----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**OR**

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

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

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**CFS      BANCORP, INC.**

**TABLE      OF CONTENTS**

|                                                                                                         |                                                                                                                | Page     |
|--------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                         | **PART                I - FINANCIAL INFORMATION**                                                                   |     |
|                                                                                                         |                                                                                                                |          |
| Item                1.                                                                                       | Financial                Statements (Unaudited)                                                                     |  3  |
|                                                                                                         | Consolidated                Statements of Financial Condition                                                       |  4  |
|                                                                                                         | Consolidated                Statements of Income                                                                    |  5  |
|                                                                                                         | Consolidated                Statements of Changes in Stockholders’ Equity                                     |  6  |
|                                                                                                         | Consolidated                Statements of Cash Flows                                                                |  7  |
|                                                                                                         | Notes                to Consolidated Financial Statements                                                           |     |
|                                                                                                         |                                                                                                                |     |
| Item                2.                                                                                       | Management's                Discussion and Analysis of Financial Condition and Results of                Operations |  11 |
|                                                                                                         |                                                                                                                |     |
| Item                3.                                                                                       | Quantitative                and Qualitative Disclosures About Market Risk                                           |  31 |
|                                                                                                         |                                                                                                                |     |
| Item                4.                                                                                       | Controls                and Procedures                                                                              |  32 |
|                                                                                                         |                                                                                                                |     |
|                                                                                                         |                                                                                                                |     |
|                                                                                                         | **PART                II - OTHER INFORMATION**                                                                      |     |
|                                                                                                         |                                                                                                                |     |
| Item                1.                                                                                       | Legal                Proceedings                                                                                    |  33 |
|                                                                                                         |                                                                                                                |     |
| Item                2.                                                                                       | Unregistered                Sales of Equity Securities and Use of Proceeds                                          |  33 |
|                                                                                                         |                                                                                                                |     |
| Item                3.                                                                                       | Defaults                upon Senior Securities                                                                      |  34 |
|                                                                                                         |                                                                                                                |     |
| Item                4.                                                                                       | Submission                of Matters to a Vote of Security Holders                                                  |  34 |
|                                                                                                         |                                                                                                                |     |
| Item                5.                                                                                       | Other                Information                                                                                    |  34 |
|                                                                                                         |                                                                                                                |     |
| Item                6.                                                                                       | Exhibits                                                                                                            |  35 |
|                                                                                                         |                                                                                                                |     |
| Signature                Page                                                                                |  36                                                                                                            |
|                                                                                                         |                                                                                                                |     |
| Certifications                for Principal Executive Officer and                Principal Financial Officer |                                                                                                                |
|              Exhibit                31.1    |                                                                                                                |
|              Exhibit              31.2      |                                                                                                                |
|              Exhibit              32.0      |                                                                                                                |

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*Table          of          Contents*

**CFS      BANCORP, INC.**

**Consolidated      Statements of Financial Condition**

|                                                                                                                                                                                                                                                                                                                                                      |   | **June                30, 2005**            |      | **December                31, 2004** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|--------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                      |   | (Unaudited)                                 |      |                                 |   |
|                                                                                                                                                                                                                                                                                                                                                      |   | (Dollars                in Thousands)  |
| **Assets**                                                                                                                                                                                                                                                                                                                                                |   |                                        |      |                                 |   |   |   |
| Cash                and amounts due from depository institutions                                                                                                                                                                                                                                                                                     |   | $                                           | 19,844    |                                 | $      | 16,878 |   |
| Interest-bearing                deposits                                                                                                                                                                                                                                                                                                             |   |                                        | 2,331     |                                 |   | 11,217 |   |
| Federal                funds sold                                                                                                                                                                                                                                                                                                                    |   |                                        | 590       |                                 |   | 9,999 |   |
| Cash                and cash equivalents                                                                                                                                                                                                                                                                                                             |   |                                        | 22,765    |                                 |   | 38,094 |   |
| Securities                available-for-sale, at fair value                                                                                                                                                                                                                                                                                          |   |                                        | 205,686   |                                 |   | 202,219 |   |
| Investment                in Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                                                                                   |   |                                        | 28,252    |                                 |   | 27,665 |   |
| Loans                receivable, net of unearned fees                                                                                                                                                                                                                                                                                                |   |                                        | 968,659   |                                 |   | 988,085 |   |
| Allowance                for losses on loans                                                                                                                                                                                                                                                                                                         |   |                                        | (13,892   | )                                    |   | (13,353 | ) |
| Net                loans                                                                                                                                                                                                                                                                                                                             |   |                                        | 954,767   |                                 |   | 974,732 |   |
| Accrued                interest receivable                                                                                                                                                                                                                                                                                                           |   |                                        | 5,719     |                                 |   | 5,456 |   |
| Other                real estate owned                                                                                                                                                                                                                                                                                                               |   |                                        | 658       |                                 |   | 525 |   |
| Office                properties and equipment                                                                                                                                                                                                                                                                                                       |   |                                        | 15,035    |                                 |   | 15,511 |   |
| Investment                in bank-owned life insurance                                                                                                                                                                                                                                                                                               |   |                                        | 34,090    |                                 |   | 33,362 |   |
| Prepaid                expenses and other assets                                                                                                                                                                                                                                                                                                     |   |                                        | 14,658    |                                 |   | 15,721 |   |
| Intangible                assets                                                                                                                                                                                                                                                                                                                     |   |                                        | 1,397     |                                 |   | 1,429 |   |
| Total                assets                                                                                                                                                                                                                                                                                                                          |   | $                                           | 1,283,027 |                                 | $      | 1,314,714 |   |
|                                                                                                                                                                                                                                                                                                                                                      |   |                                        |      |                                 |   |   |   |
| **Liabilities                and Stockholders’ Equity**                                                                                                                                                                                                                                                                                             |   |                                        |      |                                 |   |   |   |
| Deposits                                                                                                                                                                                                                                                                                                                                             |   | $                                           | 823,023   |                                 | $      | 863,178 |   |
| Borrowed                money, net of unamortized deferred premium on early extinguishment                of                debt                                                                                                                                                                                                                     |   |                                        | 297,565   |                                 |   | 286,611 |   |
| Advance                payments by borrowers for taxes and insurance                                                                                                                                                                                                                                                                                 |   |                                        | 6,531     |                                 |   | 8,177 |   |
| Other                liabilities                                                                                                                                                                                                                                                                                                                     |   |                                        | 9,596     |                                 |   | 8,837 |   |
| Total                liabilities                                                                                                                                                                                                                                                                                                                     |   |                                        | 1,136,715 |                                 |   | 1,166,803 |   |
|                                                                                                                                                                                                                                                                                                                                                      |   |                                        |      |                                 |   |   |   |
| Stockholders’                equity:                                                                                                                                                                                                                                                                                                                |   |                                        |      |                                 |   |   |   |
| Preferred                stock, $0.01 par value; 15,000,000 shares authorized                                                                                                                                                                                                                                                                        |   |                                        | **-**     |                                 |   | **-** |   |
| Common                stock, $0.01 par value; 85,000,000 shares authorized; 23,423,306                shares                issued as of June 30, 2005and                December 31, 2004; 12,345,782                and 12,385,322 shares outstanding as of  June                30, 2005 and December 31, 2004,                respectively  |   |                                        | 234       |                                 |   | 234 |   |
| Additional                paid-in capital                                                                                                                                                                                                                                                                                                            |   |                                        | 190,114   |                                 |   | 189,991 |   |
| Retained                earnings, substantially restricted                                                                                                                                                                                                                                                                                           |   |                                        | 93,393    |                                 |   | 94,904 |   |
| Treasury                stock, at cost: 11,077,524 and 11,037,984 shares as of June 30, 2005                and                December 31, 2004, respectively                                                                                                                                                                                  |   |                                        | (131,315  | )                                    |   | (130,689 | ) |
| Unallocated                common stock held by ESOP                                                                                                                                                                                                                                                                                                 |   |                                        | (5,361    | )                                    |   | (5,959 | ) |
| Unearned                common stock acquired by RRP                                                                                                                                                                                                                                                                                                 |   |                                        | (111      | )                                    |   | (148 | ) |
| Accumulated                other comprehensive loss, net of tax                                                                                                                                                                                                                                                                                      |   |                                        | (642      | )                                    |   | (422 | ) |
| Total                stockholders’ equity                                                                                                                                                                                                                                                                                                      |   |                                        | 146,312   |                                 |   | 147,911 |   |
| Total                liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                      |   | $                                           | 1,283,027 |                                 | $      | 1,314,714 |   |

