (20 | ) |   | 101 |   |
| Savings                  accounts                                                              |   |                                                                | 1      |   |   | (18 | ) |   | - |   |   | (17 | ) |
| Certificates                  of deposit                                                       |   |                                                                | 557    |   |   | (143 | ) |   | (35 | ) |   | 379 |   |
| Total                  deposits                                                                |   |                                                                | 894    |   |   | (192 | ) |   | (26 | ) |   | 676 |   |
| Borrowed                  money                                                                |   |                                                                | 2,148  |   |   | (2,007 | ) |   | (680 | ) |   | (539 | ) |
| Total                  net change in expense on interest-bearing                  liabilities  |   |                                                                | 3,042  |   |   | (2,199 | ) |   | (706 | ) |   | 137 |   |
| Net                  change in net interest income                                             |   | $                                                                   | (1,463 | ) | $ | 377 |   | $ | 566 |   | $ | (520 | ) |

----

*Table          of Contents*

|                                                                                                |   | **Nine                  Months Ended September 30, 2005 compared** |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                |   | **to                  Nine Months Ended September 30, 2004**       |   |
|                                                                                                |   | **Increase                  (decrease) due to**                    |   |
|                                                                                                |   |  **Rate**                                                     |   |  **Volume** |   | **Rate/****Volume** |   | **Total                  Net Increase /****(Decrease)** |   |
|                                                                                                |   | (Dollars                  in thousands)                            |   |
| Interest-earning                  assets:                                                           |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable                                                              |   | $                                                                  | 3,693  |   | $ | (1,090 | ) | $ | (95 | ) | $ | 2,508 |   |
| Securities                                                                                     |   |                                                               | 648    |   |   | (3,037 | ) |   | (246 | ) |   | (2,635 | ) |
| Other                  interest-earning assets                                                 |   |                                                               | 1,353  |   |   | (1,002 | ) |   | (896 | ) |   | (545 | ) |
| Total                  net change in income on interest-earning                  assets        |   |                                                               | 5,694  |   |   | (5,129 | ) |   | (1,237 | ) |   | (672 | ) |
| Interest-bearing                  liabilities:                                                      |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                           |   |                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                             |   |                                                               | 325    |   |   | 24 |   |   | 43 |   |   | 392 |   |
| Money                  market accounts                                                         |   |                                                               | 284    |   |   | (5 | ) |   | (2 | ) |   | 277 |   |
| Savings                  accounts                                                              |   |                                                               | (38    | ) |   | (43 | ) |   | 3 |   |   | (78 | ) |
| Certificates                  of deposit                                                       |   |                                                               | 1,049  |   |   | (1,571 | ) |   | (202 | ) |   | (724 | ) |
| Total                  deposits                                                                |   |                                                               | 1,620  |   |   | (1,595 | ) |   | (158 | ) |   | (133 | ) |
| Borrowed                  money                                                                |   |                                                               | 10,580 |   |   | (5,834 | ) |   | (3,272 | ) |   | 1,474 |   |
| Total                  net change in expense on interest-bearing                  liabilities  |   |                                                               | 12,200 |   |   | (7,429 | ) |   | (3,430 | ) |   | 1,341 |   |
| Net                  change in net interest income                                             |   | $                                                                  | (6,506 | ) | $ | 2,300 |   | $ | 2,193 |   | $ | (2,013 | ) |

**Analysis      of Statements of Income **

*Net      Interest Income. *

----

*Table          of Contents*

*             Provision for losses on loans.*

----

*Table          of Contents*

*Changes      in Financial Condition - Allowance for Losses on Loans*

*Non-interest      income. *

*Non-interest      expense. *

| ·   | additional                compensation expense of $1.0 million related to the resignation of                a                senior officer; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $485,000 prepayment penalty associated with the prepayment of the                FHLB                debt during the third quarter of 2004; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $421,000 impairment charge related to a partial write-down of the                Company’s viatical receivables; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | additional                legal expenses of $381,000 related to the Company’s goodwill trial that                concluded during the third quarter of                2004. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

