----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**OR**

| £ | 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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*Table          of Contents*

**CFS      BANCORP, INC.**

**TABLE      OF CONTENTS**

|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       | Page     |
|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                              | **PART                I - FINANCIAL INFORMATION**                                                                                                                                                                                                                                                                                                                                                                          |     |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                1.                                                                            | Financial                Statements (Unaudited)                                                                                                                                                                                                                                                                                                                                                                            |     |
|                                                                                              | Condensed                Consolidated Statements of Condition                                                                                                                                                                                                                                                                                                                                                              | 3   |
|                                                                                              | Condensed                Consolidated Statements of Income                                                                                                                                                                                                                                                                                                                                                                 | 4   |
|                                                                                              | Condensed                Consolidated Statements of Changes in Stockholders’ Equity                                                                                                                                                                                                                                                                                                                                  | 5   |
|                                                                                              | Condensed                Consolidated Statements of Cash Flows                                                                                                                                                                                                                                                                                                                                                             | 6   |
|                                                                                              | Notes                to Condensed Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                        | 7   |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                2.                                                                            | Management's                Discussion and Analysis of Financial Condition and Results of                Operations                                                                                                                                                                                                                                                                                                        | 12  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                3.                                                                            | Quantitative                and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                  | 34  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                4.                                                                            | Controls                and Procedures                                                                                                                                                                                                                                                                                                                                                                                     | 37  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
|                                                                                              | **PART                II - OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                             |     |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                1.                                                                            | Legal                Proceedings                                                                | 37  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                1A.                                                                           | Risk                Factors                                                                                                                                                                                                                                                                                                                                                                                                | 38  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                2.                                                                            | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                 | 38  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                3.                                                                            | Defaults                upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                             | 38  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                4.                                                                            | Submission                of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                         | 39  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                5.                                                                            | Other                Information                                                                                                                                                                                                                                                                                                                                                                                           | 39  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Item                6.                                                                            | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                   | 40  |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
| Signature                Page                                                                     | 41                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                       |     |
|  Certifications              for Principal Executive Officer and Principal Financial Officer |                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                              |  Exhibit              31.1                                                                                                                                                                                                                                                                                                                                                                                            |     |
|                                                                                              |  Exhibit              31.2                                                                                                                                                                                                                                                                                                                                                                                            |     |
|                                                                          |  Exhibit              32                                                                                                                                                                                                                                                                                                                                                                                              |     |

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*Table          of Contents*

**CFS        BANCORP, INC.**

**Condensed****Consolidated        Statements of Condition**

|                                                                                                                                                                                          |   | **June                  30, 2006**      |      | **December                  31, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|----------------------------------------|--------|
|                                                                                                                                                                                          |   | (Unaudited)                             |      |                                   |   |
|                                                                                                                                                                                          |   | (Dollars                  in thousands) |      |
| **Assets**                                                                                                                                                                                    |   |                                    |      |                                   |   |   |   |
| Cash                  and amounts due from depository institutions                                                                                                                       |   | $                                       | 30,200    |                                   | $      | 17,600 |   |
| Interest-bearing                  deposits                                                                                                                                               |   |                                    | 1,760     |                                   |   | 1,785 |   |
| Federal                  funds sold                                                                                                                                                      |   |                                    | 14,285    |                                   |   | 4,792 |   |
| Cash                  and cash equivalents                                                                                                                                               |   |                                    | 46,245    |                                   |   | 24,177 |   |
|                                                                                                                                                                                          |   |                                    |      |                                   |   |   |   |
| Securities                  available-for-sale, at fair value                                                                                                                            |   |                                    | 300,651   |                                   |   | 218,550 |   |
| Investment                  in Federal Home Loan Bank stock, at cost                                                                                                                     |   |                                    | 28,252    |                                   |   | 28,252 |   |
|                                                                                                                                                                                          |   |                                    |      |                                   |   |   |   |
| Loans                  receivable                                                                                                                                                        |   |                                    | 842,830   |                                   |   | 917,405 |   |
| Allowance                  for losses on loans                                                                                                                                           |   |                                    | (11,690   | )                                      |   | (12,939 | ) |
| Net                  loans                                                                                                                                                               |   |                                    | 831,140   |                                   |   | 904,466 |   |
|                                                                                                                                                                                          |   |                                    |      |                                   |   |   |   |
| Interest                  receivable                                                                                                                                                     |   |                                    | 6,678     |                                   |   | 6,142 |   |
| Office                  properties and equipment                                                                                                                                         |   |                                    | 15,552    |                                   |   | 15,017 |   |
| Investment                  in bank-owned life insurance                                                                                                                                 |   |                                    | 35,676    |                                   |   | 34,889 |   |
| Prepaid                  expenses and other assets                                                                                                                                       |   |                                    | 16,304    |                                   |   | 10,031 |   |
| Goodwill                  and intangible assets                                                                                                                                          |   |                                    | 1,333     |                                   |   | 1,364 |   |
| Total                  assets                                                                                                                                                            |   | $                                       | 1,281,831 |                                   | $      | 1,242,888 |   |
|                                                                                                                                                                                          |   |                                    |      |                                   |   |   |   |
| **Liabilities                  and Stockholders’ Equity**                                                                                                                               |   |                                    |      |                                   |   |   |   |
| Deposits                                                                                                                                                                                 |   | $                                       | 838,516   |                                   | $      | 828,635 |   |
| Borrowed                  money, net of unamortized deferred premium on early extinguishment                  of                  debt                                                   |   |                                    | 280,966   |                                   |   | 257,326 |   |
| Advance                  payments by borrowers for taxes and insurance                                                                                                                   |   |                                    | 6,187     |                                   |   | 6,641 |   |
| Other                  liabilities                                                                                                                                                       |   |                                    | 22,473    |                                   |   | 7,919 |   |
| Total                  liabilities                                                                                                                                                       |   |                                    | 1,148,142 |                                   |   | 1,100,521 |   |
|                                                                                                                                                                                          |   |                                    |      |                                   |   |   |   |
| 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; 11,502,776 and 12,005,431 shares outstanding   |   |                                    | 234       |                                   |   | 234 |   |
| Additional                  paid-in capital                                                                                                                                              |   |                                    | 190,522   |                                   |   | 190,402 |   |
| Retained                  earnings                                                                                                                                                       |   |                                    | 94,615    |                                   |   | 94,379 |   |
| Treasury                  stock, at cost; 11,920,530 and 11,417,875 shares                                                                                                               |   |                                    | (144,159  | )                                      |   | (136,229 | ) |
| Unallocated                  common stock held by ESOP                                                                                                                                   |   |                                    | (4,163    | )                                      |   | (4,762 | ) |
| Unearned                  common stock acquired by RRP                                                                                                                                   |   |                                    | -         |                                   |   | (111 | ) |
| Accumulated                  other comprehensive loss, net of tax                                                                                                                        |   |                                    | (3,360    | )                                      |   | (1,546 | ) |
| Total                  stockholders’ equity                                                                                                                                        |   |                                    | 133,689   |                                   |   | 142,367 |   |
| Total                  liabilities and stockholders’ equity                                                                                                                        |   | $                                       | 1,281,831 |                                   | $      | 1,242,888 |   |