*See      accompanying notes.*

----

*Table          of Contents*

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

**Consolidated      Statements of Income**

|                                                                              |   | **Three                Months Ended****June                30,**       |       | **Six                Months Ended****June                30,** |   |
|-----------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|------------|----------------------------------------------------------------|--------|
|                                                                              |   | **2005**                                                               |       | **2004**                                                       |   | **2005** |   | **2004** |   |
|                                                                              |   | (Unaudited)                                                            |       |
|                                                                              |   | (Dollars                in thousands, except share and per share data) |       |
| Interest                income:                                                   |   |                                                                   |       |                                                           |   |   |   |   |   |   |   |   |   |
| Loans                                                                        |   | $                                                                      | 15,158     |                                                           | $      | 13,731 |   | $ | 29,731 |   | $ | 27,847 |   |
| Securities                                                                   |   |                                                                   | 1,851      |                                                           |   | 2,601 |   |   | 3,572 |   |   | 5,271 |   |
| FHLB                dividends                                                |   |                                                                   | 290        |                                                           |   | 330 |   |   | 592 |   |   | 660 |   |
| Other                                                                        |   |                                                                   | 43         |                                                           |   | 170 |   |   | 110 |   |   | 516 |   |
| Total                interest income                                         |   |                                                                   | 17,342     |                                                           |   | 16,832 |   |   | 34,005 |   |   | 34,294 |   |
| Interest                expense:                                                  |   |                                                                   |       |                                                           |   |   |   |   |   |   |   |   |   |
| Deposits                                                                     |   |                                                                   | 3,207      |                                                           |   | 3,185 |   |   | 6,212 |   |   | 7,021 |   |
| Borrowings                                                                   |   |                                                                   | 6,935      |                                                           |   | 6,263 |   |   | 14,539 |   |   | 12,526 |   |
| Total                interest expense                                        |   |                                                                   | 10,142     |                                                           |   | 9,448 |   |   | 20,751 |   |   | 19,547 |   |
| Net                interest income before provision for losses on loans      |   |                                                                   | 7,200      |                                                           |   | 7,384 |   |   | 13,254 |   |   | 14,747 |   |
| Provision                for losses on loans                                 |   |                                                                   | 512        |                                                           |   | 1,918 |   |   | 767 |   |   | 2,657 |   |
| Net                interest income after provision for losses on loans       |   |                                                                   | 6,688      |                                                           |   | 5,466 |   |   | 12,487 |   |   | 12,090 |   |
| Non-interest                income:                                               |   |                                                                   |       |                                                           |   |   |   |   |   |   |   |   |   |
| Service                charges and other fees                                |   |                                                                   | 1,923      |                                                           |   | 1,875 |   |   | 3,636 |   |   | 3,552 |   |
| Commission                income                                             |   |                                                                   | 104        |                                                           |   | 171 |   |   | 269 |   |   | 323 |   |
| Net                realized gains (losses) on available-for-sale securities  |   |                                                                   | (23        | )                                                              |   | (23 | ) |   | (88 | ) |   | 298 |   |
| Impairment                on available-for-sale securities                   |   |                                                                   | -          |                                                           |   | (343 | ) |   | (240 | ) |   | (343 | ) |
| Net                gain (loss) on sale of other assets                       |   |                                                                   | 20         |                                                           |   | - |   |   | 82 |   |   | (1 | ) |
| Income                from bank-owned life insurance                         |   |                                                                   | 367        |                                                           |   | 365 |   |   | 729 |   |   | 723 |   |
| Other                income                                                  |   |                                                                   | 511        |                                                           |   | 505 |   |   | 995 |   |   | 1,130 |   |
| Total                non-interest income                                     |   |                                                                   | 2,902      |                                                           |   | 2,550 |   |   | 5,383 |   |   | 5,682 |   |
| Non-interest                expense:                                              |   |                                                                   |       |                                                           |   |   |   |   |   |   |   |   |   |
| Compensation                and employee benefits                            |   |                                                                   | 4,533      |                                                           |   | 4,604 |   |   | 9,126 |   |   | 9,463 |   |
| Net                occupancy expense                                         |   |                                                                   | 704        |                                                           |   | 615 |   |   | 1,427 |   |   | 1,258 |   |
| Professional                fees                                             |   |                                                                   | 460        |                                                           |   | 1,254 |   |   | 815 |   |   | 1,645 |   |
| Data                processing                                               |   |                                                                   | 672        |                                                           |   | 797 |   |   | 1,352 |   |   | 1,452 |   |
| Furniture                and equipment expense                               |   |                                                                   | 412        |                                                           |   | 456 |   |   | 855 |   |   | 918 |   |
| Marketing                                                                    |   |                                                                   | 198        |                                                           |   | 288 |   |   | 395 |   |   | 583 |   |
| Amortization                of core deposit intangibles                      |   |                                                                   | 17         |                                                           |   | 17 |   |   | 33 |   |   | 33 |   |
| Other                general and administrative expenses                     |   |                                                                   | 1,383      |                                                           |   | 1,248 |   |   | 2,636 |   |   | 2,460 |   |
| Total                non-interest expense                                    |   |                                                                   | 8,379      |                                                           |   | 9,279 |   |   | 16,639 |   |   | 17,812 |   |
| Income                (loss) before income taxes                             |   |                                                                   | 1,211      |                                                           |   | (1,263 | ) |   | 1,231 |   |   | (40 | ) |
| Income                tax expense (benefit)                                  |   |                                                                   | 199        |                                                           |   | (906 | ) |   | (47 | ) |   | (927 | ) |
| Net                income (loss)                                             |   | $                                                                      | 1,012      |                                                           | $      | (357 | ) | $ | 1,278 |   | $ | 887 |   |
|                                                                              |   |                                                                   |       |                                                           |   |   |   |   |   |   |   |   |   |
| Per                share data:                                                    |   |                                                                   |       |                                                           |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share                               |   | $                                                                      | 0.09       |                                                           | $      | (0.03 | ) | $ | 0.11 |   | $ | 0.08 |   |
| Diluted                earnings (loss) per share                             |   |                                                                   | 0.08       |                                                           |   | (0.03 | ) |   | 0.11 |   |   | 0.07 |   |
| Cash                dividends declared per share                             |   |                                                                   | 0.12       |                                                           |   | 0.11 |   |   | 0.24 |   |   | 0.22 |   |
| Weighted                average shares outstanding                           |   |                                                                   | 11,811,476 |                                                           |   | 11,620,390 |   |   | 11,799,220 |   |   | 11,510,467 |   |
| Weighted                average diluted shares outstanding                   |   |                                                                   | 12,027,547 |                                                           |   | 11,887,039 |   |   | 12,039,677 |   |   | 11,846,355 |   |

*See      accompanying notes.*

----

*Table          of Contents*

**CFS      BANCORP, INC.**

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

|                                                                                                                                                                                                          |   | **Common****Stock**                                          |   | **Additional                Paid In****Capital** |   | **Retained****Earnings** |   | **Treasury****Stock** |    | **Unalloc.                Common****Stock                Held****By                ESOP** |   | **Unearned****Common                Stock Acquired****By                RRP** |   | **Accum.                Other Compre-hensive Income****(Loss)** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|--------------------------------------------------|--------|--------------------------|--------|-----------------------|---------|-------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------|--------|
|                                                                                                                                                                                                          |   | (Unaudited)                                                  |   |
|                                                                                                                                                                                                          |   | (Dollars                in thousands, except per share data) |   |
| Balance                January 1, 2004                                                                                                                                                                   |   | $                                                            | 234    |                                             | $      | 189,879                  |   | $                     | 106,354 |                                                                                      | $      | (132,741                                                                      | )      | $                                                               | (7,158 | )         | $      | (1,523 | ) | $ | 908 |   | $ | 155,953 |   |
| Net                income                                                                                                                                                                                |   |                                                         | -      |                                             |   | -                        |   |                  | 887     |                                                                                      |   | -                                                                             |   |                                                            | -      |      |   | - |   |   | - |   |   | 887 |   |
| Other                comprehensive loss, net of tax: Change inunrealized                appreciation on available-for-sale securities, net of reclassification                adjustment                 |   |                                                         |   |                                             |   |                     |   |                  |    |                                                                                      |   |                                                                          |   |                                                            |   |      |   |   |   |   | (2,005 | ) |   | (2,005 | ) |
| Total                comprehensive loss                                                                                                                                                                  |   |                                                         |   |                                             |   |                     |   |                  |    |                                                                                      |   |                                                                          |   |                                                            |   |      |   |   |   |   |   |   |   | (1,118 | ) |
| Purchase                of treasury stock                                                                                                                                                                |   |                                                         | -      |                                             |   | -                        |   |                  | -       |                                                                                      |   | (854                                                                          | )      |                                                            | -      |      |   | - |   |   | - |   |   | (854 | ) |
| Shares                earned under ESOP                                                                                                                                                                  |   |                                                         | -      |                                             |   | -                        |   |                  | -       |                                                                                      |   | -                                                                             |   |                                                            | -      |      |   | - |   |   | - |   |   | - |   |
| Amortization                of award under RRP                                                                                                                                                           |   |                                                         | -      |                                             |   | (32                      | )      |                  | -       |                                                                                      |   | -                                                                             |   |                                                            | -      |      |   | 1,336 |   |   | - |   |   | 1,304 |   |
| Exercise                of stock options                                                                                                                                                                 |   |                                                         | -      |                                             |   | (258                     | )      |                  | -       |                                                                                      |   | 1,790                                                                         |   |                                                            | -      |      |   | - |   |   | - |   |   | 1,532 |   |
| Tax                benefit related to stock options exercised                                                                                                                                            |   |                                                         | -      |                                             |   | 138                      |   |                  | -       |                                                                                      |   | -                                                                             |   |                                                            | -      |      |   | - |   |   | - |   |   | 138 |   |
| Dividends                declared on common stock ($0.22 pershare)                                                                                                                                       |   |                                                         | -      |                                             |   | -                        |   |                  | (2,428  | )                                                                                         |   | -                                                                             |   |                                                            | -      |      |   | - |   |   | - |   |   | (2,428 | ) |
| Balance                June 30, 2004                                                                                                                                                                     |   | $                                                            | 234    |                                             | $      | 189,727                  |   | $                     | 104,813 |                                                                                      | $      | (131,805                                                                      | )      | $                                                               | (7,158 | )         | $      | (187 | ) | $ | (1,097 | ) | $ | 154,527 |   |
|                                                                                                                                                                                                          |   |                                                         |   |                                             |   |                     |   |                  |    |                                                                                      |   |                                                                          |   |                                                            |   |      |   |   |   |   |   |   |   |   |   |
| Balance                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 inunrealized                appreciation                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 award 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 pershare)                                                                                                                                       |   |                                                         | -      |                                             |   | -                        |   |                  | (2,789  | )                                                                                         |   | -                                                                             |   |                                                            | -      |      |   | - |   |   | - |   |   | (2,789 | ) |
| Balance                June 30, 2005                                                                                                                                                                     |   | $                                                            | 234    |                                             | $      | 190,114                  |   | $                     | 93,393  |                                                                                      | $      | (131,315                                                                      | )      | $                                                               | (5,361 | )         | $      | (111 | ) | $ | (642 | ) | $ | 146,312 |   |