|                                                                                                                                                                          |   | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                                                                                                                                                          |   | **2005**                                                                  |   | **2004**                                                                 |   | **2005** |   | **2004** |   |
|                                                                                                                                                                          |   | (Dollars                  in thousands)                                   |   |
| Non-interest                  expense                                                                                                                               |   | $                                                                         | 8,198  |                                                                     | $      | 10,683 |   | $ | 24,837 |   | $ | 28,495 |   |
| Net                  interest income before the provision for losses on loans                  plusnon-interest                  income                                       |   | $                                                                         | 11,262 |                                                                     | $      | 11,493 |   | $ | 29,899 |   | $ | 31,922 |   |
| Efficiency                  ratio                                                                                                                                        |   |                                                                      | 72.79  | %                                                                        |   | 92.95 | % |   | 83.07 | % |   | 89.26 | % |
|                                                                                                                                                                          |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |
| Non-interest                  expense                                                                                                                                    |   | $                                                                         | 8,198  |                                                                     | $      | 10,683 |   | $ | 24,837 |   | $ | 28,495 |   |
| Adjustment                  for the prepayment penalty on the early extinguishment                  of debt                                                              |   |                                                                      | -      |                                                                     |   | (485 | ) |   | - |   |   | (485 | ) |
| Non-interest                  expense - as adjusted                                                                                                                      |   | $                                                                         | 8,198  |                                                                     | $      | 10,198 |   | $ | 24,837 |   | $ | 28,010 |   |
| Net                  interest income before the provision for losses on loans                  plus non-interest                  income                                 |   | $                                                                         | 11,262 |                                                                     | $      | 11,493 |   | $ | 29,899 |   | $ | 31,922 |   |
| Adjustments:                                                                                                                                                                  |   |                                                                      |   |                                                                     |   |   |   |   |   |   |   |   |   |
| Net                  (gain) loss on securities                                                                                                                                |   |                                                                      | 25     |                                                                     |   | (711 | ) |   | 113 |   |   | (1,009 | ) |
| Other-than-temporary                  impairment                                                                                                                              |   |                                                                      | -      |                                                                     |   | 585 |   |   | 240 |   |   | 928 |   |
| Net                  (gain) loss on sale of assets                                                                                                                            |   |                                                                      | (287   | )                                                                        |   | - |   |   | (369 | ) |   | 1 |   |
| Amortization                  of deferred premium                                                                                                                             |   |                                                                      | 2,865  |                                                                     |   | - |   |   | 11,581 |   |   | - |   |
| Net                  interest income before the provision for losses                  on loans plus non-interest income                  - as                  adjusted  |   | $                                                                         | 13,865 |                                                                     | $      | 11,367 |   | $ | 41,464 |   | $ | 31,842 |   |
| Core                  efficiency ratio                                                                                                                                   |   |                                                                      | 59.13  | %                                                                        |   | 89.72 | % |   | 59.90 | % |   | 87.97 | % |

----

*Table          of Contents*

*Income      Tax Expense.*

**Changes      in Financial Condition**

*General.      *

*Securities.      *

|                                                                             |   |  **Amortized****Cost**             |    | **Gross                  Unrealized****Gains** |   | **Gross                  Unrealized****Losses** |   |  **Fair****Value** |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------------|---------|------------------------------------------------|--------|-------------------------------------------------|--------|-------------------------|--------|
|                                                                             |   | (Dollars                  in thousands) |    |
| At                  September 30, 2005:                                          |   |                                    |    |                                           |   |                                            |   |                    |   |   |   |   |   |
| Government                  Sponsored Entity (*GSE*)                  securities |   | $                                       | 135,187 |                                           | $      | -                                               |   | $                       | (1,573 | ) | $ | 133,614 |   |
| Mortgage-backed                  securities                                      |   |                                    | 34,901  |                                           |   | 102                                             |   |                    | (328   | ) |   | 34,675 |   |
| Collateralized                  mortgage obligations                             |   |                                    | 26,476  |                                           |   | 15                                              |   |                    | (209   | ) |   | 26,282 |   |
| Trust                  preferred securities                                      |   |                                    | 85      |                                           |   | 17                                              |   |                    | -      |   |   | 102 |   |
| Equity                  securities                                               |   |                                    | 1,386   |                                           |   | 3                                               |   |                    | -      |   |   | 1,389 |   |
|                                                                             |   | $                                       | 198,035 |                                           | $      | 137                                             |   | $                       | (2,110 | ) | $ | 196,062 |   |
|                                                                             |   |                                    |    |                                           |   |                                            |   |                    |   |   |   |   |   |
| 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          of Contents*