*See        accompanying notes.*

----

*Table            of Contents*

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

**Condensed****Consolidated        Statements of Income**

|                                                                           |   | **Three                  Months Ended****June                  30,**     |       | **Six                  Months Ended****June                  30,** |   |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|------------|--------------------------------------------------------------------|--------|
|                                                                           |   | **2006**                                                                 |       | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                           |   | (Unaudited)                                                              |       |
|                                                                           |   | (Dollars                  in thousands, except share and per share data) |       |
| Interest                  income:                                              |   |                                                                     |       |                                                               |   |   |   |   |   |   |   |   |   |
| Loans                                                                     |   | $                                                                        | 15,326     |                                                               | $      | 15,158 |   | $ | 30,229 |   | $ | 29,731 |   |
| Securities                                                                |   |                                                                     | 3,150      |                                                               |   | 1,851 |   |   | 5,641 |   |   | 3,572 |   |
| Other                                                                     |   |                                                                     | 486        |                                                               |   | 333 |   |   | 1,049 |   |   | 702 |   |
| Total                  interest income                                    |   |                                                                     | 18,962     |                                                               |   | 17,342 |   |   | 36,919 |   |   | 34,005 |   |
| Interest                  expense:                                             |   |                                                                     |       |                                                               |   |   |   |   |   |   |   |   |   |
| Deposits                                                                  |   |                                                                     | 5,009      |                                                               |   | 3,207 |   |   | 9,557 |   |   | 6,212 |   |
| Borrowed                  money                                           |   |                                                                     | 5,221      |                                                               |   | 6,935 |   |   | 10,394 |   |   | 14,539 |   |
| Total                  interest expense                                   |   |                                                                     | 10,230     |                                                               |   | 10,142 |   |   | 19,951 |   |   | 20,751 |   |
| Net                  interest income                                      |   |                                                                     | 8,732      |                                                               |   | 7,200 |   |   | 16,968 |   |   | 13,254 |   |
| Provision                  for losses on loans                            |   |                                                                     | 173        |                                                               |   | 512 |   |   | 558 |   |   | 767 |   |
| Net                  interest income after provision for losses on loans  |   |                                                                     | 8,559      |                                                               |   | 6,688 |   |   | 16,410 |   |   | 12,487 |   |
| Non-interest                  income:                                          |   |                                                                     |       |                                                               |   |   |   |   |   |   |   |   |   |
| Service                  charges and other fees                           |   |                                                                     | 1,710      |                                                               |   | 1,923 |   |   | 3,312 |   |   | 3,636 |   |
| Commission                  income                                        |   |                                                                     | 55         |                                                               |   | 104 |   |   | 117 |   |   | 269 |   |
| Net                  realized losses on available-for-sale securities     |   |                                                                     | -          |                                                               |   | (23 | ) |   | (127 | ) |   | (88 | ) |
| Impairment                  of available-for-sale securities              |   |                                                                     | -          |                                                               |   | - |   |   | - |   |   | (240 | ) |
| Net                  gain on sale of other assets                         |   |                                                                     | 47         |                                                               |   | 20 |   |   | 48 |   |   | 82 |   |
| Income                  from bank-owned life insurance                    |   |                                                                     | 396        |                                                               |   | 367 |   |   | 788 |   |   | 729 |   |
| Other                  income                                             |   |                                                                     | 621        |                                                               |   | 511 |   |   | 1,128 |   |   | 995 |   |
| Total                  non-interest income                                |   |                                                                     | 2,829      |                                                               |   | 2,902 |   |   | 5,266 |   |   | 5,383 |   |
| Non-interest                  expense:                                         |   |                                                                     |       |                                                               |   |   |   |   |   |   |   |   |   |
| Compensation                  and employee benefits                       |   |                                                                     | 5,260      |                                                               |   | 4,533 |   |   | 10,327 |   |   | 9,126 |   |
| Net                  occupancy expense                                    |   |                                                                     | 652        |                                                               |   | 704 |   |   | 1,314 |   |   | 1,427 |   |
| Professional                  fees                                        |   |                                                                     | 413        |                                                               |   | 460 |   |   | 764 |   |   | 815 |   |
| Data                  processing                                          |   |                                                                     | 678        |                                                               |   | 672 |   |   | 1,351 |   |   | 1,352 |   |
| Furniture                  and equipment expense                          |   |                                                                     | 541        |                                                               |   | 412 |   |   | 968 |   |   | 855 |   |
| Marketing                                                                 |   |                                                                     | 391        |                                                               |   | 198 |   |   | 589 |   |   | 395 |   |
| Amortization                  of core deposit intangibles                 |   |                                                                     | 17         |                                                               |   | 17 |   |   | 33 |   |   | 33 |   |
| Other                  general and administrative expenses                |   |                                                                     | 1,289      |                                                               |   | 1,383 |   |   | 2,622 |   |   | 2,636 |   |
| Total                  non-interest expense                               |   |                                                                     | 9,241      |                                                               |   | 8,379 |   |   | 17,968 |   |   | 16,639 |   |
| Income                  before income taxes                               |   |                                                                     | 2,147      |                                                               |   | 1,211 |   |   | 3,708 |   |   | 1,231 |   |
| Income                  tax expense (benefit)                             |   |                                                                     | 526        |                                                               |   | 199 |   |   | 778 |   |   | (47 | ) |
| Net                  income                                               |   | $                                                                        | 1,621      |                                                               | $      | 1,012 |   | $ | 2,930 |   | $ | 1,278 |   |
|                                                                           |   |                                                                     |       |                                                               |   |   |   |   |   |   |   |   |   |
| Per                  share data:                                               |   |                                                                     |       |                                                               |   |   |   |   |   |   |   |   |   |
| Basic                  earnings per share                                 |   | $                                                                        | 0.14       |                                                               | $      | 0.09 |   | $ | 0.26 |   | $ | 0.11 |   |
| Diluted                  earnings per share                               |   |                                                                     | 0.14       |                                                               |   | 0.08 |   |   | 0.25 |   |   | 0.11 |   |
| Cash                  dividends declared per share                        |   |                                                                     | 0.12       |                                                               |   | 0.12 |   |   | 0.24 |   |   | 0.24 |   |
| Weighted-average                  shares outstanding                      |   |                                                                     | 11,252,865 |                                                               |   | 11,811,476 |   |   | 11,378,111 |   |   | 11,799,220 |   |
| Weighted-average                  diluted shares outstanding              |   |                                                                     | 11,482,560 |                                                               |   | 12,027,547 |   |   | 11,615,231 |   |   | 12,039,677 |   |

*See        accompanying notes.*

----

*Table            of Contents*

**CFS        BANCORP, INC.**

**Condensed****Consolidated        Statements 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****Loss** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|----------------------------------------------------|--------|--------------------------|--------|-----------------------|--------|-------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|-----------|--------|
|                                                                                                                                                                                          |   | (Unaudited)                                                    |   |
|                                                                                                                                                                                          |   | (Dollars                  in thousands, except per share data) |   |
| Balance                  at January 1, 2005                                                                                                                                              |   | $                                                              | 234    |                                               | $      | 189,991                  |   | $                     | 94,904 |                                                                                            | $      | (130,689                                                                          | )      | $                                                        | (5,959 | )         | $      | (148 | ) | $ | (422 | ) | $ | 147,911 |   |
| Net                  income                                                                                                                                                              |   |                                                           | -      |                                               |   | -                        |   |                  | 1,278  |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | 1,278 |   |
| Other                  comprehensive loss, net of tax: Change                  in unrealized loss on available-for-sale securities, net of                  reclassification adjustment  |   |                                                           |   |                                               |   |                     |   |                  |   |                                                                                            |   |                                                                              |   |                                                     |   |      |   |   |   |   | (220 | ) |   | (220 | ) |
| Total                  comprehensive income                                                                                                                                              |   |                                                           |   |                                               |   |                     |   |                  |   |                                                                                            |   |                                                                              |   |                                                     |   |      |   |   |   |   |   |   |   | 1,058 |   |
| Purchase                  of treasury stock                                                                                                                                              |   |                                                           | -      |                                               |   | -                        |   |                  | -      |                                                                                            |   | (1,262                                                                            | )      |                                                     | -      |      |   | - |   |   | - |   |   | (1,262 | ) |
| Shares                  earned under ESOP                                                                                                                                                |   |                                                           | -      |                                               |   | 225                      |   |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | 598    |      |   | - |   |   | - |   |   | 823 |   |
| Amortization                  of awards under RRP                                                                                                                                        |   |                                                           | -      |                                               |   | 12                       |   |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | 37 |   |   | - |   |   | 49 |   |
| Exercise                  of stock options                                                                                                                                               |   |                                                           | -      |                                               |   | (237                     | )      |                  | -      |                                                                                            |   | 636                                                                               |   |                                                     | -      |      |   | - |   |   | - |   |   | 399 |   |
| Tax                  benefit related to stock options exercised                                                                                                                          |   |                                                           | -      |                                               |   | 123                      |   |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | 123 |   |
| Dividends                  declared on common stock ($0.24                  per share)                                                                                                   |   |                                                           | -      |                                               |   | -                        |   |                  | (2,789 | )                                                                                               |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | (2,789 | ) |
| Balance                  at June 30, 2005                                                                                                                                                |   | $                                                              | 234    |                                               | $      | 190,114                  |   | $                     | 93,393 |                                                                                            | $      | (131,315                                                                          | )      | $                                                        | (5,361 | )         | $      | (111 | ) | $ | (642 | ) | $ | 146,312 |   |
|                                                                                                                                                                                          |   |                                                           |   |                                               |   |                     |   |                  |   |                                                                                            |   |                                                                              |   |                                                     |   |      |   |   |   |   |   |   |   |   |   |
| Balance                  at January 1, 2006                                                                                                                                              |   | $                                                              | 234    |                                               | $      | 190,402                  |   | $                     | 94,379 |                                                                                            | $      | (136,229                                                                          | )      | $                                                        | (4,762 | )         | $      | (111 | ) | $ | (1,546 | ) | $ | 142,367 |   |
| Net                  income                                                                                                                                                              |   |                                                           | -      |                                               |   | -                        |   |                  | 2,930  |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | 2,930 |   |
| Other                  comprehensive loss, net of tax: Change                  in unrealized loss on available-for-sale securities, net of                  reclassification adjustment  |   |                                                           |   |                                               |   |                     |   |                  |   |                                                                                            |   |                                                                              |   |                                                     |   |      |   |   |   |   | (1,814 | ) |   | (1,814 | ) |
| Total                  comprehensive income                                                                                                                                              |   |                                                           |   |                                               |   |                     |   |                  |   |                                                                                            |   |                                                                              |   |                                                     |   |      |   |   |   |   |   |   |   | 1,116 |   |
| Purchase                  of treasury stock                                                                                                                                              |   |                                                           | -      |                                               |   | -                        |   |                  | -      |                                                                                            |   | (10,406                                                                           | )      |                                                     | -      |      |   | - |   |   | - |   |   | (10,406 | ) |
| Shares                  earned under ESOP                                                                                                                                                |   |                                                           | -      |                                               |   | 278                      |   |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | 599    |      |   | - |   |   | - |   |   | 877 |   |
| Reclassification                  of unearned compensation                  toadditional                  paid-in capital                  upon the adoption of SFAS 123(R)              |   |                                                           | -      |                                               |   | (111                     | )      |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | 111 |   |   | - |   |   | - |   |
| Amortization                  of awards under RRP                                                                                                                                        |   |                                                           | -      |                                               |   | 48                       |   |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | 48 |   |
| Exercise                  of stock options                                                                                                                                               |   |                                                           | -      |                                               |   | (393                     | )      |                  | -      |                                                                                            |   | 2,476                                                                             |   |                                                     | -      |      |   | - |   |   | - |   |   | 2,083 |   |
| Tax                  benefit related to stock options exercised                                                                                                                          |   |                                                           | -      |                                               |   | 298                      |   |                  | -      |                                                                                            |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | 298 |   |
| Dividends                  declared on common stock ($0.24                  per share)                                                                                                   |   |                                                           | -      |                                               |   | -                        |   |                  | (2,694 | )                                                                                               |   | -                                                                                 |   |                                                     | -      |      |   | - |   |   | - |   |   | (2,694 | ) |
| Balance                  at June 30, 2006                                                                                                                                                |   | $                                                              | 234    |                                               | $      | 190,522                  |   | $                     | 94,615 |                                                                                            | $      | (144,159                                                                          | )      | $                                                        | (4,163 | )         | $      | - |   | $ | (3,360 | ) | $ | 133,689 |   |