*See      accompanying notes.*

----

*Table          of Contents*

**CFS      BANCORP, INC.**

**Consolidated      Statements of Cash Flows**

|                                                                                                                 |   | **Six                Months Ended****June                30,** |    |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|---------|
|                                                                                                                 |   | **2005**                                                       |    | **2004** |   |
|                                                                                                                 |   | (Unaudited)                                                    |    |
|                                                                                                                 |   | (Dollars                in thousands)                          |    |
| Operating                activities:                                                                                 |   |                                                           |    |   |   |   |   |
| Net                income                                                                                  |   | $                                                              | 1,278   |   | $ | 887 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:      |   |                                                           |    |   |   |   |   |
| Provision                for losses on loans                                                                    |   |                                                           | 767     |   |   | 2,657 |   |
| Depreciation                and amortization                                                                    |   |                                                           | 766     |   |   | 764 |   |
| Premium                amortization on early extinguishment of debt                                             |   |                                                           | 8,716   |   |   | - |   |
| Net                premium amortization on securities available-for-sale                                        |   |                                                           | 539     |   |   | 1,518 |   |
| Impairment                of securities available-for-sale                                                      |   |                                                           | 240     |   |   | 343 |   |
| Deferred                income tax benefit                                                                      |   |                                                           | (1,315  | ) |   | (642 | ) |
| Amortization                of cost of stock benefit plans                                                      |   |                                                           | 872     |   |   | 1,304 |   |
| Tax                benefit from exercises of nonqualified stock options                                         |   |                                                           | 123     |   |   | 138 |   |
| Proceeds                from sale of loans held-for-sale                                                        |   |                                                           | 9,658   |   |   | 5,612 |   |
| Origination                of loans held-for-sale                                                               |   |                                                           | (13,274 | ) |   | (5,390 | ) |
| Net                loss (gain) realized on sale of securities                                                   |   |                                                           | 88      |   |   | (298 | ) |
| Dividends                received on Federal Home Loan Bank stock                                               |   |                                                           | (587    | ) |   | (635 | ) |
| Net                (gain) loss realized on sale of other assets                                                 |   |                                                           | (82     | ) |   | 1 |   |
| Increase                in cash surrender value of bank-owned life insurance                                    |   |                                                           | (729    | ) |   | (723 | ) |
| Decrease                in prepaid expenses and other assets                                                    |   |                                                           | 2,258   |   |   | 1,393 |   |
| Increase                in other liabilities                                                                    |   |                                                           | 700     |   |   | 1,800 |   |
| Net                cash provided by operating activities                                                             |   |                                                           | 10,018  |   |   | 8,729 |   |
|                                                                                                                 |   |                                                           |    |   |   |   |   |
| Investing                activities:                                                                                 |   |                                                           |    |   |   |   |   |
| Securities:                                                                                                          |   |                                                           |    |   |   |   |   |
| Proceeds                from sales                                                                              |   |                                                           | 38,137  |   |   | 74,788 |   |
| Proceeds                from maturities and paydowns                                                            |   |                                                           | 23,464  |   |   | 59,783 |   |
| Purchases                                                                                                       |   |                                                           | (66,305 | ) |   | (158,721 | ) |
| Net                loan fundings and principal payments received                                                |   |                                                           | 22,304  |   |   | (32,706 | ) |
| Proceeds                from sale of real estate owned                                                          |   |                                                           | 577     |   |   | 3,424 |   |
| Purchases                of property and equipment                                                              |   |                                                           | (301    | ) |   | (702 | ) |
| Disposal                of property and equipment                                                               |   |                                                           | 49      |   |   | 20 |   |
| Net                cash provided by (used for) investing activities                                             |   |                                                           | 17,925  |   |   | (54,114 | ) |
|                                                                                                                 |   |                                                           |    |   |   |   |   |
| Financing                activities:                                                                                 |   |                                                           |    |   |   |   |   |
| Proceeds                from exercise of stock options                                                          |   |                                                           | 399     |   |   | 1,532 |   |
| Dividends                paid on common stock                                                                   |   |                                                           | (2,846  | ) |   | (2,412 | ) |
| Purchase                of treasury stock                                                                       |   |                                                           | (1,262  | ) |   | (854 | ) |
| Net                decrease in deposit accounts                                                                 |   |                                                           | (40,155 | ) |   | (97,760 | ) |
| Net                (decrease) increase in advance payments by borrowers for taxes and                insurance  |   |                                                           | (1,646  | ) |   | 721 |   |
| Net                increase (decrease) in borrowed funds                                                        |   |                                                           | 2,238   |   |   | (58 | ) |
| Net                cash flows used for financing activities                                                     |   |                                                           | (43,272 | ) |   | (98,831 | ) |
| Net                decrease in cash and cash equivalents                                                             |   |                                                           | (15,329 | ) |   | (144,216 | ) |
| Cash                and cash equivalents at beginning of period                                                 |   |                                                           | 38,094  |   |   | 177,751 |   |
| Cash                and cash equivalents at end of period                                                       |   | $                                                              | 22,765  |   | $ | 33,535 |   |
|                                                                                                                 |   |                                                           |    |   |   |   |   |
| Supplemental                disclosure of non-cash activities:                                                       |   |                                                           |    |   |   |   |   |
| Loans                transferred to real estate owned                                                           |   | $                                                              | 639     |   | $ | 3,919 |   |
| Cash                paid for interest on deposits                                                               |   |                                                           | 6,170   |   |   | 7,250 |   |
| Cash                paid for interest on borrowings                                                             |   |                                                           | 5,849   |   |   | 12,595 |   |
| Cash                paid for taxes                                                                              |   |                                                           | -       |   |   | - |   |

*See      accompanying notes.*

----

*Table          of Contents*

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

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.      Basis of Financial Statements Presentation**

*Company*

**2.      Stock-Based Compensation**

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

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

----

*Table          of Contents*

|                                                                                                         |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                                                                         |   | **2005**                                                         |   | **2004**                                                       |   | **2005** |   | **2004** |   |
|                                                                                                         |   | (Dollars                in thousands, except per share data)     |   |
| Net                income (loss) (as reported)                                                          |   | $                                                                | 1,012  |                                                           | $      | (357 | ) | $ | 1,278 |   | $ | 887 |   |
| Stock-based                compensation expense determined using fair valuemethod,                net of tax |   |                                                             | (134   | )                                                              |   | (154 | ) |   | (277 | ) |   | (396 | ) |
| Pro                forma net income (loss)                                                              |   | $                                                                | 878    |                                                           | $      | (511 | ) | $ | 1,001 |   | $ | 491 |   |
|                                                                                                         |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share (as reported)                                            |   | $                                                                | 0.09   |                                                           | $      | (0.03 | ) | $ | 0.11 |   | $ | 0.08 |   |
| Pro                forma basic earnings (loss) per share                                                |   |                                                             | 0.07   |                                                           |   | (0.04 | ) |   | 0.08 |   |   | 0.04 |   |
| Diluted                earnings (loss) per share (as reported)                                          |   |                                                             | 0.08   |                                                           |   | (0.03 | ) |   | 0.11 |   |   | 0.07 |   |
| Pro                forma diluted earnings (loss) per share                                              |   |                                                             | 0.07   |                                                           |   | (0.04 | ) |   | 0.08 |   |   | 0.04 |   |

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

----

*Table          of Contents*

**3.      Other Comprehensive Income**

|                                                                                                             |   | **Six                Months Ended****June                30,** |   |
|------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                                                                             |   | **2005**                                                       |   | **2004** |   |
|                                                                                                             |   | (Dollars                in thousands)                          |   |
| Unrealized                holding losses arising during the period:                                              |   |                                                           |   |   |   |   |   |
| Unrealized                net securities losses                                                                  |   | $                                                              | (697   | ) | $ | (3,115 | ) |
| Related                tax benefit                                                                               |   |                                                           | 274    |   |   | 1,081 |   |
| Net                                                                                                              |   |                                                           | (423   | ) |   | (2,034 | ) |
| Less:                reclassification adjustment for net losses  realized                during the period: |   |                                                           |   |   |   |   |   |
| Realized                net securities losses                                                                    |   |                                                           | (328   | ) |   | (45 | ) |
| Related                tax benefit                                                                               |   |                                                           | 125    |   |   | 16 |   |
| Net                                                                                                              |   |                                                           | (203   | ) |   | (29 | ) |
| Total                other comprehensive loss                                                               |   | $                                                              | (220   | ) | $ | (2,005 | ) |