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

*Loans.      *

|                                                                |   | **September                  30, 2005** |    | **December                  31, 2004** |   |
|---------------------------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|
|                                                                |   | **Amount**                              |    | **Percentage**                         |   | **Amount** |   | **Percentage** |   |
|                                                                |   | (Dollars                  in thousands) |    |
| Commercial                  and construction loans:                 |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Commercial                  real estate                        |   | $                                       | 405,065 |                                   |   | 42.9 | % | $ | 396,420 |   |   | 40.1 | % |
| Construction                  and land development             |   |                                    | 124,530 |                                   |   | 13.2 |   |   | 145,162 |   |   | 14.7 |   |
| Commercial                  and industrial                     |   |                                    | 57,743  |                                   |   | 6.1 |   |   | 58,682 |   |   | 5.9 |   |
| Total                  commercial loans                        |   |                                    | 587,338 |                                   |   | 62.2 |   |   | 600,264 |   |   | 60.7 |   |
|                                                                |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Retail                  loans:                                      |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Single-family                  residential                     |   |                                    | 249,846 |                                   |   | 26.5 |   |   | 277,501 |   |   | 28.1 |   |
| Home                  equity loans                             |   |                                    | 100,943 |                                   |   | 10.7 |   |   | 102,981 |   |   | 10.5 |   |
| Other                                                     |   |                                    | 5,634   |                                   |   | 0.6 |   |   | 7,339 |   |   | 0.7 |   |
| Total                  retail loans                            |   |                                    | 356,423 |                                   |   | 37.8 |   |   | 387,821 |   |   | 39.3 |   |
|                                                                |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Total                  loans receivable, net of unearned fees  |   | $                                       | 943,761 |                                   |   | 100.0 | % | $ | 988,085 |   |   | 100.0 | % |

----

*Table          of Contents*

*Allowance      for Losses on Loans.*

|                                            |   | **Three                  Months Ended****September                  30,** |   | **Nine                  Months Ended****September                  30,** |   |
|-------------------------------------------------|--------|---------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                            |   | **2005**                                                                  |   | **2004**                                                                 |   | **2005** |   | **2004** |   |
|                                            |   | (Dollars                  in thousands)                                   |   |
| Balance                  at beginning of period |   | $                                                                         | 13,892 |                                                                     | $      | 11,299 |   | $ | 13,353 |   | $ | 10,453 |   |
| Provision                  for losses on loans  |   |                                                                      | 545    |                                                                     |   | 6,172 |   |   | 1,312 |   |   | 8,829 |   |
| Charge-offs                                     |   |                                                                      | (812   | )                                                                        |   | (985 | ) |   | (1,117 | ) |   | (2,999 | ) |
| Recoveries                                      |   |                                                                      | 86     |                                                                     |   | 20 |   |   | 163 |   |   | 223 |   |
| Balance                  at end of period       |   | $                                                                         | 13,711 |                                                                     | $      | 16,506 |   | $ | 13,711 |   | $ | 16,506 |   |

