----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

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

**OR**

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

|   | 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)                                                                     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | Condensed                Consolidated Statements of Condition                                                       | 3      |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | Condensed                Consolidated Statements of Income                                                          | 4      |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | Condensed                Consolidated Statements of Changes in                Stockholders’ Equity            | 5      |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | Condensed                Consolidated Statements of Cash Flows                                                      | 6      |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | Notes                to Condensed Consolidated Financial                Statements                                  | 7      |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                2.                                                                                                                                                                                                                                                                                                                                                                                                | Management's                Discussion and Analysis of Financial Condition                and Results of Operations | 11     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                3.                                                                                                                                                                                                                                                                                                                                                                                                | Quantitative                and Qualitative Disclosures about Market                Risk                            | 30     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                4.                                                                                                                                                                                                                                                                                                                                                                                                | Controls                and Procedures                                                                              | 32     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  | **PART                II - OTHER INFORMATION**                                                                      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                1.                                                                                                                                                                                                                                                                                                                                                                                                | Legal                Proceedings                                                                                    | 32     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                1A.                                                                                                                                                                                                                                                                                                                                                                                               | Risk                Factors                                                                                         | 33     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                2.                                                                                                                                                                                                                                                                                                                                                                                                | Unregistered                Sales of Equity Securities and Use of                Proceeds                           | 33     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                3.                                                                                                                                                                                                                                                                                                                                                                                                | Defaults                Upon Senior Securities                                                                      | 33     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| Item                4.                                                                                                                                                                                                                                                                                                                                                                                                | Submission                of Matters to a Vote of Security Holders                                                  | 33     |
|                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                |   |
| 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.**

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

| **ASSETS**                                                                                                                                                                            |   | **March                31, 2007**     |      | **December                31, 2006** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|--------------------------------------|--------|
|                                                                                                                                                                                  |   | (Unaudited)                           |      |                                 |   |
|                                                                                                                                                                                  |   | (Dollars                in thousands) |      |
| Cash                and amounts due from depository institutions                                                                                                                 |   | $                                     | 14,963    |                                 | $      | 33,194 |   |
| Interest-bearing                deposits                                                                                                                                         |   |                                  | 20,111    |                                 |   | 20,607 |   |
| Federal                funds sold                                                                                                                                                |   |                                  | 9,141     |                                 |   | 13,366 |   |
| Cash                and cash equivalents                                                                                                                                         |   |                                  | 44,215    |                                 |   | 67,167 |   |
| Securities                available-for-sale, at fair value                                                                                                                      |   |                                  | 301,248   |                                 |   | 298,925 |   |
| Investment                in Federal Home Loan Bank stock, at cost                                                                                                               |   |                                  | 23,944    |                                 |   | 23,944 |   |
| Loans                receivable                                                                                                                                                  |   |                                  | 804,242   |                                 |   | 802,383 |   |
| Allowance                for losses on loans                                                                                                                                     |   |                                  | (11,400   | )                                    |   | (11,184 | ) |
| Net                loans                                                                                                                                                         |   |                                  | 792,842   |                                 |   | 791,199 |   |
| Interest                receivable                                                                                                                                               |   |                                  | 7,350     |                                 |   | 7,523 |   |
| Other                real estate owned                                                                                                                                           |   |                                  | 679       |                                 |   | 321 |   |
| Office                properties and equipment                                                                                                                                   |   |                                  | 18,776    |                                 |   | 17,797 |   |
| Investment                in bank-owned life insurance                                                                                                                           |   |                                  | 36,281    |                                 |   | 35,876 |   |
| Other                assets                                                                                                                                                      |   |                                  | 10,793    |                                 |   | 10,339 |   |
| Goodwill                and intangible assets                                                                                                                                    |   |                                  | 1,282     |                                 |   | 1,299 |   |
| Total                assets                                                                                                                                                      |   | $                                     | 1,237,410 |                                 | $      | 1,254,390 |   |
|                                                                                                                                                                                  |   |                                  |      |                                 |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY**                                                                                                                         |   |                                  |      |                                 |   |   |   |
| Deposits                                                                                                                                                                         |   | $                                     | 894,421   |                                 | $      | 907,095 |   |
| Borrowed                money                                                                                                                                                    |   |                                  | 198,019   |                                 |   | 202,275 |   |
| Advance                payments by borrowers for taxes and insurance                                                                                                             |   |                                  | 5,149     |                                 |   | 4,194 |   |
| Other                liabilities                                                                                                                                                 |   |                                  | 9,408     |                                 |   | 9,020 |   |
| Total                liabilities                                                                                                                                                 |   |                                  | 1,106,997 |                                 |   | 1,122,584 |   |
| 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; 10,979,948 and 11,134,331 sharesoutstanding                  |   |                                  | 234       |                                 |   | 234 |   |
| Additional                paid-in capital                                                                                                                                        |   |                                  | 190,931   |                                 |   | 190,825 |   |
| Retained                earnings                                                                                                                                                 |   |                                  | 94,608    |                                 |   | 94,344 |   |
| Treasury                stock, at cost; 12,318,733 and 12,164,754 shares                                                                                                         |   |                                  | (150,672  | )                                    |   | (148,108 | ) |
| Treasury                stock held in Rabbi Trust, at cost; 124,625 and 124,221                shares                                                                                 |   |                                  | (1,634    | )                                    |   | (1,627 | ) |
| Unallocated                common stock held by Employee Stock Ownership Plan                                                                                                    |   |                                  | (3,360    | )                                    |   | (3,564 | ) |
| Accumulated                other comprehensive income (loss), net of tax                                                                                                         |   |                                  | 306       |                                 |   | (298 | ) |
| Total                stockholders’ equity                                                                                                                                  |   |                                  | 130,413   |                                 |   | 131,806 |   |
| Total                liabilities and stockholders’ equity                                                                                                                  |   | $                                     | 1,237,410 |                                 | $      | 1,254,390 |   |