**4.      Earnings Per Share**

|                                                                                              |   | **Three                Months Ended****June                30,** |       | **Six                Months Ended****June                30,** |   |
|---------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|----------------------------------------------------------------|--------|
|                                                                                              |   | **2005**                                                         |       | **2004**                                                       |   | **2005** |   | **2004** |   |
|                                                                                              |   | (Dollars                in thousands, except per share data)     |       |
| Net                income (loss)                                                             |   | $                                                                | 1,012      |                                                           | $      | (357 | ) | $ | 1,278 |   | $ | 887 |   |
|                                                                                              |   |                                                             |       |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding                                    |   |                                                             | 11,811,476 |                                                           |   | 11,620,390 |   |   | 11,799,220 |   |   | 11,510,467 |   |
| Common                share equivalents (1)                                                  |   |                                                             | 216,071    |                                                           |   | 266,649 |   |   | 240,457 |   |   | 335,888 |   |
| Weighted                average common shares and common share  equivalentsoutstanding  |   |                                                             | 12,027,547 |                                                           |   | 11,887,039 |   |   | 12,039,677 |   |   | 11,846,355 |   |
|                                                                                              |   |                                                             |       |                                                           |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share                                               |   | $                                                                | 0.09       |                                                           | $      | (0.03 | ) | $ | 0.11 |   | $ | 0.08 |   |
| Diluted                earnings (loss) per share                                             |   |                                                             | 0.08       |                                                           |   | (0.03 | ) |   | 0.11 |   |   | 0.07 |   |

----

*Table          of Contents*

**5.      New Accounting Pronouncements**

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

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

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

----

*Table          of Contents*

|                                    |   | **Anticipated                Additional Compensation Cost****(1)** |   |
|-----------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                    |   | (Dollars                in thousands)                              |   |
| Years                ended December 31, |   |                                                               |   |   |
| 2006                               |   | $                                                                  | 616    |   |
| 2007                               |   |                                                               | 332    |   |
| 2008                                    |   |                                                               | 236    |   |
| 2009                                    |   |                                                               | 106    |   |
| 2010                                    |   |                                                               | 46     |   |
|                                    |   | $                                                                  | 1,336  |   |

**6.      Reincorporation**

**7.      Subsequent Event**

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

**Forward      Looking Statements**

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

----

*Table          of Contents*

*The      Company wishes to caution readers not to place undue reliance on any such      forward-looking statements, which speak only as of the date made, and to advise      readers that various factors, including regional and national economic      conditions, changes in levels of market interest rates, credit and other risks      which are inherent in the Company’s lending and investment activities,      legislative changes, changes in operations, changes in the cost of funds, demand      for loan products and financial services, changes in accounting principles      and      competitive and regulatory factors, could affect the Company’s financial      performance and could cause the Company’s actual results for future periods to      differ materially from those anticipated or projected. Such forward-looking      statements are not guarantees of future performance. The Company does not      undertake, and specifically disclaims any obligation, to update any      forward-looking statements to reflect occurrences or unanticipated events or      circumstances after the date of such statements.*

**Overview**

*FHLB*

*the      Bank*

----

*Table          of Contents*

**Critical      Accounting Policies**

**Allowance      for Losses on Loans.**

*Accounting      for Contingencies. *
* *

*Accounting      by Creditors for Impairment of a Loan*

----

*Table          of Contents*

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

----

*Table          of Contents*

|                                                                                                                             |   | **Three                Months Ended June 30,** |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|
|                                                                                                                             |   | **2005**                                       |   | **2004** |
|                                                                                                                             |   | **Average****Balance**                         |   | **Interest** |   | **Average** **Yield/Cost** |   | **Average****Balance** |   | **Interest** |   | **Average** **Yield/Cost** |
|                                                                                                                             |   | (Dollars                in thousands)          |   |
| Interest-earning                assets:                                                                                          |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                receivable (1)                                                                                         |   | $                                              | 972,417 |   | $ | 15,158 |   |   | 6.25 | % | $ | 999,771 |   | $ | 13,731 |   |   | 5.52 | % |
| Securities                (2)                                                                                               |   |                                           | 212,355 |   |   | 1,851 |   |   | 3.50 | % |   | 342,195 |   |   | 2,601 |   |   | 3.06 | % |
| FHLB                stock                                                                                                   |   |                                           | 28,188 |   |   | 290 |   |   | 4.13 | % |   | 27,331 |   |   | 330 |   |   | 4.86 | % |
| Other                interest-earning assets (3)                                                                            |   |                                           | 5,934 |   |   | 43 |   |   | 2.91 | % |   | 70,896 |   |   | 170 |   |   | 0.96 | % |
| Total                interest-earning assets                                                                                |   |                                           | 1,218,894 |   |   | 17,342 |   |   | 5.71 | % |   | 1,440,193 |   |   | 16,832 |   |   | 4.70 | % |
|                                                                                                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                earning assets                                                                                  |   |                                           | 75,276 |   |   |   |   |   |   |   |   | 75,095 |   |   |   |   |   |   |   |
| Total                assets                                                                                                 |   | $                                              | 1,294,170 |   |   |   |   |   |   |   | $ | 1,515,288 |   |   |   |   |   |   |   |
|                                                                                                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                                                     |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                        |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                accounts                                                                                            |   | $                                              | 113,284 |   |   | 218 |   |   | 0.77 | % | $ | 96,960 |   |   | 58 |   |   | 0.24 | % |
| Money                market accounts                                                                                        |   |                                           | 134,300 |   |   | 381 |   |   | 1.14 | % |   | 137,277 |   |   | 304 |   |   | 0.89 | % |
| Savings                accounts                                                                                             |   |                                           | 192,804 |   |   | 164 |   |   | 0.34 | % |   | 209,105 |   |   | 175 |   |   | 0.34 | % |
| Certificates                of deposit                                                                                      |   |                                           | 346,002 |   |   | 2,444 |   |   | 2.83 | % |  | 430,715 |   |   | 2,648 |   |   | 2.47 | % |
| Total                deposits                                                                                               |   |                                           | 786,390 |   |   | 3,207 |   |   | 1.64 | % |   | 874,057 |   |   | 3,185 |   |   | 1.47 | % |
|                                                                                                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                money (4)                                                                                           |   |                                           | 292,103 |   |   | 6,935 |   |   | 9.52 | % |   | 418,435 |   |   | 6,263 |   |   | 6.02 | % |
| Total                interest-bearing liabilities                                                                           |   |                                           | 1,078,493 |   |   | 10,142 |   |   | 3.77 | % |   | 1,292,492 |   |   | 9,448 |   |   | 2.94 | % |
| Non-interest                bearing deposits                                                                                |   |                                           | 51,761 |   |   |   |   |   |   |   |   | 43,997 |   |   |   |   |   |   |   |
| Non-interest                bearing liabilities                                                                             |   |                                           | 17,306 |   |   |   |   |   |   |   |   | 19,223 |   |   |   |   |   |   |   |
| Total                liabilities                                                                                            |   |                                           | 1,147,560 |   |   |   |   |   |   |   |   | 1,355,712 |   |   |   |   |   |   |   |
| Stockholders'                equity                                                                                         |   |                                           | 146,610 |   |   |   |   |   |   |   |   | 159,576 |   |   |   |   |   |   |   |
| Total                liabilities and stockholders'  equity                                                                  |   | $                                              | 1,294,170 |   |   |   |   |   |   |   | $ | 1,515,288 |   |   |   |   |   |   |   |
| Net                interest-earning assets                                                                                  |   | $                                              | 140,401 |   |   |   |   |   |   |   | $ | 147,701 |   |   |   |   |   |   |   |
| Net                interest income / interest rate  spread                                                                  |   |                                           |   |   | $ | 7,200 |   |   | 1.94 | % |   |   |   | $ | 7,384 |   |   | 1.76 | % |
| Net                interest margin                                                                                          |   |                                           |   |   |   |   |   |   | 2.37 | % |   |   |   |   |   |   |   | 2.06 | % |
| Ratio                of average interest-earning assets   to                average interest-bearing liabilities  |   |                                           |   |   |   |   |   |   | 113.02 | % |   |   |   |   |   |   |   | 111.43 | % |