*Analysis      of Statements of Income - Provision for Losses on Loans*

----

*Table          of Contents*

*Non-performing      Assets. *

|                                                               |   | **September                  30,****2005** |   | **December                  31,****2004** |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
|                                                               |   | (Dollars                  in thousands)    |   |
| Non-accrual                  loans:                                |   |                                       |
| Commercial                  loans:                                 |   |                                       |   |                                      |   |   |   |
| Commercial                  real estate                       |   | $                                          | 22,735 |                                      | $      | 19,197 |   |
| Construction                  and land development            |   |                                       | 1,183  |                                      |   | 1,895 |   |
| Commercial                  and industrial                    |   |                                       | 420    |                                      |   | 236 |   |
| Total                  commercial loans                       |   |                                       | 24,338 |                                      |   | 21,328 |   |
|                                                               |   |                                       |   |                                      |   |   |   |
| Retail                  loans:                                     |   |                                       |   |                                      |   |   |   |
|    Single-family                  residential  |   |                                       | 3,834  |                                      |   | 5,855 |   |
| Home                  equity                                  |   |                                       | 497    |                                      |   | 460 |   |
| Other                                                         |   |                                       | 33     |                                      |   | 32 |   |
| Total                  retail loans                           |   |                                       | 4,364  |                                      |   | 6,347 |   |
| Total                  non-accruing loans                     |   |                                       | 28,702 |                                      |   | 27,675 |   |
| Other                  real estate owned, net                 |   |                                       | 627    |                                      |   | 525 |   |
| Total                  non-performing assets                  |   | $                                          | 29,329 |                                      | $      | 28,200 |   |
|                                                               |   |                                       |   |                                      |   |   |   |
| Non-performing                  assets to total assets        |   |                                       | 2.33   | %                                         |   | 2.14 | % |
| Non-performing                  loans to total loans          |   |                                       | 3.04   |                                      |   | 2.80 |   |

----

*Table          of Contents*

*Deposits      and Borrowed Money. *

|                                         |   | **September                  30, 2005** |    | **December                  31, 2004** |   |
|----------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|
|                                         |   | **Amount**                              |    | **Percentage**                         |   | **Amount** |   | **Percentage** |   |
|                                         |   | (Dollars                  in thousands) |    |
| Checking                  accounts:          |   |                                    |
| Non-interest                  bearing   |   | $                                       | 61,292  |                                   |   | 7.4 | % | $ | 51,713 |   |   | 6.0 | % |
| Interest-bearing                        |   |                                    | 108,058 |                                   |   | 13.1 |   |   | 94,878 |   |   | 11.0 |   |
| Money                  market accounts  |   |                                    | 121,724 |                                   |   | 14.8 |   |   | 147,211 |   |   | 17.1 |   |
| Savings                  accounts       |   |                                    | 180,996 |                                   |   | 21.9 |   |   | 196,358 |   |   | 22.7 |   |
| Core                  deposits          |   |                                    | 472,070 |                                   |   | 57.2 |   |   | 490,160 |   |   | 56.8 |   |
| Certificates                  of deposit:    |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| $100,000                  or less       |   |                                    | 261,141 |                                   |   | 31.7 |   |   | 288,597 |   |   | 33.4 |   |
| Over                  $100,000          |   |                                    | 91,780  |                                   |   | 11.1 |   |   | 84,421 |   |   | 9.8 |   |
| Time                  deposits          |   |                                    | 352,921 |                                   |   | 42.8 |   |   | 373,018 |   |   | 43.2 |   |
| Total                  deposits         |   | $                                       | 824,991 |                                   |   | 100.0 | % | $ | 863,178 |   |   | 100.0 | % |

----

*Table          of Contents*

|                                                                    |   | **September                  30, 2005**        |   | **December                  31, 2004** |   |
|-------------------------------------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------|--------|
|                                                                    |   | **Weighted****Average****Contractual****Rate** |   |   **Amount**                 |   | **Weighted****Average****Contractual****Rate** |   |   **Amount** |   |
|                                                                    |   | (Dollars                  in thousands)        |   |
| Secured                  advances from FHLB - Indianapolis:             |   |                                           |   |                                   |   |   |   |   |   |   |   |   |   |
| Maturing                  in 2005 - variable-rate                       |   |                                           | 3.95   | %                                      | $      | 10,000 |   |   | 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   |                                   |   | 1,209 |   |   | 6.71 |   |   | 1,227 |   |
| Maturing                  in 2018 - fixed-rate (1)                      |   |                                           | 5.54   |                                   |   | 2,865 |   |   | 5.54 |   |   | 2,865 |   |
| Maturing                  in 2019 - fixed-rate (1)                      |   |                                           | 6.31   |                                   |   | 7,537 |   |   | 6.31 |   |   | 7,691 |   |
|                                                                    |   |                                           |   |                                   |   | 292,611 |   |   |   |   |   | 316,783 |   |
| Less:                  deferred premium on early extinguishment of debt |   |                                           |   |                                   |   | (18,591 | ) |   |   |   |   | (30,172 | ) |
|                                                                    |   |                                           |   |                                   | $      | 274,020 |   |   |   |   | $ | 286,611 |   |
|                                                                    |   |                                           |   |                                   |   |   |   |   |   |   |   |   |   |
| Weighted-average                  contractual interest rate        |   |                                           | 3.75   | %                                      |   |   |   |   | 3.55 | % |   |   |   |