*See        accompanying notes.*

----

*Table            of Contents*

**CFS        BANCORP, INC.**

**Condensed****Consolidated        Statements of Cash Flows**

|                                                                                                                |   | **Six                  Months Ended****June                  30,** |        |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|-------------|
|                                                                                                                |   | **2006**                                                           |        | **2005** |   |
|                                                                                                                |   | (Unaudited)                                                        |        |
|                                                                                                                |   | (Dollars                  in thousands)                            |        |
| Operating                  activities:                                                                              |   |                                                               |        |   |   |   |   |
| Net                  income                                                                               |   | $                                                                  | 2,930       |   | $ | 1,278 |   |
| Adjustments                  to reconcile net income to net cash provided by operating                  activities: |   |                                                               |        |   |   |   |   |
| Provision                  for losses on loans                                                                 |   |                                                               | 558         |   |   | 767 |   |
| Depreciation                  and amortization                                                                 |   |                                                               | 734         |   |   | 766 |   |
| Premium                  amortization on the early extinguishment of debt                                      |   |                                                               | 5,123       |   |   | 8,716 |   |
| Net                  premium amortization on securities available-for-sale                                     |   |                                                               | (188        | ) |   | 539 |   |
| Impairment                  of securities available-for-sale                                                   |   |                                                               | -           |   |   | 240 |   |
| Provision                  (benefit) for deferred income taxes                                                 |   |                                                               | 5           |   |   | (1,315 | ) |
| Amortization                  of cost of stock benefit plans                                                   |   |                                                               | 925         |   |   | 872 |   |
| Proceeds                  from sale of loans held-for-sale                                                     |   |                                                               | 4,895       |   |   | 9,658 |   |
| Origination                  of loans held-for-sale                                                            |   |                                                               | (5,081      | ) |   | (13,274 | ) |
| Net                  loss realized on sale of securities                                                       |   |                                                               | 127         |   |   | 88 |   |
| Dividends                  received on Federal Home Loan Bank stock                                            |   |                                                               | -           |   |   | (587 | ) |
| Net                  gain realized on sale of other assets                                                     |   |                                                               | (48         | ) |   | (82 | ) |
| Increase                  in cash surrender value of bank-owned life insurance                                 |   |                                                               | (788        | ) |   | (729 | ) |
| (Increase)                  decrease in prepaid expenses and other assets                                      |   |                                                               | (2,499      | ) |   | 2,258 |   |
| Increase                  in other liabilities                                                                 |   |                                                               | 17,002      |   |   | 700 |   |
| Net                  cash provided by operating activities                                                          |   |                                                               | 23,695      |   |   | 9,895 |   |
|                                                                                                                |   |                                                               |        |   |   |   |   |
| Investing                  activities:                                                                              |   |                                                               |        |   |   |   |   |
| Securities:                                                                                                         |   |                                                               |        |   |   |   |   |
| Proceeds                  from sales                                                                           |   |                                                               | 21,067      |   |   | 38,137 |   |
| Proceeds                  from maturities and paydowns                                                         |   |                                                               | 9,736       |   |   | 23,464 |   |
| Purchases                                                                                                      |   |                                                               | (115,766    | ) |   | (66,305 | ) |
| Net                  loan fundings and principal payments received                                             |   |                                                               | 61,543      |   |   | 9,283 |   |
| Proceeds                  from sales of loans and loan participations                                          |   |                                                               | 5,776       |   |   | 13,021 |   |
| Proceeds                  from sale of real estate owned                                                       |   |                                                               | 291         |   |   | 577 |   |
| Purchases                  of property and equipment                                                           |   |                                                               | (1,333      | ) |   | (301 | ) |
| Disposal                  of property and equipment                                                            |   |                                                               | 98          |   |   | 49 |   |
| Net                  cash (used for) provided by investing activities                                          |   |                                                               | (18,588     | ) |   | 17,925 |   |
|                                                                                                                |   |                                                               |        |   |   |   |   |
| Financing                  activities:                                                                              |   |                                                               |        |   |   |   |   |
| Proceeds                  from exercises of stock options                                                      |   |                                                               | 2,083       |   |   | 399 |   |
| Tax                  benefit from exercises of nonqualified stock options                                      |   |                                                               | 298    |   |   | 123  |   |
| Dividends                  paid on common stock                                                                |   |                                                               | (2,871      | ) |   | (2,846 | ) |
| Purchase                  of treasury stock                                                                    |   |                                                               | (10,406     | ) |   | (1,262 | ) |
| Net                  increase (decrease) in deposit accounts                                                   |   |                                                               | 9,794       |   |   | (40,155 | ) |
| Net                  decrease in advance payments by borrowers for taxes and                  insurance        |   |                                                               | (454        | ) |   | (1,646 | ) |
| Net                  increase in other short-term borrowings                                                   |   |                                                               | 28,584      |   |   | - |   |
| Net                  (decrease) increase in FHLB debt                                                          |   |                                                               | (10,067     | ) |   | 2,238 |   |
| Net                  cash flows provided by (used for) financing activities                                    |   |                                                               | 16,961      |   |   | (43,149 | ) |
| Net                  increase (decrease) in cash and cash equivalents                                               |   |                                                               | 22,068      |   |   | (15,329 | ) |
| Cash                  and cash equivalents at beginning of period                                              |   |                                                               | 24,177      |   |   | 38,094 |   |
| Cash                  and cash equivalents at end of period                                                    |   | $                                                                  | 46,245      |   | $ | 22,765 |   |
|                                                                                                                |   |                                                               |        |   |   |   |   |
| Cash                  paid for:                                                                                     |   |                                                               |        |   |   |   |   |
| Interest                  on                  deposits                                                              |   |  $                                                            | 9,582  |   |  $ | 6,170  |   |
| Interest                  on borrowings                                                                             |   |                                                               | 5,314       |   |   | 5,849 |   |
| Taxes                                                                                                               |   |                                                               | 520         |   |   | - |   |

*See        accompanying notes.*

----

*Table            of Contents*

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

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.        Basis of Financial Statements Presentation**

*Company*

**2.        Share-Based Compensation **

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

----

*Table            of Contents*

*Options*
*Accounting        for Stock Issued to Employees*
*APB        25*

*RRP*

*Accounting        for Stock-Based Compensation *
*SFAS        123*

|                                                                                                                                   |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                                                   |   | **2005**                                                             |   | **2005**                                                           |   |
|                                                                                                                                   |   | (Dollars                  in thousands except per share data)        |   |
| Net                  income (as reported)                                                                                         |   | $                                                                    | 1,012  |                                                               | $      | 1,278 |   |
| Stock-based                  compensation expense determined using fair value method, net of                  tax                  (1) |   |                                                                 | (134   | )                                                                  |   | (277 | ) |
| Pro                  forma net income                                                                                             |   | $                                                                    | 878    |                                                               | $      | 1,001 |   |
|                                                                                                                                   |   |                                                                 |   |                                                               |   |   |   |
| Basic                  earnings per share (as reported)                                                                           |   | $                                                                    | 0.09   |                                                               | $      | 0.11 |   |
| Pro                  forma basic earnings per share                                                                               |   |                                                                 | 0.07   |                                                               |   | 0.08 |   |
| Diluted                  earnings per share (as reported)                                                                         |   |                                                                 | 0.08   |                                                               |   | 0.11 |   |
| Pro                  forma diluted earnings per share                                                                             |   |                                                                 | 0.07   |                                                               |   | 0.08 |   |

----

*Table            of Contents*

|                                               |   |   **Number                  of****Shares** |   |  **Weighted-Average****Exercise                  Price** |   |
|---------------------------------------------------------|--------|------------------------------------------------------|--------|---------------------------------------------------------------|--------|
| Options                  outstanding at January 1, 2006 |   |                                                 | 1,823  |                                                          | $      | 11.78 |   |
| Granted                                                 |   |                                                 | -      |                                                          |   | - |   |
| Exercised                                               |   |                                                 | (207   | )                                                             |   | 10.05 |   |
| Forfeited                                               |   |                                                 | (6     | )                                                             |   | 13.48 |   |
| Options                  outstanding at June 30, 2006   |   |                                                 | 1,610  |                                                          |   | 12.00 |   |
| Options                  exercisable at June 30, 2006   |   |                                                 | 1,610  |                                                          |   | 12.00 |   |

----

*Table            of Contents*

|                                      |   |  **Number                  of****Shares** |   | **Weighted-Average****Grant-Date                  Fair Value** |   |
|------------------------------------------------|--------|------------------------------------------------|--------|----------------------------------------------------------------|--------|
| Unvested                  at December 31, 2005 |   |                                           | 10,620 |                                                           | $      | 13.83 |   |
| Granted                                   |   |                                           | -      |                                                           |   | - |   |
| Vested                                    |   |                                           | (3,505 | )                                                              |   | 13.83 |   |
| Forfeited                                 |   |                                           | -      |                                                           |   | - |   |
| Unvested                  as of June 30, 2006  |   |                                           | 7,115  |                                                           | $      | 13.84 |   |

**3.        Other Comprehensive Loss**

|                                                                                                           |   | **Six                  Months Ended****June                  30,** |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                           |   | **2006**                                                           |   | **2005** |   |
|                                                                                                           |   | (Dollars                  in thousands)                            |   |
| Unrealized                  holding losses arising during the period:                                          |   |                                                               |   |   |   |   |   |
| Unrealized                  net securities losses                                                              |   | $                                                                  | (3,051 | ) | $ | (697 | ) |
| Related                  tax benefit                                                                           |   |                                                               | 1,159  |   |   | 274 |   |
| Net                                                                                                            |   |                                                               | (1,892 | ) |   | (423 | ) |
| Less:                  reclassification adjustment for net losses realized                  during the period: |   |                                                               |   |   |   |   |   |
| Realized                  net securities losses                                                                |   |                                                               | (127   | ) |   | (328 | ) |
| Related                  tax benefit                                                                           |   |                                                               | 49     |   |   | 125 |   |
| Net                                                                                                            |   |                                                               | (78    | ) |   | (203 | ) |
| Total                  other comprehensive loss                                                           |   | $                                                                  | (1,814 | ) | $ | (220 | ) |