*See      accompanying notes.*

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*table          of          contents*

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

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

|                                                                         |   | **Three                Months Ended****March                31,**      |       |
|------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|------------|
|                                                                         |   | **2007**                                                               |       | **2006** |   |
|                                                                         |   | (Unaudited)                                                            |       |
|                                                                         |   | (Dollars                in thousands, except share and per share data) |       |
| Interest                income:                                              |   |                                                                   |       |   |   |   |   |
| Loans                                                                   |   | $                                                                      | 14,052     |   | $ | 14,903 |   |
| Securities                                                              |   |                                                                   | 3,523      |   |   | 2,491 |   |
| Other                                                                   |   |                                                                   | 1,076      |   |   | 563 |   |
| Total                interest income                                    |   |                                                                   | 18,651     |   |   | 17,957 |   |
| Interest                expense:                                             |   |                                                                   |       |   |   |   |   |
| Deposits                                                                |   |                                                                   | 6,694      |   |   | 4,548 |   |
| Borrowed                money                                           |   |                                                                   | 3,433      |   |   | 5,173 |   |
| Total                interest expense                                   |   |                                                                   | 10,127     |   |   | 9,721 |   |
| Net                interest income                                      |   |                                                                   | 8,524      |   |   | 8,236 |   |
| Provision                for losses on loans                            |   |                                                                   | 187        |   |   | 385 |   |
| Net                interest income after provision for losses on loans  |   |                                                                   | 8,337      |   |   | 7,851 |   |
| Non-interest                income:                                          |   |                                                                   |       |   |   |   |   |
| Service                charges and other fees                           |   |                                                                   | 1,569      |   |   | 1,602 |   |
| Card-based                fees                                          |   |                                                                   | 341        |   |   | 318 |   |
| Commission                income                                        |   |                                                                   | 31         |   |   | 62 |   |
| Security                gains (losses), net                                  |   |                                                                   | 11         |   |   | (127 | ) |
| Other                asset gains, net                                   |   |                                                                   | 11         |   |   | 1 |   |
| Income                from bank-owned life insurance                    |   |                                                                   | 405        |   |   | 392 |   |
| Other                income                                             |   |                                                                   | 241        |   |   | 189 |   |
| Total                non-interest income                                |   |                                                                   | 2,609      |   |   | 2,437 |   |
| Non-interest                expense:                                         |   |                                                                   |       |   |   |   |   |
| Compensation                and employee benefits                       |   |                                                                   | 5,255      |   |   | 5,023 |   |
| Net                occupancy expense                                    |   |                                                                   | 753        |   |   | 662 |   |
| Professional                fees                                        |   |                                                                   | 570        |   |   | 351 |   |
| Data                processing                                          |   |                                                                   | 563        |   |   | 673 |   |
| Furniture                and equipment expense                          |   |                                                                   | 534        |   |   | 427 |   |
| Marketing                                                               |   |                                                                   | 211        |   |   | 198 |   |
| Amortization                of core deposit intangibles                 |   |                                                                   | 16         |   |   | 16 |   |
| Other                general and administrative expenses                |   |                                                                   | 1,365      |   |   | 1,377 |   |
| Total                non-interest expense                               |   |                                                                   | 9,267      |   |   | 8,727 |   |
| Income                before income taxes                               |   |                                                                   | 1,679      |   |   | 1,561 |   |
| Income                tax expense                                       |   |                                                                   | 366        |   |   | 252 |   |
| Net                income                                               |   | $                                                                      | 1,313      |   | $ | 1,309 |   |
| Per                share data:                                               |   |                                                                   |       |   |   |   |   |
| Basic                earnings per share                                 |   | $                                                                      | 0.12       |   | $ | 0.12 |   |
| Diluted                earnings per share                               |   |                                                                   | 0.12       |   |   | 0.11 |   |
| Cash                dividends declared per share                        |   |                                                                   | 0.12       |   |   | 0.12 |   |
| Weighted-average                shares outstanding                      |   |                                                                   | 10,726,506 |   |   | 11,381,317 |   |
| Weighted-average                diluted shares outstanding              |   |                                                                   | 11,036,978 |   |   | 11,749,377 |   |