*(L*
*IBOR*

*Capital      Resources. *

|   | • | cash                dividends declared during 2005 totaling $4.2 million; |
|--------|---------|---------------------------------------------------------------------------|

|   | • | repurchases                of the Company’s common stock during 2005 totaling $4.3 million;                and |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

|   | • | an                $821,000 increase in unrealized losses on available-for-sale securities,                net of tax. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

|   | • | net                income of $3.2 million; |
|--------|---------|--------------------------------------------|

|   | • | $1.2                million related to shares committed to be released under the Company’s                Employee Stock Ownership Plan; and |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | proceeds                from stock option exercises totaling                $472,000. |
|--------|---------|---------------------------------------------------------------------------------------|

*Unregistered      Sales of Equity Securities and Use of Proceeds*

*OTS*

|                                       |   | **Actual**                              |    | **For                  Capital Adequacy****Purposes** |   | **To                  Be Well-Capitalized Under Prompt Corrective****Action                  Provisions** |   |
|--------------------------------------------|--------|-----------------------------------------|---------|-------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|
|                                       |   | **Amount**                              |    | **Ratio**                                             |   | **Amount**                                                                                                |   | **Ratio** |   | **Amount** |   | **Ratio** |   |
|                                       |   | (Dollars                  in thousands) |    |
| As                  of September 30, 2005: |   |                                    |    |                                                  |   |                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                                 |   | $                                       | 141,578 |                                                  |   | 12.34                                                                                                     | %      | $ | 84,028 |   |   | >8.00 | % | $ | 105,034 |   |   | >10.00 | % |
| Tangible                                   |   |                                    | 129,596 |                                                  |   | 10.30                                                                                                     |   |   | 18,876 |   |   | >1.50 |   |   | 25,168 |   |   | >2.00 |   |
| Core                                       |   |                                    | 129,596 |                                                  |   | 10.30                                                                                                     |   |   | 50,337 |   |   | >4.00 |   |   | 62,921 |   |   | >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 |   |

**Liquidity      and Commitments **

|   | • | deposits, |
|--------|---------|-----------|

|   | • | scheduled                payments of amortizing loans and mortgage-related securities, |
|--------|---------|----------------------------------------------------------------------------------------|

|   | • | prepayments                and maturities of outstanding loans and mortgage-related securities, |
|--------|---------|-------------------------------------------------------------------------------------------------|

|   | • | maturities                of investment securities and other short-term investments, |
|--------|---------|--------------------------------------------------------------------------------------|

|   | • | funds                provided from operations, and |
|--------|---------|----------------------------------------------------|

|   | • | borrowings                from the FHLB. |
|--------|---------|------------------------------------------|

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*Table          of Contents*

**Contractual      Obligations. **

|                                                 |   | **Payments                Due By Period**             |   |
|-------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                            |   | **One                Year****Or                Less** |   | **Over                One****Through****Three                Years** |   | **Over                Three Through****Five                Years** |   | **Over                Five****Years** |   | **Total** |   |
|                                            |   | (Dollars                in thousands)                 |   |
| FHLB                advances (1)           |   | $                                                     | 30,233 |   | $ | 204,517 |   | $ | 47,593 |   | $ | 10,268 |   | $ | 292,611 |   |
| Operating leases                      |   |                                                  | 576    |   |   | 547 |   |   | 29 |   |   | - |   |   | 1,152 |   |
| Dividend                payable on common stock |   |                                                  | 1,456  |   |   | - |   |   | - |   |   | - |   |   | 1,456 |   |
|                                            |   | $                                                     | 32,265 |   | $ | 205,064 |   | $ | 47,622 |   | $ | 10,268 |   | $ | 295,219 |   |