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*Table            of Contents*

**4.        Earnings Per Share**

|                                                                                                                 |   | **Three                  Months Ended****June                  30,** |       | **Six                  Months Ended****June                  30,** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|--------|
|                                                                                                                 |   | **2006**                                                             |       | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                                                                 |   | (Dollars                  in thousands, except per share data)       |       |
| Net                  income                                                                                     |   | $                                                                    | 1,621      |                                                               | $      | 1,012 |   | $ | 2,930 |   | $ | 1,278 |   |
|                                                                                                                 |   |                                                                 |       |                                                               |   |   |   |   |   |   |   |   |   |
| Weighted-average                  common shares outstanding                                                     |   |                                                                 | 11,252,865 |                                                               |   | 11,811,476 |   |   | 11,378,111 |   |   | 11,799,220 |   |
| Weighted-average                  common share equivalents (1)                                                  |   |                                                                 | 229,695    |                                                               |   | 216,071 |   |   | 237,120 |   |   | 240,457 |   |
| Weighted-average                  common shares and common share equivalents                  outstanding  |   |                                                                 | 11,482,560 |                                                               |   | 12,027,547 |   |   | 11,615,231 |   |   | 12,039,677 |   |
|                                                                                                                 |   |                                                                 |       |                                                               |   |   |   |   |   |   |   |   |   |
| Basic                  earnings per share                                                                       |   | $                                                                    | 0.14       |                                                               | $      | 0.09 |   | $ | 0.26 |   | $ | 0.11 |   |
| Diluted                  earnings per share                                                                     |   |                                                                 | 0.14       |                                                               |   | 0.08 |   |   | 0.25 |   |   | 0.11 |   |

**5.        New Accounting Pronouncements**

*FASB*
*Earnings        per Share *
*SFAS        128*

*SFAS        156*
*Accounting        for*

----

*Table            of Contents*

*Transfers        and Servicing of Financial Assets and Extinguishments of        Liabilities,*

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

**Forward        Looking Statements**

*Certain        statements contained in this Form 10-Q, in other filings made by the Company        with the U.S. Securities and Exchange Commission (SEC), and in the Company’s        press releases or other stockholder communications are forward-looking        statements, as that term is defined in U.S. federal securities laws. Generally,        these statements relate to business plans or strategies, projections involving        anticipated revenues, earnings, profitability or other aspects of operating        results or other future developments in the Company’s affairs or the industry in        which it conducts business. Forward-looking statements may be identified        by        reference to a future period or periods or by the use of forward-looking        terminology such as “anticipate,” “believe,” “expect,” “intend,” “plan,”“estimate,” “would be,” “will,” “intends to,” “project” or similar expressions        or the negative thereof.*

*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. The Company        also advises readers that various factors, including regional and national        economic conditions, changes in *

----

*Table            of Contents*

*levels        of market interest rates, credit and other risks which are inherent in the        Company’s lending and investment activities, legislative changes, changes in the        cost of funds, changes in the demand for loan products and financial services,        unexpected legal developments, 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. For further discussion of risks and        uncertainties that could cause actual results and events to differ materially        from such forward-looking statements see “Part II. Item 1A. Risk Factors” of        this Form 10-Q as well as “Part I. Item 1A. Risk Factors” of the Company’s        Annual Report on Form 10-K for the year ended December 31, 2005. 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**

*Repo        Sweep)*

----

*Table            of Contents*

**Critical        Accounting Policies**

*GAAP*

*Allowance        for Losses on Loans. *

*Accounting        for Contingencies *
*SFAS        5*
*.*

*Accounting        by Creditors for Impairment of a Loan*
*SFAS        114*
*.*

----

*Table            of Contents*

*Bank*

*Income        Tax Accounting. *

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

----

*Table            of Contents*

|                                                                                                                                 |   | **Three                  Months Ended June 30,** |      |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|-----------|
|                                                                                                                                 |   | **2006**                                         |      | **2005** |   |
|                                                                                                                                 |   | **Average****Balance**                           |      | **Interest** |   | **Average****Yield/Cost** |   | **Average****Balance** |   | **Interest** |   | **Average** **Yield/Cost** |   |
|                                                                                                                                 |   | (Dollars                  in thousands)          |      |
| Interest-earning                  assets:                                                                                            |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable (1)                                                                                           |   | $                                                | 861,407   |   | $ | 15,326 |   |   | 7.14 | % | $ | 972,417 |   | $ | 15,158 |   |   | 6.25 | % |
| Securities                  (2)                                                                                                 |   |                                             | 292,112   |   |   | 3,150 |   |   | 4.33 | % |   | 212,355 |   |   | 1,851 |   |   | 3.50 | % |
| Other                  interest-earning assets (3)                                                                              |   |                                             | 39,802    |   |   | 486 |   |   | 4.90 | % |   | 34,122 |   |   | 333 |   |   | 3.91 | % |
| Total                  interest-earning assets                                                                                  |   |                                             | 1,193,321 |   |   | 18,962 |   |   | 6.37 | % |   | 1,218,894 |   |   | 17,342 |   |   | 5.71 | % |
|                                                                                                                                 |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  earning assets                                                                                    |   |                                             | 72,785    |   |   |   |   |   |   |   |   | 75,276 |   |   |   |   |   |   |   |
| Total                  assets                                                                                                   |   | $                                                | 1,266,106 |   |   |   |   |   |   |   | $ | 1,294,170 |   |   |   |   |   |   |   |
|                                                                                                                                 |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities:                                                                                       |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                            |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                                                              |   | $                                                | 104,306   |   |   | 262 |   |   | 1.01 | % | $ | 113,284 |   |   | 218 |   |   | 0.77 | % |
| Money                  market accounts                                                                                          |   |                                             | 137,076   |   |   | 897 |   |   | 2.62 | % |   | 134,300 |   |   | 381 |   |   | 1.14 | % |
| Savings                  accounts                                                                                               |   |                                             | 165,265   |   |   | 140 |   |   | 0.34 | % |   | 192,804 |   |   | 164 |   |   | 0.34 | % |
| Certificates                  of deposit                                                                                        |   |                                             | 378,084   |   |   | 3,710 |   |   | 3.94 | % |   | 346,002 |   |   | 2,444 |   |   | 2.83 | % |
| Total                  deposits                                                                                                 |   |                                             | 784,731   |   |   | 5,009 |   |   | 2.56 | % |   | 786,390 |   |   | 3,207 |   |   | 1.64 | % |
|                                                                                                                                 |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                  money:                                                                                                     |   |                                             |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  short-term borrowings (4)                                                                                |   |                                             | 8,361     |   |   | 92 |   |   | 4.41 | % |   | 1,378 |   |   | 11 |   |   | 3.20 | % |
| FHLB                  debt (5)(6)                                                                                               |   |                                             | 257,759   |   |   | 5,129 |   |   | 7.87 | % |   | 290,725 |   |   | 6,924 |   |   | 9.42 | % |
| Total                  borrowed money                                                                                           |   |                                             | 266,120   |   |   | 5,221 |   |   | 7.76 | % |   | 292,103 |   |   | 6,935 |   |   | 9.39 | % |
| Total                  interest-bearing liabilities                                                                             |   |                                             | 1,050,851 |   |   | 10,230 |   |   | 3.90 | % |   | 1,078,493 |   |   | 10,142 |   |   | 3.77 | % |
| Non-interest                  bearing deposits                                                                                  |   |                                             | 63,357    |   |   |   |   |   |   |   |   | 51,761 |   |   |   |   |   |   |   |
| Non-interest                  bearing liabilities                                                                               |   |                                             | 14,826    |   |   |   |   |   |   |   |   | 17,306 |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                              |   |                                             | 1,129,034 |   |   |   |   |   |   |   |   | 1,147,560 |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                                                           |   |                                             | 137,072   |   |   |   |   |   |   |   |   | 146,610 |   |   |   |   |   |   |   |
| Total                  liabilities and stockholders'  equity                                                                    |   | $                                                | 1,266,106 |   |   |   |   |   |   |   | $ | 1,294,170 |   |   |   |   |   |   |   |
| Net                  interest-earning assets                                                                                    |   | $                                                | 142,470   |   |   |   |   |   |   |   | $ | 140,401 |   |   |   |   |   |   |   |
| Net                  interest income / interest rate  spread                                                                    |   |                                             |      |   | $ | 8,732 |   |   | 2.47 | % |   |   |   | $ | 7,200 |   |   | 1.94 | % |
| Net                  interest margin                                                                                            |   |                                             |      |   |   |   |   |   | 2.93 | % |   |   |   |   |   |   |   | 2.37 | % |
| Ratio                  of average interest-earning assets   to                  average interest-bearing liabilities  |   |                                             |      |   |   |   |   |   | 113.56 | % |   |   |   |   |   |   |   | 113.02 | % |