*See      accompanying notes.*

----

*table          of          contents*

**CFS      BANCORP, INC.**

**Condensed      **
**Consolidated Statements of Changes in Stockholders'      Equity**

|                                                                                                                                                                                        |   | **Common****Stock**                                          |   | **Additional                Paid-In****Capital** |   | **Retained****Earnings** |   | **Treasury****Stock** |   | **Unallocated                Common****Stock                Held****By                ESOP** |   | **Unearned****Common                Stock Acquired****By                RRP** |   | **Accumulated                Other Compre-hensive Income (****Loss)** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|--------------------------------------------------|--------|--------------------------|--------|-----------------------|--------|----------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|-----------|--------|
|                                                                                                                                                                                        |   | (Unaudited)                                                  |   |
|                                                                                                                                                                                        |   | (Dollars                in thousands, except per share data) |   |
| Balance                at January 1, 2006                                                                                                                                              |   | $                                                            | 234    |                                             | $      | 190,402                  |   | $                     | 94,379 |                                                                                         | $      | (136,229                                                                      | )      | $                                                                     | (4,762 | )         | $      | (111 | ) | $ | (1,546 | ) | $ | 142,367 |   |
| Net                income                                                                                                                                                              |   |                                                         | -      |                                             |   | -                        |   |                  | 1,309  |                                                                                         |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | 1,309 |   |
| Comprehensive                loss: Change                in unrealized appreciation on available-for-sale securities, net                of                reclassification and tax    |   |                                                         |   |                                             |   |                     |   |                  |   |                                                                                         |   |                                                                          |   |                                                                  |   |      |   |   |   |   | (669 | ) |   | (669 | ) |
| Total                comprehensive income                                                                                                                                              |   |                                                         |   |                                             |   |                     |   |                  |   |                                                                                         |   |                                                                          |   |                                                                  |   |      |   |   |   |   |   |   |   | 640 |   |
| Purchase                of treasury stock                                                                                                                                              |   |                                                         | -      |                                             |   | -                        |   |                  | -      |                                                                                         |   | (3,788                                                                        | )      |                                                                  | -      |      |   | - |   |   | - |   |   | (3,788 | ) |
| Cumulative                effect of change in accounting for Rabbi Trust shares                                                                                                        |   |                                                         | -      |                                             |   | -                        |   |                  | (92    | )                                                                                            |   | (1,609                                                                        | )      |                                                                  | -      |      |   | - |   |   | - |   |   | (1,701 | ) |
| Net                purchases of Rabbi Trust shares                                                                                                                                     |   |                                                         | -      |                                             |   | -                        |   |                  | -      |                                                                                         |   | (7                                                                            | )      |                                                                  | -      |      |   | - |   |   | - |   |   | (7 | ) |
| Shares                earned under ESOP                                                                                                                                                |   |                                                         | -      |                                             |   | 138                      |   |                  | -      |                                                                                         |   | -                                                                             |   |                                                                  | 300    |      |   | - |   |   | - |   |   | 438 |   |
| Reclassification                of unearned compensation to APIC upon the adoption of SFAS                123(R)                                                                       |   |                                                         | -      |                                             |   | (111                     | )      |                  | -      |                                                                                         |   | -                                                                             |   |                                                                  | -      |      |   | 111 |   |   | - |   |   | - |   |
| Exercise                of stock options                                                                                                                                               |   |                                                         | -      |                                             |   | (214                     | )      |                  | -      |                                                                                         |   | 1,900                                                                         |   |                                                                  | -      |      |   | - |   |   | - |   |   | 1,686 |   |
| Tax                benefit related to stock options exercised                                                                                                                          |   |                                                         | -      |                                             |   | 200                      |   |                  | -      |                                                                                         |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | 200 |   |
| Dividends                declared on common stock  ($0.12                per share)                                                                                               |   |                                                         | -      |                                             |   | -                        |   |                  | (1,370 | )                                                                                            |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | (1,370 | ) |