*Deposits      and Borrowed Money*

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*Table          of Contents*

**Off-Balance      Sheet Obligations.**

|                                                                    |   | **One                Year****or                Less** |         | **Over                One****Through****Three                Years** |   | **Over                Three Through****Five                Years** |   | **Over                Five****Years** |   | **Total** |   |
|--------------------------------------------------------------------|--------|-------------------------------------------------------|--------------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|---------------------------------------|--------|-----------|--------|
|                                                               |   | (Dollars                in thousands)                 |         |
| Commitments                to extend credit:                       |   |                                                  |         |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   | $                                                     | 31,536  |                                                                 | $      | -                                                                  |   | $                                     | -      |      | $      | - |   | $ | 31,536 |   |
| Retail                                                             |   |                                                  | 12,575       |                                                                 |   | -                                                                  |   |                                  | -      |      |   | - |   |   | 12,575 |   |
| Commitments                to fund unused construction loans  |   |                                                  | 14,421       |                                                                 |   | 37,787                                                             |   |                                  | 693    |      |   | 3,414 |   |   | 56,315 |   |
| Commitments                to fund unused lines of credit:         |   |                                                  |         |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   |                                                  | 10780        |                                                                 |   | 12,266                                                             |   |                                  | 65     |      |   | - |   |   | 23,111 |   |
| Retail                                                             |   |                                                  | 14,406       |                                                                 |   | 847                                                                |   |                                  | -      |      |   | 67,663 |   |   | 82,916 |   |
| Letters                of credit                              |   |                                                  | 2,997        |                                                                 |   | 5,787                                                              |   |                                  | 321    |      |   | - |   |   | 9,105 |   |
| Credit                enhancements                            |   |                                                  | -            |                                                                 |   | 9,972                                                              |   |                                  | 29,210 |      |   | 8,862 |   |   | 48,044 |   |
|                                                               |   | $                                                     | 86,715       |                                                                 | $      | 66,659                                                             |   | $                                     | 30,289 |      | $      | 79,939 |   | $ | 263,602 |

*CRA*

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*Table          of Contents*

*FHLB-IN*

**Item      3.**
**Quantitative      and Qualitative Disclosures about Market Risk**

*IRR*
*NPV*

*ALCO*

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*Table          of Contents*

|                                                             |   | **Net                  Portfolio Value** |    |
|------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                             |   | **September                  30, 2005**  |    | **December                  31, 2004** |   |
|                                                             |   | **$                  Amount**            |    | **$                  Change** |   | **%                  Change** |   | **$                  Amount** |   | **$                  Change** |   | **%                  Change** |   |
|                                                             |   | (Dollars                  in thousands)  |    |
| Assumed                  Change in Interest Rates (Basis Points) |   |                                     |
| +300                                                             |   | $                                        | 158,905 |   | $ | (12,292 | ) |   | (7.2 | )% | $ | 154,194 |   | $ | (7,441 | ) |   | (4.8 | )% |
| +200                                                             |   |                                     | 165,088 |   |   | (6,109 | ) |   | (3.6 | ) |   | 159,216 |   |   | (2,419 | ) |   | (1.5 | ) |
| +100                                                             |   |                                     | 169,543 |   |   | (1,654 | ) |   | (1.0 | ) |   | 162,128 |   |   | 493 |   |   | 0.3 |   |
| 0                                                                |   |                                     | 171,197 |   |   | - |   |   | - |   |   | 161,635 |   |   | - |   |   | - |   |
| -100                                                             |   |                                     | 169,511 |   |   | (1,686 | ) |   | (1.0 | ) |   | 157,103 |   |   | (4,532 | ) |   | (2.9 | ) |
| -200                  (1)                                        |   |                                     | 165,775 |   |   | (5,422 | ) |   | (3.2 | ) |   |   |   |   |   |   |   |   |   |