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

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

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

| (4) | Includes                  federal funds purchased and Repo                  Sweeps. |
|-----|-------------------------------------------------------------------------------------|

| (5) | The                  2006 period includes an average of $269.9 million of contractual                  FHLB                  borrowings reduced by an average of $12.1 million of unamortized                  deferred                  premium on the early extinguishment of debt. Interest expense on                  borrowed                  money includes $2.6 million of amortization of the deferred premium                  on the                  early extinguishment of debt. The amortization of the deferred                  premium                  increased the average cost of borrowed money as reported to 7.76%                  compared                  to an average contractual rate of 3.83%. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

| (6) | The                  2005 period includes an average of $314.5 million of contractual                  FHLB                  borrowings reduced by an average of $23.8 million of unamortized                  premium                  on early extinguishment of debt. Interest expense on borrowings                  for the                  2005 period includes $4.0 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 3.72%. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                           |   | **Six                  Months Ended June 30,** |      |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|-----------|
|                                                                                                                                           |   | **2006**                                       |      | **2005** |   |
|                                                                                                                                           |   | **Average** **Balance**                   |      | **Interest** |   | **Average** **Yield/Cost** |   | **Average** **Balance** |   | **Interest** |   | **Average** **Yield/Cost** |   |
|                                                                                                                                           |   | (Dollars                  in thousands)        |      |
| Interest-earning                  assets:                                                                                                      |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable (1)                                                                                                     |   | $                                              | 877,860   |   | $ | 30,229 |   |   | 6.94 | % | $ | 977,822 |   | $ | 29,731 |   |   | 6.13 | % |
| Securities                  (2)                                                                                                           |   |                                           | 266,571   |   |   | 5,641 |   |   | 4.27 | % |   | 208,284 |   |   | 3,572 |   |   | 3.46 | % |
| Other                  interest-earning assets (3)                                                                                        |   |                                           | 44,154    |   |   | 1,049 |   |   | 4.79 | % |   | 36,646 |   |   | 702 |   |   | 3.86 | % |
| Total                  interest-earning assets                                                                                            |   |                                           | 1,188,585 |   |   | 36,919 |   |   | 6.26 | % |   | 1,222,752 |   |   | 34,005 |   |   | 5.61 | % |
|                                                                                                                                           |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  earning assets                                                                                              |   |                                           | 71,039    |   |   |   |   |   |   |   |   | 74,958 |   |   |   |   |   |   |   |
| Total                  assets                                                                                                             |   | $                                              | 1,259,624 |   |   |   |   |   |   |   | $ | 1,297,710 |   |   |   |   |   |   |   |
|                                                                                                                                           |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities:                                                                                                 |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                      |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                                                                        |   | $                                              | 104,559   |   |   | 511 |   |   | 0.99 | % | $ | 105,641 |   |   | 303 |   |   | 0.58 | % |
| Money                  market accounts                                                                                                    |   |                                           | 132,008   |   |   | 1,639 |   |   | 2.50 | % |   | 139,181 |   |   | 769 |   |   | 1.11 | % |
| Savings                  accounts                                                                                                         |   |                                           | 166,391   |   |   | 285 |   |   | 0.35 | % |   | 194,596 |   |   | 324 |   |   | 0.34 | % |
| Certificates                  of deposit                                                                                                  |   |                                           | 376,266   |   |   | 7,122 |   |   | 3.82 | % |   | 352,877 |   |   | 4,816 |   |   | 2.75 | % |
| Total                  deposits                                                                                                           |   |                                           | 779,224   |   |   | 9,557 |   |   | 2.47 | % |   | 792,295 |   |   | 6,212 |   |   | 1.58 | % |
|                                                                                                                                           |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                  money:                                                                                                               |   |                                           |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  short-term borrowings (4)                                                                                          |   |                                           | 6,214     |   |   | 130 |   |   | 4.22 | % |   | 884 |   |   | 14 |   |   | 3.19 | % |
| FHLB                  debt (5)(6)                                                                                                         |   |                                           | 257,801   |   |   | 10,264 |   |   | 7.92 | % |   | 289,717 |   |   | 14,525 |   |   | 9.97 | % |
| Total                  borrowed money                                                                                                     |   |                                           | 264,015   |   |   | 10,394 |   |   | 7.83 | % |   | 290,601 |   |   | 14,539 |   |   | 9.95 | % |
| Total                  interest-bearing liabilities                                                                                       |   |                                           | 1,043,239 |   |   | 19,951 |   |   | 3.86 | % |   | 1,082,896 |   |   | 20,751 |   |   | 3.86 | % |
| Non-interest                  bearing deposits                                                                                            |   |                                           | 62,207    |   |   |   |   |   |   |   |   | 50,158 |   |   |   |   |   |   |   |
| Non-interest                  bearing liabilities                                                                                         |   |                                           | 14,795    |   |   |   |   |   |   |   |   | 17,735 |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                                        |   |                                           | 1,120,241 |   |   |   |   |   |   |   |   | 1,150,789 |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                                                                     |   |                                           | 139,383   |   |   |   |   |   |   |   |   | 146,921 |   |   |   |   |   |   |   |
| Total                  liabilities and stockholders' equity                                                                                    |   | $                                              | 1,259,624 |   |   |   |   |   |   |   | $ | 1,297,710 |   |   |   |   |   |   |   |
| Net                  interest-earning assets                                                                                              |   | $                                              | 145,346   |   |   |   |   |   |   |   | $ | 139,856 |   |   |   |   |   |   |   |
| Net                  interest income / interest rate spread                                                                                    |   |                                           |      |   | $ | 16,968 |   |   | 2.40 | % |   |   |   | $ | 13,254 |   |   | 1.75 | % |
| Net                  interest margin                                                                                                      |   |                                           |      |   |   |   |   |   | 2.88 | % |   |   |   |   |   |   |   | 2.19 | % |
| Ratio                  of average interest-earning assets to                  average                  interest-bearing liabilities  |   |                                           |      |   |   |   |   |   | 113.93 | % |   |   |   |   |   |   |   | 112.91 | % |

| (2) | The                  average balance of loans receivable includes non-performing loans,                  interest on which is recognized on a cash basis. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| (4) | Includes                  federal funds purchased and Repo                  Sweeps. |
|-----|-------------------------------------------------------------------------------------|

----

*Table            of Contents*

| (5) | The                  2006 period includes an average of $271.2 million of contractual                  FHLB                  borrowings reduced by an average of $13.4 million of unamortized                  deferred                  premium on the early extinguishment of debt. Interest expense on                  borrowed                  money includes $5.1 million of amortization of the deferred premium                  on the                  early extinguishment of debt. The amortization of the deferred                  premium                  increased the average cost of borrowed money as reported to 7.83%                  compared                  to an average contractual rate of 3.81%. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The                  2005 period includes an average of $315.6 million of contractual                  FHLB                  borrowings reduced by an average of $25.9 million of unamortized                  premium                  on early extinguishment of debt. Interest expense on borrowings                  for the                  2005 period includes $8.7 million of amortization of the deferred                  premium                  on early extinguishment of debt. The amortization of the deferred                  premium                  for the 2005 period increased the average cost of borrowed money                  as                  reported to 9.95% compared to an average contractual rate of 3.69%. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Rate        / Volume Analysis**

|                                                                                                |   | **Three                  Months Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                                |   | **2006                  compared to 2005**       |   |
|                                                                                                |   | **Increase                  (decrease) due to**  |   |
|                                                                                                |   |  **Rate**                                   |   |  **Volume** |   | **Rate/****Volume** |   | **Total                  Net Increase/****(Decrease)** |   |
|                                                                                                |   | (Dollars                  in thousands)          |   |
| Interest-earning                  assets:                                                           |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable                                                              |   | $                                                | 2,143  |   | $ | (1,730 | ) | $ | (245 | ) | $ | 168 |   |
| Securities                                                                                     |   |                                             | 439    |   |   | 695 |   |   | 165 |   |   | 1,299 |   |
| Other                  interest-earning assets                                                 |   |                                             | 84     |   |   | 55 |   |   | 14 |   |   | 153 |   |
| Total                  net change in income on interest-earning                  assets        |   |                                             | 2,666  |   |   | (980 | ) |   | (66 | ) |   | 1,620 |   |
| Interest-bearing                  liabilities:                                                      |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                           |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                             |   |                                             | 66     |   |   | (17 | ) |   | (5 | ) |   | 44 |   |
| Money                  market accounts                                                         |   |                                             | 498    |   |   | 8 |   |   | 10 |   |   | 516 |   |
| Savings                  accounts                                                              |   |                                             | (1     | ) |   | (23 | ) |   | - |   |   | (24 | ) |
| Certificates                  of deposit                                                       |   |                                             | 951    |   |   | 227 |   |   | 88 |   |   | 1,266 |   |
| Total                  deposits                                                                |   |                                             | 1,514  |   |   | 195 |   |   | 93 |   |   | 1,802 |   |
| Borrowed                  money:                                                                    |   |                                             |   |   |   |   |   |   |   |   |   |   |   |
| Other                  short-term borrowings                                                   |   |                                             | 4      |   |   | 56 |   |   | 21 |   |   | 81 |   |
| FHLB                  debt                                                                     |   |                                             | (1,139 | ) |   | (785 | ) |   | 129 |   |   | (1,795 | ) |
| Total                  borrowed money                                                          |   |                                             | (1,135 | ) |   | (729 | ) |   | 150 |   |   | (1,714 | ) |
| Total                  net change in expense on interest-bearing                  liabilities  |   |                                             | 379    |   |   | (534 | ) |   | 243 |   |   | 88 |   |
| Net                  change in net interest income                                             |   | $                                                | 2,287  |   | $ | (446 | ) | $ | (309 | ) | $ | 1,532 |   |