| Balance                at March 31, 2006                                                                                                                                               |   | $                                                            | 234    |                                             | $      | 190,415                  |   | $                     | 94,226 |                                                                                         | $      | (139,733                                                                      | )      | $                                                                     | (4,462 | )         | $      | - |   | $ | (2,215 | ) | $ | 138,465 |   |
|                                                                                                                                                                                        |   |                                                         |   |                                             |   |                     |   |                  |   |                                                                                         |   |                                                                          |   |                                                                  |   |      |   |   |   |   |   |   |   |   |   |
| Balance                at January 1, 2007                                                                                                                                              |   | $                                                            | 234    |                                             | $      | 190,825                  |   | $                     | 94,344 |                                                                                         | $      | (149,735                                                                      | )      | $                                                                     | (3,564 | )         | $      | - |   | $ | (298 | ) | $ | 131,806 |   |
| Net                income                                                                                                                                                              |   |                                                         | -      |                                             |   | -                        |   |                  | 1,313  |                                                                                         |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | 1,313 |   |
| Comprehensive                income: Change                in unrealized appreciation on available-for-sale securities, net                of                reclassification and tax  |   |                                                         |   |                                             |   |                     |   |                  |   |                                                                                         |   |                                                                          |   |                                                                  |   |      |   |   |   |   | 604 |   |   | 604 |   |
| Total                comprehensive income                                                                                                                                              |   |                                                         |   |                                             |   |                     |   |                  |   |                                                                                         |   |                                                                          |   |                                                                  |   |      |   |   |   |   |   |   |   | 1,917 |   |
| Purchase                of treasury stock                                                                                                                                              |   |                                                         | -      |                                             |   | -                        |   |                  | -      |                                                                                         |   | (3,898                                                                        | )      |                                                                  | -      |      |   | - |   |   | - |   |   | (3,898 | ) |
| Net                purchases of Rabbi Trust shares                                                                                                                                     |   |                                                         | -      |                                             |   | -                        |   |                  | -      |                                                                                         |   | (7                                                                            | )      |                                                                  | -      |      |   | - |   |   | - |   |   | (7 | ) |
| Shares                earned under ESOP                                                                                                                                                |   |                                                         | -      |                                             |   | 111                      |   |                  | -      |                                                                                         |   | -                                                                             |   |                                                                  | 204    |      |   | - |   |   | - |   |   | 315 |   |
| Cumulative                effect of change in accounting principle upon the adoption of FIN                48                                                                          |   |                                                         | -      |                                             |   | -                        |   |                  | 240    |                                                                                         |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | 240 |   |
| Exercise                of stock options                                                                                                                                               |   |                                                         | -      |                                             |   | (176                     | )      |                  | -      |                                                                                         |   | 1,334                                                                         |   |                                                                  | -      |      |   | - |   |   | - |   |   | 1,158 |   |
| Tax                benefit related to stock options exercised                                                                                                                          |   |                                                         | -      |                                             |   | 171                      |   |                  | -      |                                                                                         |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | 171 |   |
| Dividends                declared on common stock ($0.12 per share)                                                                                                                    |   |                                                         | -      |                                             |   | -                        |   |                  | (1,289 | )                                                                                            |   | -                                                                             |   |                                                                  | -      |      |   | - |   |   | - |   |   | (1,289 | ) |
| Balance                at March 31, 2007                                                                                                                                               |   | $                                                            | 234    |                                             | $      | 190,931                  |   | $                     | 94,608 |                                                                                         | $      | (152,306                                                                      | )      | $                                                                     | (3,360 | )         | $      | - |   | $ | 306 |   | $ | 130,413 |   |