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

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

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

| (4) | The                2005 period includes an average of $314.5 million of contractual                FHLB                borrowings which are offset 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 9.52% compared to an average contractual rate of 3.72%.                The                effect of the unamortized deferred premium and the related quarterly                amortization was to reduce the Company’s net interest margin by 131 basis                points for the 2005 period. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

|                                                                                                                                 |   | **Six                Months Ended June 30,** |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                                                                                 |   | **2005**                                     |   | **2004** |
|                                                                                                                                 |   | **Average** **Balance**                 |   | **Interest** |   | **Average** **Yield/Cost** |   | **Average** **Balance** |   | **Interest** |   | **Average** **Yield/Cost** |
|                                                                                                                                 |   | (Dollars                in thousands)        |   |
| Interest-earning                assets:                                                                                              |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                receivable (1)                                                                                             |   | $                                            | 977,822 |   | $ | 29,731 |   |   | 6.13 | % | $ | 992,436 |   | $ | 27,847 |   |   | 5.64 | % |
| Securities                (2)                                                                                                   |   |                                         | 208,284 |   |   | 3,572 |   |   | 3.46 | % |   | 336,218 |   |   | 5,271 |   |   | 3.15 | % |
| FHLB                stock                                                                                                       |   |                                         | 28,037 |   |   | 592 |   |   | 4.26 | % |   | 27,174 |   |   | 660 |   |   | 4.88 | % |
| Other                interest-earning assets (3)                                                                                |   |                                         | 8,609 |   |   | 110 |   |   | 2.58 | % |   | 107,782 |   |   | 516 |   |   | 0.96 | % |
| Total                interest-earning assets                                                                                    |   |                                         | 1,222,752 |   |   | 34,005 |   |   | 5.61 | % |   | 1,463,610 |   |   | 34,294 |   |   | 4.71 | % |
|                                                                                                                                 |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                earning assets                                                                                      |   |                                         | 74,958 |   |   |   |   |   |   |   |   | 73,300 |   |   |   |   |   |   |   |
| Total                assets                                                                                                     |   | $                                            | 1,297,710 |   |   |   |   |   |   |   | $ | 1,536,910 |   |   |   |   |   |   |   |
|                                                                                                                                 |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                                                         |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                            |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                accounts                                                                                                |   | $                                            | 105,641 |   |   | 303 |   |   | 0.58 | % | $ | 95,015 |   |   | 124 |   |   | 0.26 | % |
| Money                market accounts                                                                                            |   |                                         | 139,181 |   |   | 769 |   |   | 1.11 | % |   | 131,348 |   |   | 593 |   |   | 0.91 | % |
| Savings                accounts                                                                                                 |   |                                         | 194,596 |   |   | 324 |   |   | 0.34 | % |   | 207,466 |   |   | 385 |   |   | 0.37 | % |
| Certificates                of deposit                                                                                          |   |                                         | 352,877 |   |   | 4,816 |   |   | 2.75 | % |   | 466,270 |   |   | 5,919 |   |   | 2.55 | % |
| Total                deposits                                                                                                   |   |                                         | 792,295 |   |   | 6,212 |   |   | 1.58 | % |   | 900,099 |   |   | 7,021 |   |   | 1.57 | % |
|                                                                                                                                 |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                money (4)                                                                                               |   |                                         | 290,601 |   |   | 14,539 |   |   | 10.09 | % |   | 418,450 |   |   | 12,526 |   |   | 6.02 | % |
| Total                interest-bearing liabilities                                                                               |   |                                         | 1,082,896 |   |   | 20,751 |   |   | 3.86 | % |   | 1,318,549 |   |   | 19,547 |   |   | 2.98 | % |
| Non-interest                bearing deposits                                                                                    |   |                                         | 50,158 |   |   |   |   |   |   |   |   | 41,772 |   |   |   |   |   |   |   |
| Non-interest                bearing liabilities                                                                                 |   |                                         | 17,735 |   |   |   |   |   |   |   |   | 18,362 |   |   |   |   |   |   |   |
| Total                liabilities                                                                                                |   |                                         | 1,150,789 |   |   |   |   |   |   |   |   | 1,378,683 |   |   |   |   |   |   |   |
| Stockholders'                equity                                                                                             |   |                                         | 146,921 |   |   |   |   |   |   |   |   | 158,227 |   |   |   |   |   |   |   |
| Total                liabilities and stockholders'  equity                                                                      |   | $                                            | 1,297,710 |   |   |   |   |   |   |   | $ | 1,536,910 |   |   |   |   |   |   |   |
| Net                interest-earning assets                                                                                      |   | $                                            | 139,856 |   |   |   |   |   |   |   | $ | 145,061 |   |   |   |   |   |   |   |
| Net                interest income / interest rate  spread                                                                      |   |                                         |   |   | $ | 13,254 |   |   | 1.75 | % |   |   |   | $ | 14,747 |   |   | 1.73 | % |
| Net                interest margin                                                                                              |   |                                         |   |   |   |   |   |   | 2.19 | % |   |   |   |   |   |   |   | 2.03 | % |
| Ratio                  of average interest-earning assets   to                  average interest-bearing liabilities  |   |                                         |   |   |   |   |   |   | 112.91 | % |   |   |   |   |   |   |   | 111.00 | % |

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

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

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

| (4) | The                2005 period includes an average of $315.6 million of contractual                FHLB                borrowings which are offset 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 10.09% compared to an average contractual rate of                3.71%.                The effect of the unamortized deferred premium and the related quarterly                amortization was to reduce the Company’s net interest margin by 144 basis                points for the 2005 period. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

**Rate      / Volume Analysis**

|                                                                                          |   | **Three                Months Ended June 30,** |   |
|-----------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                          |   | **2005                compared to 2004**       |   |
|                                                                                          |   | **Increase                (decrease) due to**  |   |
|                                                                                          |   |  **Rate**                                 |   |  **Volume** |   | **Rate/****Volume** |   | **Total                Net Increase /****(Decrease)** |   |
|                                                                                          |   | (Dollars                in thousands)          |   |
| Interest-earning                assets:                                                       |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Loans                receivable                                                          |   | $                                              | 1,854  |   | $ | (376 | ) | $ | (51 | ) | $ | 1,427 |   |
| Securities                                                                               |   |                                           | 382    |   |   | (987 | ) |   | (145 | ) |   | (750 | ) |
| FHLB                stock                                                                |   |                                           | (48    | ) |   | 10 |   |   | (2 | ) |   | (40 | ) |
| Other                interest-earning assets                                             |   |                                           | 344    |   |   | (156 | ) |   | (315 | ) |   | (127 | ) |
| Total                net change in income on interest-earning                assets      |   |                                           | 2,532  |   |   | (1,509 | ) |   | (513 | ) |   | 510 |   |
| Interest-bearing                liabilities:                                                  |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                     |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Checking                accounts                                                         |   |                                           | 128    |   |   | 10 |   |   | 22 |   |   | 160 |   |
| Money                market accounts                                                     |   |                                           | 86     |   |   | (7 | ) |   | (2 | ) |   | 77 |   |
| Savings                accounts                                                          |   |                                           | 3      |   |   | (14 | ) |   | - |   |   | (11 | ) |
| Certificates                of deposit                                                   |   |                                           | 395    |   |   | (521 | ) |   | (78 | ) |   | (204 | ) |
| Total                deposits                                                            |   |                                           | 612    |   |   | (532 | ) |   | (58 | ) |   | 22 |   |
| Borrowed                money                                                            |   |                                           | 3,671  |   |   | (1,891 | ) |   | (1,108 | ) |   | 672 |   |
| Total                  net change in expense on interest-bearing                  liabilities |   |                                           | 4,283  |   |   | (2,423 | ) |   | (1,166 | ) |   | 694 |   |
| Net                change in net interest income                                         |   | $                                              | (1,751 | ) | $ | 914 |   | $ | 653 |   | $ | (184 | ) |

----

*Table          of Contents*

|                                                                                      |   | **Six                Months Ended June 30,**  |   |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                      |   | **2005                compared to 2004**      |   |
|                                                                                      |   | **Increase                (decrease) due to** |   |
|                                                                                      |   |  **Rate**                                |   |  **Volume** |   | **Rate/****Volume** |   | **Total                Net Increase /****(Decrease)** |   |
|                                                                                      |   | (Dollars                in thousands)         |   |
| Interest-earning                assets:                                                   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Loans                receivable                                                      |   | $                                             | 2,328  |   | $ | (410 | ) | $ | (34 | ) | $ | 1,884 |   |
| Securities                                                                           |   |                                          | 495    |   |   | (2,006 | ) |   | (188 | ) |   | (1,699 | ) |
| FHLB                stock                                                            |   |                                          | (86    | ) |   | 21 |   |   | (3 | ) |   | (68 | ) |
| Other                interest-earning assets                                         |   |                                          | 861    |   |   | (475 | ) |   | (792 | ) |   | (406 | ) |
| Total                net change in income on interest-earning                assets       |   |                                          | 3,598  |   |   | (2,870 | ) |   | (1,017 | ) |   | (289 | ) |
| Interest-bearing                liabilities:                                              |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Checking                accounts                                                     |   |                                          | 148    |   |   | 14 |   |   | 17 |   |   | 179 |   |
| Money                market accounts                                                 |   |                                          | 133    |   |   | 35 |   |   | 8 |   |   | 176 |   |
| Savings                accounts                                                      |   |                                          | (39    | ) |   | (24 | ) |   | 2 |   |   | (61 | ) |
| Certificates                of deposit                                               |   |                                          | 445    |   |   | (1,440 | ) |   | (108 | ) |   | (1,103 | ) |
| Total                deposits                                                        |   |                                          | 687    |   |   | (1,415 | ) |   | (81 | ) |   | (809 | ) |
| Borrowed                money                                                        |   |                                          | 8,409  |   |   | (3,827 | ) |   | (2,569 | ) |   | 2,013 |   |
| Total                net change in expense on interest-bearing                liabilities |   |                                          | 9,096  |   |   | (5,242 | ) |   | (2,650 | ) |   | 1,204 |   |
| Net                change in net interest income                                     |   | $                                             | (5,498 | ) | $ | 2,372 |   | $ | 1,633 |   | $ | (1,493 | ) |