----

*Table            of Contents*

|                                                                                          |   | **Six                  Months Ended June 30,**  |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                                                          |   | **2006                  compared to 2005**      |   |
|                                                                                          |   | **Increase                  (decrease) due to** |   |
|                                                                                          |   |  **Rate**                                  |   |  **Volume** |   | **Rate/****Volume** |   | **Total                  Net Increase/****(Decrease)** |   |
|                                                                                          |   | (Dollars                  in thousands)         |   |
| Interest-earning                  assets:                                                     |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable                                                        |   | $                                               | 3,940  |   | $ | (3,039 | ) | $ | (403 | ) | $ | 498 |   |
| Securities                                                                               |   |                                            | 836    |   |   | 999 |   |   | 234 |   |   | 2,069 |   |
| Other                  interest-earning assets                                           |   |                                            | 168    |   |   | 144 |   |   | 35 |   |   | 347 |   |
| Total                  net change in income on interest-earning                  assets       |   |                                            | 4,944  |   |   | (1,896 | ) |   | (134 | ) |   | 2,914 |   |
| Interest-bearing                  liabilities:                                                |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                     |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                       |   |                                            | 213    |   |   | (3 | ) |   | (2 | ) |   | 208 |   |
| Money                  market accounts                                                   |   |                                            | 959    |   |   | (40 | ) |   | (49 | ) |   | 870 |   |
| Savings                  accounts                                                        |   |                                            | 9      |   |   | (47 | ) |   | (1 | ) |   | (39 | ) |
| Certificates                  of deposit                                                 |   |                                            | 1,863  |   |   | 319 |   |   | 124 |   |   | 2,306 |   |
| Total                  deposits                                                          |   |                                            | 3,044  |   |   | 229 |   |   | 72 |   |   | 3,345 |   |
| Borrowed                  money:                                                              |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| Other                  short-term borrowings                                             |   |                                            | 4      |   |   | 85 |   |   | 27 |   |   | 116 |   |
| FHLB                  debt                                                               |   |                                            | (2,990 | ) |   | (1,600 | ) |   | 329 |   |   | (4,261 | ) |
| Total                  borrowed money                                                    |   |                                            | (2,986 | ) |   | (1,515 | ) |   | 356 |   |   | (4,145 | ) |
| Total                  net change in expense on interest-bearing                  liabilities |   |                                            | 58     |   |   | (1,286 | ) |   | 428 |   |   | (800 | ) |
| Net                  change in net interest income                                       |   | $                                               | 4,886  |   | $ | (610 | ) | $ | (562 | ) | $ | 3,714 |   |

**Analysis        of Statements of Income **

*Net        Interest Income. *

*Interest        Income.*

----

*Table            of Contents*

*Wall        Street Journal *

*Interest        Expense.*

*Premium        Amortization*

----

*Table            of Contents*

*Provision        for losses on loans.*
*Changes        in Financial Condition - Allowance for Losses on Loans*
*Management’s        Discussion and Analysis of Financial Condition and Results of        Operations*

*Non-interest        income. *

*Non-interest        expense. *

----

*Table            of Contents*

|                                                                                                                                                           |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                                                                           |   | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                                                                                                                                           |   | (Dollars                  in thousands)                              |   |
| Efficiency                  ratio:                                                                                                                             |   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Non-interest                  expense                                                                                                                |   | $                                                                    | 9,241  |                                                               | $      | 8,379 |   | $ | 17,968 |   | $ | 16,639 |   |
| Net                  interest income before the provision for losseson                   loans                  plus non-interest                  income |   | $                                                                    | 11,561 |                                                               | $      | 10,102 |   | $ | 22,234 |   | $ | 18,637 |   |
| Efficiency                  ratio                                                                                                                         |   |                                                                 | 79.93  | %                                                                  |   | 82.94 | % |   | 80.81 | % |   | 89.28 | % |
|                                                                                                                                                           |   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Core                  efficiency ratio:                                                                                                                        |   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Non-interest                  expense                                                                                                                     |   | $                                                                    | 9,241  |                                                               | $      | 8,379 |   | $ | 17,968 |   | $ | 16,639 |   |
| Net                  interest income before the provision for losses on  loans                  plus non-interest income                             |   | $                                                                    | 11,561 |                                                               | $      | 10,102 |   | $ | 22,234 |   | $ | 18,637 |   |
| Adjustments:                                                                                                                                                   |   |                                                                 |   |                                                               |   |   |   |   |   |   |   |   |   |
| Net                  realized losses on sale of securities available-for-sale                                                                             |   |                                                                 | -      |                                                               |   | 23 |   |   | 127 |   |   | 88 |   |
| Impairment                  of securities available-for-sale                                                                                                   |   |                                                                 | -      |                                                               |   | - |   |   | - |   |   | 240 |   |
| Net                  realized gains on sales of other assets                                                                                                   |   |                                                                 | (47    | )                                                                  |   | (20 | ) |   | (48 | ) |   | (82 | ) |
| Amortization                  of deferred premium on the early extinguishment                  of debt                                                         |   |                                                                 | 2,555  |                                                               |   | 3,992 |   |   | 5,123 |   |   | 8,716 |   |
| Net                  interest income before the provision for losses                  on loans plus non-interest income - as                  adjusted    |   | $                                                                    | 14,069 |                                                               | $      | 14,097 |   | $ | 27,436 |   | $ | 27,599 |   |
| Core                  efficiency ratio                                                                                                                    |   |                                                                 | 65.68  | %                                                                  |   | 59.44 | % |   | 65.49 | % |   | 60.29 | % |

----

*Table            of Contents*

*Income        Tax Expense.*

----

*Table            of Contents*

**Changes        in Financial Condition**

*Securities.        *

|                                                                                 |   |  **Amortized****Cost**             |    | **Gross****Unrealized****Gains** |   | **Gross****Unrealized****Gains** |   |  **Fair****Value** |    |
|--------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------|--------|----------------------------------|--------|-------------------------|---------|
|                                                                                 |   | (Dollars                  in thousands) |    |
| At                  June 30, 2006:                                                   |   |                                    |    |                             |   |                             |   |                    |    |   |   |   |   |
| Government                  sponsored entity (*GSE*)                  securities (1) |   | $                                       | 261,906 |                             | $      | 1                                |   | $                       | (4,389  | ) | $ | 257,518 |   |
| Mortgage-backed                  securities                                          |   |                                    | 26,244  |                             |   | 3                                |   |                    | (750    | ) |   | 25,497 |   |
| Collateralized                  mortgage obligations                                 |   |                                    | 16,402  |                             |   | 23                               |   |                    | (258    | ) |   | 16,167 |   |
| Trust                  preferred securities                                          |   |                                    | 85      |                             |   | 57                               |   |                    | — |   |   | 142 |   |
| Equity                  securities                                                   |   |                                    | 1,386   |                             |   | 13                               |   |                    | (72     | ) |   | 1,327 |   |
|                                                                                 |   | $                                       | 306,023 |                             | $      | 97                               |   | $                       | (5,469  | ) | $ | 300,651 |   |
|                                                                                 |   |                                    |    |                             |   |                             |   |                    |    |   |   |   |   |
| At                  December 31, 2005:                                               |   |                                    |    |                             |   |                             |   |                    |    |   |   |   |   |
| Government                  sponsored entity (*GSE*)                  securities (1) |   | $                                       | 167,047 |                             | $      | 94                               |   | $                       | (1,932  | ) | $ | 165,209 |   |
| Mortgage-backed                  securities                                          |   |                                    | 29,927  |                             |   | 29                               |   |                    | (500    | ) |   | 29,456 |   |
| Collateralized                  mortgage obligations                                 |   |                                    | 22,553  |                             |   | 7                                |   |                    | (222    | ) |   | 22,338 |   |
| Trust                  preferred securities                                          |   |                                    | 85      |                             |   | 51                               |   |                    | — |   |   | 136 |   |
| Equity                  securities                                                   |   |                                    | 1,386   |                             |   | 25                               |   |                    | — |   |   | 1,411 |   |
|                                                                                 |   | $                                       | 220,998 |                             | $      | 206                              |   | $                       | (2,654  | ) | $ | 218,550 |   |

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

----

*Table            of Contents*

*Loans.        *

|                                                                |   | **June                  30, 2006**      |    | **December                  31, 2005** |   |
|---------------------------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|
|                                                                |   | **Amount**                              |    | **Percentage**                         |   | **Amount** |   | **Percentage** |   |
|                                                                |   | (Dollars                  in thousands) |    |
| Commercial                  and construction loans:                 |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Commercial                  real estate                        |   | $                                       | 311,370 |                                   |   | 36.9 | % | $ | 381,956 |   |   | 41.6 | % |
| Construction                  and land development             |   |                                    | 144,743 |                                   |   | 17.2 |   |   | 136,558 |   |   | 14.9 |   |
| Commercial                  and industrial                     |   |                                    | 65,826  |                                   |   | 7.8 |   |   | 61,956 |   |   | 6.8 |   |
| Total                  commercial loans                        |   |                                    | 521,939 |                                   |   | 61.9 |   |   | 580,470 |   |   | 63.3 |   |
|                                                                |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Retail                  loans:                                      |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Single-family                  residential                     |   |                                    | 232,015 |                                   |   | 27.5 |   |   | 235,359 |   |   | 25.7 |   |
| Home                  equity lines of credit                   |   |                                    | 83,892  |                                   |   | 10.0 |   |   | 96,403 |   |   | 10.5 |   |
| Other                                                     |   |                                    | 4,984   |                                   |   | 0.6 |   |   | 5,173 |   |   | 0.5 |   |
| Total                  retail loans                            |   |                                    | 320,891 |                                   |   | 38.1 |   |   | 336,935 |   |   | 36.7 |   |
|                                                                |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Total                  loans receivable, net of unearned fees  |   | $                                       | 842,830 |                                   |   | 100.0 | % | $ | 917,405 |   |   | 100.0 | % |

----

*Table            of Contents*

*Allowance        for Losses on Loans.*

|                                            |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|-------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                            |   | **2006**                                                             |   | **2005**                                                           |   | **2006** |   | **2005** |   |
|                                            |   | (Dollars                  in thousands)                              |   |
| Balance                  at beginning of period |   | $                                                                    | 13,337 |                                                               | $      | 13,435 |   | $ | 12,939 |   | $ | 13,353 |   |
| Provision                  for losses on loans  |   |                                                                 | 173    |                                                               |   | 512 |   |   | 558 |   |   | 767 |   |
| Charge-offs                                     |   |                                                                 | (1,837 | )                                                                  |   | (67 | ) |   | (1,984 | ) |   | (305 | ) |
| Recoveries                                      |   |                                                                 | 17     |                                                               |   | 12 |   |   | 177 |   |   | 77 |   |
| Balance                  at end of period       |   | $                                                                    | 11,690 |                                                               | $      | 13,892 |   | $ | 11,690 |   | $ | 13,892 |   |