**Item      4.** **Controls      and Procedures**

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*Table          of Contents*

**Part      II. **
**OTHER      INFORMATION**

**Item      1.**
**Legal      Proceedings**

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

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*Table          of Contents*

| **Period**                                |   | **Total                    Number of Shares****Purchased** |    | **Average                      Price****Paid                      Per Share** |   | **Total                      Number of Shares Purchased as Part of Publicly Announced****Plans                      or Programs** |   | **Maximum                    Number of Shares that May Yet Be Purchased Under the****Plans                    or Programs (1)** |    |
|-------------------------------------------|--------|------------------------------------------------------------|---------|-------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|---------|
| July                      1-31, 2005      |   |                                                       | 32,020  |                                                                          | $      | 13.40                                                                                                                             |   |                                                                                                                            | 32,020  |   |   | 1,054,913 |   |
| August                      1-31, 2005    |   |                                                       | 129,362 |                                                                          |   | 13.82                                                                                                                             |   |                                                                                                                            | 129,362 |   |   | 925,551 |   |
| September                      1-30, 2005 |   |                                                       | 56,635  |                                                                          |   | 13.72                                                                                                                             |   |                                                                                                                            | 56,635  |   |   | 868,916 |   |
| Total                                     |   |                                                       | 218,017 |                                                                          |   | 13.73                                                                                                                             |   |                                                                                                                            | 218,017 |   |   | 868,916 |   |

| (1) | The                    Company publicly announced on March 17, 2003 a repurchase program                    for                    1,200,000 shares. Prior to July 1, 2005, a total of 113,067 shares                    had                    been repurchased under that program. A total of 30,100 shares                    were                    purchased in October 2005 under this                    program. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item 3.****Defaults      Upon Senior Securities**

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

**Item      5.**
**Other      Information**

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*Table          of Contents*

**Item 6.****Exhibits**

|   | (a)    |   | List                of exhibits (filed herewith unless otherwise noted).                                                                                       |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                           |
|   | 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.                                                                                                  |
|   | 10.1   |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Thomas                F. Prisby (2)               |
|   | 10.2   |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Thomas F. Prisby                (2)                                             |
|   | 10.3   |   | CFS                Bancorp, Inc. Amended and Restated 1998 Stock Option Plan                (3)                                                                |
|   | 10.4   |   | CFS                Bancorp, Inc. Amended and Restated 1998 Recognition and Retention                Plan and                Trust Agreement (3)                |
|   | 10.5   |   | CFS                Bancorp, Inc. 2003 Stock Option Plan (4)                                                                                                    |
|   | 10.6   |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Charles V. Cole (5)                               |
|   | 10.7   |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Thomas                L. Darovic (5)              |
|   | 10.8   |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Charles V. Cole                (5)                                              |
|   | 10.9   |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Thomas L. Darovic                (5)                                            |
|   | 10.10  |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Zoran                Koricanac (7)                |
|   | 10.11  |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Zoran Koricanac                (7)                                              |
|   | 10.12  |   | Amended                and Restated Supplemental ESOP Benefit Plan of CFS Bancorp, Inc.                and                Citizens Financial Services, FSB (7) |
|   | 10.13  |   | 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                                                                                                                     |

| (1) | Incorporated                by Reference from the Company's Definitive Proxy Statement from the                Annual                Meeting of Stockholders filed on March 25, 2005. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

**SIGNATURES**

**CFS      BANCORP, INC.**

| Date:                November 9, 2005 | By:    |  /s/ Thomas              F.              Prisby         |
|---------------------------------------|--------|--------------------------------------------------------------|
|                                  |   | Thomas                F. Prisby, Chairman and                |
|                                  |   | Chief                Executive Officer                       |
|                                  |   |                                                         |
| Date:                November 9, 2005 | By:    |  /s/ Charles              V.              Cole          |
|                                  |   | Charles                V. Cole, Executive Vice President and |
|                                  |   | Chief                Financial Officer                       |

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