**Analysis      of Statements of Income **

*Net      Interest Income. *

----

*Table          of Contents*

*Provision      for losses on loans.*
*Changes      in Financial Condition - Allowance for Losses on Loans*

*Non-interest      income. *

----

*Table          of Contents*

*Non-interest      expense. *

|                                                                                                                                                                 |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                                                                                                                                 |   | **2005**                                                         |   | **2004**                                                       |   | **2005** |   | **2004** |   |
|                                                                                                                                                                 |   | (Dollars                in thousands)                            |   |
| Non-interest                expense                                                                                                                        |   | $                                                                | 8,379  |                                                           | $      | 9,279 |   | $ | 16,639 |   | $ | 17,812 |   |
| Net                interest income before the provision for losses on  loans                plusnon-interest                income                              |   | $                                                                | 10,102 |                                                           | $      | 9,934 |   | $ | 18,637 |   | $ | 20,429 |   |
| Efficiency                ratio                                                                                                                                 |   |                                                             | 82.94  | %                                                              |   | 93.41 | % |   | 89.28 | % |   | 87.19 | % |
|                                                                                                                                                                 |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Non-interest                expense                                                                                                                             |   | $                                                                | 8,379  |                                                           | $      | 9,279 |   | $ | 16,639 |   | $ | 17,812 |   |
| Net                interest income before the provision for losses on  loans                plusnon-interest                income                         |   | $                                                                | 10,102 |                                                           | $      | 9,934 |   | $ | 18,637 |   | $ | 20,429 |   |
| Adjustments:                                                                                                                                                         |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Net                (gain) loss on securities                                                                                                                         |   |                                                             | 23     |                                                           |   | 23 |   |   | 88 |   |   | (298 | ) |
| Other-than-temporary                impairment                                                                                                                       |   |                                                             | -      |                                                           |   | 343 |   |   | 240 |   |   | 343 |   |
| Net                (gain) loss on sale of assets                                                                                                                     |   |                                                             | (20    | )                                                              |   | - |   |   | (82 | ) |   | 1 |   |
| Amortization                of deferred premium                                                                                                                      |   |                                                             | 3,992  |                                                           |   | - |   |   | 8,716 |   |   | - |   |
| Net                interest income before the provision for losses                on loansplus                non-interest income - as                adjusted  |   | $                                                                | 14,097 |                                                           | $      | 10,300 |   | $ | 27,599 |   | $ | 20,475 |   |
| Core                efficiency ratio                                                                                                                            |   |                                                             | 59.44  | %                                                              |   | 90.09 | % |   | 60.29 | % |   | 86.99 | % |

----

*Table          of Contents*

*Income      Tax Expense.*

**Changes      in Financial Condition**

*General.      *

----

*Table          of Contents*

*Securities.      *

|                                                                         |   |  **Amortized****Cost**           |    | **Gross                Unrealized****Gains** |   | **Gross                Unrealized****Losses** |   |  **Fair****Value** |   |
|------------------------------------------------------------------------------|--------|---------------------------------------|---------|----------------------------------------------|--------|-----------------------------------------------|--------|-------------------------|--------|
|                                                                         |   | (Dollars                in thousands) |    |
| At                June 30, 2005:                                             |   |                                  |    |                                         |   |                                          |   |                    |   |   |   |   |   |
| Government                Sponsored Entity (*GSE*)                securities |   | $                                     | 133,595 |                                         | $      | 146                                           |   | $                       | (1,005 | ) | $ | 132,736 |   |
| Mortgage-backed                securities                                    |   |                                  | 38,728  |                                         |   | 165                                           |   |                    | (223   | ) |   | 38,670 |   |
| Collateralized                mortgage obligations                           |   |                                  | 32,913  |                                         |   | 34                                            |   |                    | (188   | ) |   | 32,759 |   |
| Trust                preferred securities                                    |   |                                  | 85      |                                         |   | 17                                            |   |                    | -      |   |   | 102 |   |
| Equity                securities                                             |   |                                  | 1,386   |                                         |   | 36                                            |   |                    | (3     | ) |   | 1,419 |   |
|                                                                         |   | $                                     | 206,707 |                                         | $      | 398                                           |   | $                       | (1,419 | ) | $ | 205,686 |   |
|                                                                         |   |                                  |    |                                         |   |                                          |   |                    |   |   |   |   |   |
| At                December 31, 2004:                                         |   |                                  |    |                                         |   |                                          |   |                    |   |   |   |   |   |
| Government                Sponsored Entity (*GSE*)                securities |   | $                                     | 96,663  |                                         | $      | 45                                            |   | $                       | (793   | ) | $ | 95,915 |   |
| Mortgage-backed                securities                                    |   |                                  | 55,602  |                                         |   | 522                                           |   |                    | (141   | ) |   | 55,983 |   |
| Collateralized                mortgage obligations                           |   |                                  | 48,815  |                                         |   | 94                                            |   |                    | (171   | ) |   | 48,738 |   |
| Trust                preferred securities                                    |   |                                  | 90      |                                         |   | -                                             |   |                    | -      |   |   | 90 |   |
| Equity                securities                                             |   |                                  | 1,701   |                                         |   | 2                                             |   |                    | (210   | ) |   | 1,493 |   |
|                                                                         |   | $                                     | 202,871 |                                         | $      | 663                                           |   | $                       | (1,315 | ) | $ | 202,219 |   |

----

*Table          of Contents*

*Loans.      *

|                                                              |   | **June                30, 2005**      |    | **December                31, 2004** |   |
|-------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                              |   | **Amount**                            |    | **Percentage**                       |   | **Amount** |   | **Percentage** |   |
|                                                              |   | (Dollars                in thousands) |    |
| Commercial                and construction loans:                 |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Commercial                real estate                        |   | $                                     | 414,204 |                                 |   | 42.8 | % | $ | 396,420 |   |   | 40.1 | % |
| Construction                and land development             |   |                                  | 120,088 |                                 |   | 12.4 |   |   | 145,162 |   |   | 14.7 |   |
| Commercial                and industrial                     |   |                                  | 64,148  |                                 |   | 6.6 |   |   | 58,682 |   |   | 5.9 |   |
| Total                commercial loans                        |   |                                  | 598,440 |                                 |   | 61.8 |   |   | 600,264 |   |   | 60.7 |   |
|                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Retail                loans:                                      |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Single-family                residential                     |   |                                  | 261,502 |                                 |   | 27.0 |   |   | 277,501 |   |   | 28.1 |   |
| Home                equity loans                             |   |                                  | 102,451 |                                 |   | 10.6 |   |   | 102,981 |   |   | 10.5 |   |
| Other                                                   |   |                                  | 6,266   |                                 |   | 0.6 |   |   | 7,339 |   |   | 0.7 |   |
| Total                retail loans                            |   |                                  | 370,219 |                                 |   | 38.2 |   |   | 387,821 |   |   | 39.3 |   |
|                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Total                loans receivable, net of unearned fees  |   | $                                     | 968,659 |                                 |   | 100.0 | % | $ | 988,085 |   |   | 100.0 | % |

*Allowance      for Losses on Loans.*

----

*Table          of Contents*

|                                          |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|-----------------------------------------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                          |   | **2005**                                                         |   | **2004**                                                       |   | **2005** |   | **2004** |   |
|                                          |   | (Dollars                in thousands)                            |   |
| Balance                at beginning of period |   | $                                                                | 13,435 |                                                           | $      | 11,295 |   | $ | 13,353 |   | $ | 10,453 |   |
| Provision                for losses on loans  |   |                                                             | 512    |                                                           |   | 1,918 |   |   | 767 |   |   | 2,657 |   |
| Charge-offs                                   |   |                                                             | (67    | )                                                              |   | (1,965 | ) |   | (305 | ) |   | (2,035 | ) |
| Recoveries                                    |   |                                                             | 12     |                                                           |   | 51 |   |   | 77 |   |   | 224 |   |
| Balance                at end of period       |   | $                                                                | 13,892 |                                                           | $      | 11,299 |   | $ | 13,892 |   | $ | 11,299 |   |