----

*Table            of Contents*

|                                             |   | **June                  30, 2006**      |   | **December                  31, 2005** |   |
|--------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                             |   | **#                  of****Loans**      |   | **Outstanding****Balance**             |   | **Impairment****Allocation** |   | **#                  of****Loans** |   | **Outstanding****Balance** |   | **Impairment****Allocation** |   |
|                                             |   | (Dollars                  in thousands) |   |
| Impaired                  loans:                 |   |                                    |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Commercial                  real estate     |   |                                    | 7      |                                   | $      | 15,936 |   | $ | 5,272 |   |   | 7 |   | $ | 21,566 |   | $ | 5,597 |   |
| Commercial                  and industrial  |   |                                    | 1      |                                   |   | 466 |   |   | 97 |   |   | 1 |   |   | 590 |   |   | 227 |   |
| Total                  impaired loans       |   |                                    | 8      |                                   | $      | 16,402 |   | $ | 5,369 |   |   | 8 |   | $ | 22,156 |   | $ | 5,824 |   |

*Non-performing        Assets. *

|                                                               |   | **June                  30,****2006**   |   | **December                  31,****2005** |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------|--------|
|                                                               |   | (Dollars                  in thousands) |   |
| Non-accrual                  loans:                                |   |                                    |
| Commercial                  and construction loans:                |   |                                    |   |                                      |   |   |   |
| Commercial                  real estate                       |   | $                                       | 14,626 |                                      | $      | 17,492 |   |
| Construction                  and land development            |   |                                    | 75     |                                      |   | 77 |   |
| Commercial                  and industrial                    |   |                                    | 418    |                                      |   | 94 |   |
| Total                  commercial and construction loans      |   |                                    | 15,119 |                                      |   | 17,663 |   |
|                                                               |   |                                    |   |                                      |   |   |   |
|   Retail                  loans:                         |   |                                    |   |                                      |   |   |   |
|    Single-family                  residential  |   |                                    | 3,443  |                                      |   | 2,929 |   |
| Home                  equity lines of credit                  |   |                                    | 216    |                                      |   | 429 |   |
| Other                                                         |   |                                    | 55     |                                      |   | 20 |   |
| Total                  retail loans                           |   |                                    | 3,714  |                                      |   | 3,378 |   |
| Total                  non-accruing loans                     |   |                                    | 18,833 |                                      |   | 21,041 |   |
| Other                  non-performing assets                  |   |                                    | 5,617  |                                      |   | 540 |   |
| Total                  non-performing assets                  |   | $                                       | 24,450 |                                      | $      | 21,581 |   |
|                                                               |   |                                    |   |                                      |   |   |   |
| Non-performing                  assets to total assets        |   |                                    | 1.91   | %                                         |   | 1.74 | % |
| Non-performing                  loans to total loans          |   |                                    | 2.23   |                                      |   | 2.29 |   |

----

*Table            of Contents*

*Deposits        and Borrowed Money. *

|                                         |   | **June                  30, 2006**      |    | **December                  31, 2005** |   |
|----------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|
|                                         |   | **Amount**                              |    | **Percentage**                         |   | **Amount** |   | **Percentage** |   |
|                                         |   | (Dollars                  in thousands) |    |
| Checking                  accounts:          |   |                                    |
| Non-interest                  bearing   |   | $                                       | 62,324  |                                   |   | 7.4 | % | $ | 66,116 |   |   | 8.0 | % |
| Interest-bearing                        |   |                                    | 102,324 |                                   |   | 12.2 |   |   | 106,938 |   |   | 12.9 |   |
| Money                  market accounts  |   |                                    | 126,222 |                                   |   | 15.1 |   |   | 121,667 |   |   | 14.7 |   |
| Savings                  accounts       |   |                                    | 161,708 |                                   |   | 19.3 |   |   | 170,619 |   |   | 20.6 |   |
| Core                  deposits          |   |                                    | 452,578 |                                   |   | 54.0 |   |   | 465,340 |   |   | 56.2 |   |
| Certificates                  of deposit:    |   |                                    |    |                                   |   |   |   |   |   |   |   |   |   |
| Less                  than $100,000     |   |                                    | 272,326 |                                   |   | 32.5 |   |   | 261,977 |   |   | 31.6 |   |
| $100,000                  or greater    |   |                                    | 113,612 |                                   |   | 13.5 |   |   | 101,318 |   |   | 12.2 |   |
| Time                  deposits          |   |                                    | 385,938 |                                   |   | 46.0 |   |   | 363,295 |   |   | 43.8 |   |
| Total                  deposits         |   | $                                       | 838,516 |                                   |   | 100.0 | % | $ | 828,635 |   |   | 100.0 | % |

*Repo        Sweep*

----

*Table            of Contents*

|                                                                                     |   | **June                  30, 2006**              |   | **December                  31, 2005** |   |
|------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|----------------------------------------|--------|
|                                                                                     |   | **Weighted**-**Average****Contractual****Rate** |   |   **Amount**                 |   | **Weighted-Average****Contractual****Rate** |   |   **Amount** |   |
|                                                                                     |   | (Dollars                  in thousands)         |   |
| Short-term                  variable-rate borrowings:                                    |   |                                            |   |                                   |   |   |   |   |   |   |   |   |   |
| Repo                  Sweep accounts                                                     |   |                                            | 4.75   | %                                      | $      | 29,139 |   |   | 3.75 | % | $ | 555 |   |
|                                                                                     |   |                                            |   |                                   |   |   |   |   |   |   |   |   |   |
| Secured                  advances from FHLB - Indianapolis:                              |   |                                            |   |                                   |   |   |   |   |   |   |   |   |   |
| Maturing                  in 2006 - fixed-rate                                           |   |                                            | 3.43   |                                   |   | 77,000 |   |   | 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 |   |   | 1,209 |   |
| Maturing                  in 2018 - fixed-rate (1)                                       |   |                                            | 5.54   |                                   |   | 2,816 |   |   | 5.54 |   |   | 2,816 |   |
| Maturing                  in 2019 - fixed-rate (1)                                       |   |                                            | 6.32   |                                   |   | 7,470 |   |   | 6.31 |   |   | 7,537 |   |
|                                                                                     |   |                                            |   |                                   |   | 262,495 |   |   |   |   |   | 272,562 |   |
| Less:                  deferred premium on early extinguishment of                  debt |   |                                            |   |                                   |   | (10,668 | ) |   |   |   |   | (15,791 | ) |
| Net                  FHLB - Indianapolis advances                                   |   |                                            |   |                                   |   | 251,827 |   |   |   |   |   | 256,771 |   |
|                                                                                     |   |                                            |   |                                   |   |   |   |   |   |   |   |   |   |
| Total                  borrowed money                                               |   |                                            |   |                                   | $      | 280,966 |   |   |   |   | $ | 257,326 |   |
| Weighted-average                  contractual interest rate                         |   |                                            | 3.88   | %                                      |   |   |   |   | 3.77 | % |   |   |   |

*LIBOR*

----

*Table            of Contents*

*Other        Liabilities*

*Capital        Resources. *

*Part        II. Item 2. 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 June 30, 2006:     |   |                                    |    |                                                        |   |                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                                |   | $                                       | 138,162 |                                                        |   | 14.08                                                                                                           | %      | $ | 78,518 |   |   | >8.00 | % | $ | 98,147 |   |   | >10.00 | % |
| Tangible                                  |   |                                    | 126,507 |                                                        |   | 9.88                                                                                                            |   |   | 19,203 |   |   | >1.50 |   |   | 25,604 |   |   | >2.00 |   |
| Core                                      |   |                                    | 126,507 |                                                        |   | 9.88                                                                                                            |   |   | 51,207 |   |   | >4.00 |   |   | 64,009 |   |   | >5.00 |   |
|                                      |   |                                    |    |                                                        |   |                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As                  of December 31, 2005: |   |                                    |    |                                                        |   |                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                                |   | $                                       | 140,102 |                                                        |   | 13.63                                                                                                           | %      | $ | 82,244 |   |   | >8.00 | % | $ | 102,806 |   |   | >10.00 | % |
| Tangible                                  |   |                                    | 128,884 |                                                        |   | 10.38                                                                                                           |   |   | 18,624 |   |   | >1.50 |   |   | 24,832 |   |   | >2.00 |   |
| Core                                      |   |                                    | 128,884 |                                                        |   | 10.38                                                                                                           |   |   | 49,665 |   |   | >4.00 |   |   | 62,080 |   |   | >5.00 |   |

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*Table            of Contents*

**Liquidity        and Commitments **

|   | • | deposits                  and Repo Sweeps, |
|--------|---------|--------------------------------------------|

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

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

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

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

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

----

*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)                  |   | $                                                         | 112,242 |   | $ | 134,535 |   | $ | 5,613 |   | $ | 10,105 |   | $ | 262,495 |   |
| Repo                  Sweeps (2)                    |   |                                                      | 29,139  |   |   | - |   |   | - |   |   | - |   |   | 29,139 |   |
| Operating                  leases                   |   |                                                      | 455     |   |   | 280 |   |   | 2 |   |   | - |   |   | 737 |   |
| Dividends                  payable on common stock  |   |                                                      | 1,380   |   |   | - |   |   | - |   |   | - |   |   | 1,380 |   |
|                                                     |   | $                                                         | 143,216 |   | $ | 134,815 |   | $ | 5,615 |   | $ | 10,105 |   | $ | 293,751 |   |