*See      accompanying notes. *

----

*table          of          contents*

**CFS      BANCORP, INC.**

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

|                                                                                                                 |   | **Three                Months Ended****March                31,** |    |
|----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|
|                                                                                                                 |   | **2007**                                                          |    | **2006** |   |
|                                                                                                                 |   | (Unaudited)                                                       |    |
|                                                                                                                 |   | (Dollars                in thousands)                             |    |
| OPERATING                ACTIVITIES                                                                                  |   |                                                              |    |   |   |   |   |
| Net                income                                                                                  |   | $                                                                 | 1,313   |   | $ | 1,309 |   |
| Adjustments                to reconcile net income to net cash provided by operating                activities:      |   |                                                              |    |   |   |   |   |
| Provision                for losses on loans                                                                    |   |                                                              | 187     |   |   | 385 |   |
| Depreciation                and amortization                                                                    |   |                                                              | 420     |   |   | 366 |   |
| Premium                amortization on the early extinguishment of debt                                         |   |                                                              | 1,352   |   |   | 2,568 |   |
| Net                premium amortization on securities available-for-sale                                        |   |                                                              | (152    | ) |   | (40 | ) |
| Deferred                income tax expense (benefit)                                                            |   |                                                              | 515     |   |   | (76 | ) |
| Amortization                of cost of stock benefit plans                                                      |   |                                                              | 315     |   |   | 438 |   |
| Proceeds                from sale of loans held-for-sale                                                        |   |                                                              | 2,371   |   |   | 1,875 |   |
| Origination                of loans held-for-sale                                                               |   |                                                              | (2,416  | ) |   | (2,072 | ) |
| Net                realized (gains) losses on sale of securities                available-for-sale              |   |                                                              | (11     | ) |   | 127 |   |
| Net                realized gains on sale of other assets                                                       |   |                                                              | (22     | ) |   | (1 | ) |
| Net                increase in cash surrender value of bank-owned life insurance                                |   |                                                              | (405    | ) |   | (392 | ) |
| Increase                in other assets                                                                         |   |                                                              | (1,750  | ) |   | (2,014 | ) |
| Increase                in other liabilities                                                                    |   |                                                              | 1,586   |   |   | 111 |   |
| Net                cash provided by operating activities                                                             |   |                                                              | 3,303   |   |   | 2,584 |   |
| INVESTING                ACTIVITIES                                                                                  |   |                                                              |    |   |   |   |   |
| Securities:                                                                                                          |   |                                                              |    |   |   |   |   |
| Proceeds                from sales                                                                              |   |                                                              | 2,366   |   |   | 21,067 |   |
| Proceeds                from maturities and paydowns                                                            |   |                                                              | 29,370  |   |   | 4,485 |   |
| Purchases                                                                                                       |   |                                                              | (32,927 | ) |   | (75,265 | ) |
| Net                loan fundings and principal payments received                                                |   |                                                              | (2,579  | ) |   | 39,512 |   |
| Proceeds                from sales of loans and loan participations                                             |   |                                                              | 21      |   |   | (261 | ) |
| Proceeds                from sale of real estate owned                                                          |   |                                                              | 171     |   |   | - |   |
| Purchases                of property and equipment                                                              |   |                                                              | (1,383  | ) |   | (573 | ) |