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

*Non-performing      Assets. *

|                                                             |   | **June                30,****2005**   |   | **December                31,****2004** |   |
|------------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
|                                                             |   | (Dollars                in thousands) |   |
| Non-accrual                loans:                                |   |                                  |
| Commercial                loans:                                 |   |                                  |   |                                    |   |   |   |
| Commercial                real estate                       |   | $                                     | 19,359 |                                    | $      | 19,197 |   |
| Construction                and land development            |   |                                  | 1,659  |                                    |   | 1,895 |   |
| Commercial                and industrial                    |   |                                  | 383    |                                    |   | 236 |   |
| Total                commercial loans                       |   |                                  | 21,401 |                                    |   | 21,328 |   |
|                                                             |   |                                  |   |                                    |   |   |   |
|   Retail                loans:                         |   |                                  |   |                                    |   |   |   |
|    Single-family                residential  |   |                                  | 4,356  |                                    |   | 5,855 |   |
| Home                equity                                  |   |                                  | 650    |                                    |   | 460 |   |
| Other                                                       |   |                                  | 32     |                                    |   | 32 |   |
| Total                retail loans                           |   |                                  | 5,038  |                                    |   | 6,347 |   |
| Total                non-accruing loans                     |   |                                  | 26,439 |                                    |   | 27,675 |   |
| Other                real estate owned, net                 |   |                                  | 658    |                                    |   | 525 |   |
| Total                non-performing assets                  |   | $                                     | 27,097 |                                    | $      | 28,200 |   |
|                                                             |   |                                  |   |                                    |   |   |   |
| Non-performing                assets to total assets        |   |                                  | 2.11   | %                                       |   | 2.14 | % |
| Non-performing                loans to total loans          |   |                                  | 2.73   |                                    |   | 2.80 |   |

----

*Table          of Contents*

|   | • | The                Company’s loan with a carrying value of $7.0 million that is secured by a                hotel in the Chicago metropolitan area is considered impaired and                had an                estimated impairment allocation of $1.8 million as of June 30, 2005.                During December 2004, Bank management negotiated a forbearance agreement                extending the maturity of the loan through May 2005. In conjunction                with                the forbearance agreement, the borrower placed the title of the property                in escrow. The borrowers filed for reorganization under Chapter 11                of the                Bankruptcy Code during the first quarter of 2005. During the second                quarter of 2005, the Bank reached an agreement with the borrower                to                further extend the forbearance period until March 31, 2006. Upon                that                date, the borrower is required to repay a negotiated amount in excess                of                the carrying value and tax escrow. During this forbearance period,                the                borrower is required to make monthly payments to include repayment                of debt                and escrow. As of the date of this filing, the borrower is current                in the                required payments. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | The                Company’s two loans with a carrying value of $9.2 million in the aggregate                secured by a hotel located in Michigan had an additional impairment                of                $1.1 million identified during the second quarter of 2005 bringing                the                total impairment allocation to $1.9 million as of June 30, 2005. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | The                Company’s $1.6 million commercial construction loan to an apartment                complex in Northern Indiana had an agreed upon repayment date of                June 25,                2005. The borrowers made a $10,000 payment on that date in order                to                exercise their option to extend the repayment date until July 11,                2005. As                of the date of this filing, no other payments have been received                and this                loan is in default. The borrower’s are seeking to refinance this loan with                a third party and anticipate closing during the third quarter of                2005. If                third party financing cannot be obtained, the Company expects to                schedule                a sheriff’s sale with respect to the collateral securing this loan and                anticipates that this loan will be transferred to other real estate                owned                by the end of 2005. During the fourth quarter of 2004, the Bank charged                off $1.2 million of the loan balance. The Bank does not anticipate                further                losses based upon the appraised value of the                collateral. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

*Deposits      and Borrowed Money. *

|                                       |   | **June                30, 2005**      |    | **December                31, 2004** |   |
|--------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                       |   | **Amount**                            |    | **Percentage**                       |   | **Amount** |   | **Percentage** |   |
|                                       |   | (Dollars                in thousands) |    |
| Checking                accounts:          |   |                                  |
| Non-interest                bearing   |   | $                                     | 55,360  |                                 |   | 6.7 | % | $ | 51,713 |   |   | 6.0 | % |
| Interest-bearing                      |   |                                  | 111,596 |                                 |   | 13.6 |   |   | 94,878 |   |   | 11.0 |   |
| Money                market accounts  |   |                                  | 125,981 |                                 |   | 15.3 |   |   | 147,211 |   |   | 17.1 |   |
| Savings                accounts       |   |                                  | 189,907 |                                 |   | 23.1 |   |   | 196,358 |   |   | 22.7 |   |
| Core                deposits          |   |                                  | 482,844 |                                 |   | 58.7 |   |   | 490,160 |   |   | 56.8 |   |
| Certificates                of deposit:    |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| $100,000                or less       |   |                                  | 261,422 |                                 |   | 31.8 |   |   | 288,597 |   |   | 33.4 |   |
| Over                $100,000          |   |                                  | 78,757  |                                 |   | 9.5 |   |   | 84,421 |   |   | 9.8 |   |
| Time                deposits          |   |                                  | 340,179 |                                 |   | 41.3 |   |   | 373,018 |   |   | 43.2 |   |
| Total                deposits         |   | $                                     | 823,023 |                                 |   | 100.0 | % | $ | 863,178 |   |   | 100.0 | % |

----

*Table          of Contents*

*FHLB*

|                                                                  |   | **June                30, 2005**               |   | **December                31, 2004** |   |
|-----------------------------------------------------------------------|--------|------------------------------------------------|--------|--------------------------------------|--------|
|                                                                  |   | **Weighted****Average****Contractual****Rate** |   |   **Amount**               |   | **Weighted                Average****Contractual****Rate** |   |   **Amount** |   |
|                                                                  |   | (Dollars                in thousands)          |   |
| Secured                advances from FHLB - Indianapolis:             |   |                                           |   |                                 |   |   |   |   |   |   |   |   |   |
| Maturing                in 2005 - variable-rate                       |   |                                           | 3.46   | %                                    | $      | 28,000 |   |   | 1.95 | % | $ | 34,000 |   |
| Maturing                in 2005 - fixed-rate                          |   |                                           | 3.00   |                                 |   | 10,000 |   |   | 3.00 |   |   | 10,000 |   |
| Maturing                in 2006 - fixed-rate                          |   |                                           | 3.41   |                                 |   | 87,000 |   |   | 3.41 |   |   | 87,000 |   |
| Maturing                in 2007 - fixed-rate                          |   |                                           | 3.65   |                                 |   | 87,000 |   |   | 3.65 |   |   | 87,000 |   |
| Maturing                in 2008 - fixed-rate                          |   |                                           | 3.89   |                                 |   | 72,000 |   |   | 3.89 |   |   | 72,000 |   |
| Maturing                in 2009 - fixed-rate                          |   |                                           | 4.09   |                                 |   | 15,000 |   |   | 4.09 |   |   | 15,000 |   |
| Maturing                in 2014 - fixed-rate (1)                      |   |                                           | 6.71   |                                 |   | 1,227 |   |   | 6.71 |   |   | 1,227 |   |
| Maturing                in 2018 - fixed-rate (1)                      |   |                                           | 5.54   |                                 |   | 2,865 |   |   | 5.54 |   |   | 2,865 |   |
| Maturing                in 2019 - fixed-rate (1)                      |   |                                           | 6.32   |                                 |   | 7,629 |   |   | 6.31 |   |   | 7,691 |   |
|                                                                  |   |                                           |   |                                 |   | 310,721 |   |   |   |   |   | 316,783 |   |
| Less:                deferred premium on early extinguishment of debt |   |                                           |   |                                 |   | (21,456 | ) |   |   |   |   | (30,172 | ) |
|                                                                  |   |                                           |   |                                 | $      | 289,265 |   |   |   |   | $ | 286,611 |   |
|                                                                  |   |                                           |   |                                 |   |   |   |   |   |   |   |   |   |
| Weighted-average                contractual interest rate        |   |                                           | 3.72   | %                                    |   |   |   |   | 3.55 | % |   |   |   |

*LIBOR*

*Capital      Resources. *

|   | • | cash                dividends declared during 2005 totaling $2.8 million; |
|--------|---------|---------------------------------------------------------------------------|

|   | • | repurchases                of the Company’s common stock during 2005 totaling $1.3 million;                and |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

|   | • | a                $220,000 increase in unrealized losses on available-for-sale securities,                net of tax. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

----

*Table          of Contents*

|   | • | net                income of $1.3 million; |
|--------|---------|--------------------------------------------|

|   | • | $823,000                related to shares committed to be released under the Company’s Employee                Stock Ownership Plan; and |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | proceeds                from stock option exercises totaling                $399,000. |
|--------|---------|---------------------------------------------------------------------------------------|

*Unregistered      Sales of Equity Securities and Use of Proceeds*

*OTS*

|                                    |   | **Actual** |    | **For                Capital Adequacy****Purposes** |   | **To                Be Well-Capitalized Under Prompt Corrective****Action                Provisions** |   |
|-----------------------------------------|--------|------------|---------|-----------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|
|                                    |   | **Amount** |    | **Ratio**                                           |   | **Amount**                                                                                            |   | **Ratio** |   | **Amount** |   | **Ratio** |   |
| As                of June 30, 2005:     |   |       |    |                                                |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                              |   | $          | 137,866 |                                                |   | 12.88                                                                                                 | %      | $ | 85,649 |   |   | >8.00 | % | $ | 107,061 |   |   | >10.00 | % |
| Tangible                                |   |       | 125,736 |                                                |   | 9.83                                                                                                  |   |   | 19,177 |   |   | >1.50 |   |   | 25,569 |   |   | >2.00 |   |
| Core                                    |   |       | 125,736 |                                                |   | 9.83                                                                                                  |   |   | 51,139 |   |   | >4.00 |   |   | 63,924 |   |   | >5.00 |   |
|                                    |   |       |    |                                                |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As                of December 31, 2004: |   |       |    |                                                |   |                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                              |   | $          | 131,660 |                                                |   | 12.23                                                                                                 | %      | $ | 86,155 |   |   | >8.00 | % | $ | 107,694 |   |   | >10.00 | % |
| Tangible                                |   |       | 120,075 |                                                |   | 9.24                                                                                                  |   |   | 19,485 |   |   | >1.50 |   |   | 25,980 |   |   | >2.00 |   |
| Core                                    |   |       | 120,075 |                                                |   | 9.24                                                                                                  |   |   | 51,961 |   |   | >4.00 |   |   | 64,951 |   |   | >5.00 |   |