*Deposits        and Borrowed Money*

*Off-Balance        Sheet Obligations. *

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*Table            of Contents*

|                                                                 |   | **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                                                           |   | $                                                         | 39,138  |                                                                     | $      | 4,377                                                                  |   | $                                       | 953    |      | $      | 632 |   | $ | 45,100 |   |
| Retail                                                               |   |                                                      | 9,475   |                                                                     |   | -                                                                      |   |                                    | -      |      |   | - |   |   | 9,475 |   |
| Commitments                  to purchase loans:                      |   |                                                      |    |                                                                     |   |                                                                   |   |                                    |   |      |   |   |   |   |   |   |
| Commercial                                                           |   |                                                      | 45,888  |                                                                     |   | -                                                                      |   |                                    | -      |      |   | - |   |   | 45,888 |   |
| Retail                                                               |   |                                                      | -       |                                                                     |   | -                                                                      |   |                                    | -      |      |   | - |   |   | - |   |
| Commitments                  to fund unused construction loans  |   |                                                      | 27,424  |                                                                     |   | 14,533                                                                 |   |                                    | 3,937  |      |   | 7,319 |   |   | 53,213 |   |
| Commitments                  to fund unused lines of credit:         |   |                                                      |    |                                                                     |   |                                                                   |   |                                    |   |      |   |   |   |   |   |   |
| Commercial                                                           |   |                                                      | 13,349  |                                                                     |   | 2,517                                                                  |   |                                    | 175    |      |   | - |   |   | 16,041 |   |
| Retail                                                               |   |                                                      | 14,183  |                                                                     |   | 754                                                                    |   |                                    | 16     |      |   | 65,563 |   |   | 80,516 |   |
| Letters                  of credit                              |   |                                                      | 7,303   |                                                                     |   | 8,407                                                                  |   |                                    | 602    |      |   | - |   |   | 16,312 |   |
| Credit                  enhancements                            |   |                                                      | 6,983   |                                                                     |   | 3,832                                                                  |   |                                    | 23,551 |      |   | 8,839 |   |   | 43,205 |   |
|                                                                 |   | $                                                         | 163,743 |                                                                     | $      | 34,420                                                                 |   | $                                       | 29,234 |      | $      | 82,353 |   | $ | 309,750 |   |

*CRA*

*FHLB-IN*
*IDPLOC*

----

*Table            of Contents*

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

*IRR*
*NPV*

*ALCO*

----

*Table            of Contents*

|                                                             |   | **Net                  Portfolio Value**    |    |
|------------------------------------------------------------------|--------|---------------------------------------------|---------|
|                                                             |   | **At                  June 30, 2006**       |    | **At                  December 31, 2005** |   |
|                                                             |   | **$                  Amount**               |    | **$                  Change** |   | **%                  Change** |   | **$                  Amount** |   | **$                  Change** |   | **%                  Change** |   |
|                                                             |   | **(Dollars                  in thousands)** |    |
| Assumed                  change in interest rates (basis points) |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| +300                                                             |   | $                                           | 147,760 |   | $ | (28,798 | ) |   | (16.3 | )% | $ | 156,592 |   | $ | (12,288 | ) |   | (7.3 | )% |
| +200                                                             |   |                                        | 159,182 |   |   | (17,376 | ) |   | (9.8 | ) |   | 162,507 |   |   | (6,373 | ) |   | (3.8 | ) |
| +100                                                             |   |                                        | 168,931 |   |   | (7,627 | ) |   | (4.3 | ) |   | 166,875 |   |   | (2,005 | ) |   | (1.2 | ) |
|                        0                |   |                                        | 176,558 |   |   | - |   |   | - |   |   | 168,880 |   |   | - |   |   | - |   |
|  -100                                                       |   |                                        | 181,601 |   |   | 5,043 |   |   | (2.9 | ) |   | 168,938 |   |   | 58 |   |   | (0.0 | ) |
|  -200                                                       |   |                                        | 183,910 |   |   | (7,352 | ) |   | (4.2 | ) |   | 166,802 |   |   | (2,078 | ) |   | (1.2 | ) |

----

*Table            of Contents*

|                                          |   | **Percentage                  of Deposits Repricing****In                  First Year** |   |
|-----------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|
|                                          |   | **June                  30, 2006**                                                      |   | **December                  31, 2005** |   |
| Deposit                  category:            |   |                                                                                    |   |   |   |   |   |
| Business                  checking accounts   |   |                                                                                    | 20     | % |   | 20 | % |
| Interest                  checking accounts   |   |                                                                                    | 20     |   |   | 20 |   |
| High-yield                  checking accounts |   |                                                                                    | 95     |   |   | 95 |   |
| Savings                  accounts             |   |                                                                                    | 30     |   |   | 20 |   |
| Money                  market accounts        |   |                                                                                    | 50     |   |   | 50 |   |

*rate        shocks*

|                                                                              |   | **Percentage                  Change in Net Interest Income****Over                  a Twelve Month Time Period** |   |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|--------|
|                                                                              |   | **June                  30, 2006**                                                                                |   | **December                  31, 2005** |   |
| Assumed                  change in interest rates(basis                  points): |   |                                                                                                              |   |   |   |   |   |
| +200                                                                              |   |                                                                                                              | 2.1    | % |   | 1.2 | % |
| +100                                                                              |   |                                                                                                              | 1.3    |   |   | 0.9 |   |
|  -100                                                                        |   |                                                                                                              | (2.0   | ) |   | (3.4 | ) |
|  -200                                                                        |   |                                                                                                              | (5.0   | ) |   | (9.6 | ) |

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*Table            of Contents*

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

*the        1934 Act*

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

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

**Legal        Proceedings**

----

*Table            of Contents*

**Item        1A.**    **Risk        Factors**

*Management’s        Discussion and Analysis of Financial Condition and Results of Operations        -        Forward Looking Statements*

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

| **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)** |    |
|-----------------------------------|--------|----------------------------------------------------------------|---------|-----------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------|---------|
| April                  1-30, 2006 |   |                                                           | 56,249  |                                                                  | $      | 14.80                                                                                                                     |   |                                                                                                                        | 56,249  |   |   | 338,646 |   |
| May                  1-31, 2006   |   |                                                           | 248,841 |                                                                  |   | 14.72                                                                                                                     |   |                                                                                                                        | 248,841 |   |   | 89,805 |   |
| June                  1-30, 2006  |   |                                                           | 143,748 |                                                                  |   | 14.77                                                                                                                     |   |                                                                                                                        | 143,748 |   |   | 546,057 |   |
| Total                             |   |                                                           | 448,838 |                                                                  |   | 14.74                                                                                                                     |   |                                                                                                                        | 448,838 |   |   | 546,057 |   |

| (1) | The                  Company publicly announced on March 17, 2003 a repurchase program                  for                  1,200,000 shares. Prior to April 1, 2006, a total of 805,105 shares                  had                  been repurchased under that program. On June 15, 2006, the Company                  announced the completion of the March 2003 repurchase program in                  conjunction with the announcement of an additional repurchase program                  for                  600,000 shares. A total of 50,863 shares were purchased in July                  2006 under                  the additional program. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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*Table            of Contents*

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

*Annual        Meeting*

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

----

*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. (2)                                                                                                  |
|   | 10.1   |   | Employment                  Agreement entered into between Citizens Financial Bank and Thomas                  F.                  Prisby (3)                        |
|   | 10.2   |   | Employment                  Agreement entered into between CFS Bancorp, Inc. and Thomas F.                  Prisby                  (3)                              |
|   | 10.3   |   | CFS                  Bancorp, Inc. Amended and Restated 1998 Stock Option Plan                  (4)                                                                  |
|   | 10.4   |   | CFS                  Bancorp, Inc. Amended and Restated 1998 Recognition and Retention                  Plan and                  Trust Agreement (4)                |
|   | 10.5   |   | CFS                  Bancorp, Inc. 2003 Stock Option Plan (5)                                                                                                        |
|   | 10.6   |   | Employment                  Agreement entered into between Citizens Financial Bank                  and Charles V. Cole (3)                                          |
|   | 10.7   |   | Employment                  Agreement entered into between Citizens Financial Bank and Thomas                  L.                  Darovic (3)                       |
|   | 10.8   |   | Employment                  Agreement entered into between CFS Bancorp, Inc. and Charles V.                  Cole                  (3)                               |
|   | 10.9   |   | Employment                  Agreement entered into between CFS Bancorp, Inc. and Thomas L.                  Darovic                  (3)                             |
|   | 10.10  |   | Employment                  Agreement entered into between Citizens Financial Services, FSB and                  Zoran Koricanac (6)                            |
|   | 10.11  |   | Employment                  Agreement entered into between CFS Bancorp, Inc. and Zoran Koricanac                  (6)                                                |
|   | 10.12  |   | Amended                  and Restated Supplemental ESOP Benefit Plan of CFS Bancorp, Inc.                  and                  Citizens Financial Services, FSB (6) |
|   | 10.13  |   | CFS                  Bancorp, Inc. Directors’ Deferred Compensation Plan (6)                                                                                   |
|   | 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 with the SEC on March 25, 2005. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated                  by reference from the Company’s Annual Report on Form 10-K for the year                  ended December 31, 2005. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Incorporated                  by reference from the Company’s Form 8-K filed with the SEC on July 7,                  2006. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|

| (4) | Incorporated                  by reference from the Company’s Definitive Proxy Statement for the Annual                  Meeting of Stockholders filed with the SEC on March 23,                  2001. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Incorporated                  by reference from the Company’s Definitive Proxy Statement for the Annual                  Meeting of Stockholders filed with the SEC on March 31,                  2003. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Incorporated                  by reference from the Company’s Annual Report on Form 10-K for the year                  ended December 31, 2004. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table            of Contents*

**SIGNATURES**

**CFS        BANCORP, INC.**

| Date:                  August 9, 2006 | By:    | /s/                  Thomas F. Prisby                          |
|---------------------------------------|--------|----------------------------------------------------------------|
|                                  |   | Thomas                  F. Prisby, Chairman and                |
|                                  |   | Chief                  Executive Officer                       |
|                                  |   |                                                           |
| Date:                  August 9, 2006 | By:    | /s/                  Charles V. Cole                           |
|                                  |   | Charles                  V. Cole, Executive Vice President and |
|                                  |   | Chief                  Financial Officer                       |

----