| Disposal                of property and equipment                                                               |   |                                                              | 11      |   |   | 32 |   |
| Net                cash used for investing activities                                                           |   |                                                              | (4,950  | ) |   | (11,003 | ) |
| FINANCING                ACTIVITIES                                                                                  |   |                                                              |    |   |   |   |   |
| Proceeds                from exercise of stock options                                                          |   |                                                              | 1,158   |   |   | 1,686 |   |
| Tax                benefit from exercises of nonqualified stock options                                         |   |                                                              | 171     |   |   | 200 |   |
| Dividends                paid on common stock                                                                   |   |                                                              | (1,356  | ) |   | (1,443 | ) |
| Purchase                of treasury stock                                                                       |   |                                                              | (3,898  | ) |   | (3,788 | ) |
| Net                purchase of Rabbi Trust shares                                                               |   |                                                              | (7      | ) |   | (7 | ) |
| Net                (decrease) increase in deposit accounts                                                      |   |                                                              | (12,720 | ) |   | 18,116 |   |
| Net                increase (decrease) in advance payments by borrowers for taxes and                insurance  |   |                                                              | 955     |   |   | (1,325 | ) |
| (Decrease)                increase in short term borrowings                                                     |   |                                                              | (5,569  | ) |   | 5,370 |   |
| Repayments                of Federal Home Loan Bank debt                                                        |   |                                                              | (39     | ) |   | (36 | ) |
| Net                cash flows (used in) provided by financing activities                                        |   |                                                              | (21,305 | ) |   | 18,773 |   |
| Increase                (decrease) in cash and cash equivalents                                                 |   |                                                              | (22,952 | ) |   | 10,354 |   |
| Cash                and cash equivalents at beginning of period                                                 |   |                                                              | 67,167  |   |   | 24,177 |   |
| Cash                and cash equivalents at end of period                                                       |   | $                                                                 | 44,215  |   | $ | 34,531 |   |
| Supplemental                disclosures:                                                                             |   |                                                              |    |   |   |   |   |
| Loans                transferred to real estate owned                                                           |   | $                                                                 | 545     |   | $ | 53 |   |
| Cash                paid for interest on deposits                                                               |   |                                                              | 6,782   |   |   | 4,584 |   |
| Cash                paid for interest on borrowings                                                             |   |                                                              | 3,437   |   |   | 5,173 |   |
| Cash                paid for taxes                                                                              |   |                                                              | -       |   |   | 150 |   |

*See      accompanying notes.*

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*table          of contents*

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

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.**
**Basis      of Financial Statements Presentation**

*Company*

**2.**
**Share-Based      Compensation **

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

----

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|                                             |   |  **Number                of****Shares** |   | **Weighted-Average****Exercise                Price** |   |
|-------------------------------------------------------|--------|----------------------------------------------|--------|-------------------------------------------------------|--------|
| Options                outstanding at January 1, 2007 |   |                                         | 1,496  |                                                  | $      | 12.09 |   |
| Granted                                               |   |                                         | -      |                                                  |   | - |   |
| Exercised                                             |   |                                         | (110   | )                                                     |   | 10.56 |   |
| Forfeited                                             |   |                                         | -      |                                                  |   | - |   |
| Options                outstanding at March 31, 2007  |   |                                         | 1,386  |                                                  |   | 12.21 |   |
| Options                exercisable at March 31, 2007  |   |                                         | 1,386  |                                                  |   |   |   |