**Liquidity      and Commitments **

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

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

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

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

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

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

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*Table          of Contents*

**Contractual      Obligations. **

|                                      |   | **Payments                Due By Period**             |   |
|-------------------------------------------|--------|-------------------------------------------------------|--------|
|                                      |   | **One                Year****Or                Less** |   | **Over                One****Through****Three                Years** |   | **Over                Three Through****Five                Years** |   | **Over                Five****Years** |   | **Total** |   |
|                                      |   | (Dollars                in thousands)                 |   |
| FHLB                advances (1)     |   | $                                                     | 48,226 |   | $ | 204,500 |   | $ | 47,573 |   | $ | 10,422 |   | $ | 310,721 |   |
| Overnight                borrowings  |   |                                                  | 8,300  |   |   | - |   |   | - |   |   | - |   |   | 8,300 |   |
| Operating                leases      |   |                                                  | 567    |   |   | 559 |   |   | 58 |   |   | - |   |   | 1,184 |   |
|                                      |   | $                                                     | 57,093 |   | $ | 205,059 |   | $ | 47,631 |   | $ | 10,422 |   | $ | 320,205 |   |

----

*Table          of Contents*

*Deposits      and Borrowed Money*

**Off-Balance      Sheet Obligations.**

|                                                               |   | **One                Year****or                Less** |   | **Over                One****Through****Three                Years** |   | **Over                Three Through****Five                Years** |   | **Over                Five****Years** |   | **Total** |   |
|--------------------------------------------------------------------|--------|-------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|---------------------------------------|--------|-----------|--------|
|                                                               |   | (Dollars                in thousands)                 |   |
| Commitments                to extend  credit:                 |   |                                                  |   |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   | $                                                     | 27,922 |                                                                 | $      | -                                                                  |   | $                                     | -      |      | $      | - |   | $ | 27,922 |   |
| Retail                                                             |   |                                                  | 15,642 |                                                                 |   | -                                                                  |   |                                  | -      |      |   | - |   |   | 15,642 |   |
| Commitments                to fund unused construction loans  |   |                                                  | 10,298 |                                                                 |   | 37,549                                                             |   |                                  | 1,426  |      |   | 3,630 |   |   | 52,903 |   |
| Commitments                to fund unused lines of Credit:         |   |                                                  |   |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   |                                                  | 14,358 |                                                                 |   | 14,688                                                             |   |                                  | 365    |      |   | 346 |   |   | 29,757 |   |
| Retail                                                             |   |                                                  | 14,672 |                                                                 |   | 727                                                                |   |                                  | 129    |      |   | 66,887 |   |   | 82,415 |   |
| Letters                of credit                              |   |                                                  | 3,682  |                                                                 |   | 4,335                                                              |   |                                  | 159    |      |   | - |   |   | 8,176 |   |
| Credit                enhancements                            |   |                                                  | -      |                                                                 |   | 9,972                                                              |   |                                  | 29,311 |      |   | 8,862 |   |   | 48,145 |   |
|                                                               |   | $                                                     | 86,574 |                                                                 | $      | 67,271                                                             |   | $                                     | 31,390 |      | $      | 79,725 |   | $ | 264,960 |   |

*FHLB-IN*

----

*Table          of Contents*

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

*IRR*
*NPV*

*ALCO*

----

*Table          of Contents*

|                                                           |   | **Net                Portfolio Value** |
|----------------------------------------------------------------|--------|----------------------------------------|
|                                                           |   | **June                30, 2005**       |   | **December                31, 2004** |
|                                                           |   | **$                Amount**            |   | **$                Change** |   | **%                Change** |   | **$                Amount** |   | **$                Change** |   | **%                Change** |
|                                                           |   | (Dollars                in thousands)  |   |
| Assumed                Change in Interest Rates (Basis Points) |   |                                   |
| +300                                                           |   | $                                      | 145,441 |   | $ | (16,762 | ) |   | (10.3 | )% | $ | 154,194 |   | $ | (7,441 | ) |   | (4.8 | )% |
| +200                                                           |   |                                   | 153,368 |   |   | (8,835 | ) |   | (5.4 | ) |   | 159,216 |   |   | (2,419 | ) |   | (1.5 | ) |
| +100                                                           |   |                                   | 159,211 |   |   | (2,992 | ) |   | (1.8 | ) |   | 162,128 |   |   | 493 |   |   | 0.3 |   |
| 0                                                              |   |                                   | 162,203 |   |   | - |   |   | - |   |   | 161,635 |   |   | - |   |   | - |   |
| -100                                                           |   |                                   | 161,419 |   |   | (784 | ) |   | (0.5 | ) |   | 157,103 |   |   | (4,532 | ) |   | (2.9 | ) |
| -200                (1)                                        |   |                                   | 158,411 |   |   | (3,792 | ) |   | (2.3 | ) |   |   |   |   |   |   |   |   |   |

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

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*Table          of Contents*

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

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

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

| **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, 2005 |   |                                                   | 15,361 |                                                              | $      | 13.90                                                                                                                 |   |                                                                                                                    | 15,361 |   |   | 1,144,795 |   |
| May                1-31, 2005   |   |                                                   | 10,000 |                                                              |   | 13.38                                                                                                                 |   |                                                                                                                    | 10,000 |   |   | 1,134,795 |   |
| June                1-30, 2005  |   |                                                   | 47,862 |                                                              |   | 13.20                                                                                                                 |   |                                                                                                                    | 47,862 |   |   | 1,086,933 |   |
| Total                           |   |                                                   | 73,223 |                                                              |   | 13.37                                                                                                                 |   |                                                                                                                    | 73,223 |   |   | 1,086,933 |   |
|                            |   |                                                   |   |                                                              |   |                                                                                                                  |   |                                                                                                                    |   |   |   |   |   |

| (1) | The                Company publicly announced on March 17, 2003 a repurchase program                for                1,200,000 shares. Prior to April 1, 2005, a total of 39,844 shares                had                been repurchased under that program. A total of 32,020 shares were                purchased in July 2005 under this                program. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*Table          of Contents*

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

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

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

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

|   | Gregory                W. Blaine | 9,534,361 |   | FOR |   | 1,129,350 |   | WITHHELD |
|--------|----------------------------------|-----------|--------|-----|--------|-----------|--------|----------|
|   | Robert                R. Ross    | 9,673,972 |   | FOR |   | 989,739   |   | WITHHELD |
|   | Joyce                M. Simon    | 9,909,897 |   | FOR |   | 753,814   |   | WITHHELD |

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

**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.                                                                                                  |
|   | 10.1   |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Thomas                F. Prisby (2)               |
|   | 10.2   |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Thomas F. Prisby                (2)                                             |
|   | 10.3   |   | CFS                Bancorp, Inc. Amended and Restated 1998 Stock Option Plan                (3)                                                                |
|   | 10.4   |   | CFS                Bancorp, Inc. Amended and Restated 1998 Recognition and Retention                Plan and                Trust Agreement (3)                |
|   | 10.5   |   | CFS                Bancorp, Inc. 2003 Stock Option Plan (4)                                                                                                    |
|   | 10.6   |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Charles V. Cole (5)                               |
|   | 10.7   |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Thomas                L. Darovic (5)              |
|   | 10.8   |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Charles V. Cole                (5)                                              |
|   | 10.9   |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Thomas L. Darovic                (5)                                            |
|   | 10.10  |   | Employment                Agreement entered into between Citizens Financial Services, FSB and                Zoran                Koricanac (7)                |
|   | 10.11  |   | Employment                Agreement entered into between CFS Bancorp, Inc. and Zoran Koricanac                (7)                                              |
|   | 10.12  |   | Amended                and Restated Supplemental ESOP Benefit Plan of CFS Bancorp, Inc.                and                Citizens Financial Services, FSB (7) |
|   | 10.13  |   | CFS                Bancorp, Inc. Directors’ Deferred Compensation Plan (7)                                                                               |
|   | 31.1   |   | Rule                13a-14(a) Certification of Chief Executive Officer                                                                                         |
|   | 31.2   |   | Rule                13a-14(a) Certification of Chief Financial Officer                                                                                         |
|   | 32.0   |   | Section                1350 Certifications                                                                                                                     |

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

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

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

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

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

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

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

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*Table          of Contents*

**SIGNATURES**

**CFS      BANCORP, INC.**

| Date:                August 5, 2005 | By:    | /s/                Thomas F. Prisby                          |
|-------------------------------------|--------|--------------------------------------------------------------|
|                                |   | Thomas                F. Prisby, Chairman and                |
|                                |   | Chief                Executive Officer                       |
|                                |   |                                                         |
| Date:                August 5, 2005 | By:    | /s/                Charles V. Cole                           |
|                                |   | Charles                V. Cole, Executive Vice President and |
|                                |   | Chief                Financial Officer                       |