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|                                         |   |   **Number                of****Shares** |   | **Weighted-Average****Grant-Date   ****Fair                Value** |   |
|----------------------------------------------|--------|----------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|
| Unvested                at December 31, 2006 |   |                                               | 7,115  |                                                                              | $      | 11.78 |   |
| Granted                                      |   |                                               | -      |                                                                              |   | - |   |
| Vested                                       |   |                                               | -      |                                                                              |   | - |   |
| Forfeited                                    |   |                                               | -      |                                                                              |   | - |   |
| Unvested                as of March 31, 2007 |   |                                               | 7,115  |                                                                              | $      | 11.78 |   |

**3.**
**Other      Comprehensive Income (Loss)**

|                                                                                                      |   | **Three                Months Ended****March                31,** |   |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                                                      |   | **2007**                                                          |   |   | **2006** |   |
|                                                                                                      |   | (Dollars                in thousands)                             |   |
| Unrealized                holding gains (losses) arising during the period:                               |   |                                                              |   |   |   |   |   |   |
| Unrealized                net gains (losses)                                                              |   | $                                                                 | 979    |   |   | $ | (1,197 | ) |
| Related                tax (expense) benefit                                                              |   |                                                              | (368   | ) |   |   | 450 |   |
| Net                                                                                                       |   |                                                              | 611    |   |   |   | (747 | ) |
| Less:                reclassification adjustment for net gains realized during the                period: |   |                                                              |   |   |   |   |   |   |
| Realized                net gains (losses)                                                                |   |                                                              | 11     |   |   |   | (127 | ) |
| Related                tax (expense) benefit                                                         |   |                                                              | (4     | ) |   |   | 49 |   |
| Net                                                                                                       |   |                                                              | 7      |   |   |   | (78 | ) |
| Total                other comprehensive income (loss)                                               |   | $                                                                 | 604    |   |   | $ | (669 | ) |

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**4.**
**Earnings      Per Share**

|                                                                                                              |   | **Three                Months Ended****March                31,** |       |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|------------|
|                                                                                                              |   | **2007**                                                          |       | **2006** |   |
|                                                                                                              |   | (Dollars                in thousands, except per share data)      |       |
| Net                income                                                                                    |   | $                                                                 | 1,313      |   | $ | 1,309 |   |
|                                                                                                              |   |                                                              |       |   |   |   |   |
| Weighted                average common shares outstanding                                                    |   |                                                              | 10,726,506 |   |   | 11,381,317 |   |
| Common                share equivalents (1)                                                                  |   |                                                              | 310,472    |   |   | 368,060 |   |
| Weighted                average common shares and common share  equivalents                outstanding  |   |                                                              | 11,036,978 |   |   | 11,749,377 |   |
|                                                                                                              |   |                                                              |       |   |   |   |   |
| Basic                earnings per share                                                                      |   | $                                                                 | 0.12       |   | $ | 0.12 |   |
| Diluted                earnings per share                                                                    |   |                                                              | 0.12       |   |   | 0.11 |   |

| (1) | Assumes                exercise of dilutive stock options, a portion of the unearned awards                under                the RRP and treasury shares held in Rabbi Trust                accounts. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**5.**
**Change      in Accounting Principle**

*FASB*
*FIN 48*
*Accounting for Uncertainty in Income Taxes - an      interpretation of FASB Statement No. 109*

**6.**
**Recent      Accounting Pronouncements **

*SFAS*
*Fair      Value Measurements*

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*The Fair Value Option for Financial Assets and Financial      Liabilities - Including an Amendment of FASB Statement No. 115 *
*Fair      Value Option*
*Fair Value Measurements*

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

**Forward      Looking Statements**

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

*The      Company wishes to caution      readers not to place undue reliance on any such forward-looking statements,      which speak only as of the date made. The Company also advises readers that      various factors, including regional and national economic conditions, changes      in      levels of market interest rates, credit and other risks which are inherent      in      the Company’s lending and investment activities, legislative changes, changes in      the cost of funds, 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. For      further discussion of risks and uncertainties that could cause actual results      and events to differ materially from such forward-looking statements see “Part      II. Item 1A. Risk Factors” of this Form 10-Q as well as “Part I. Item 1A. Risk      Factors” of the Company’s Annual Report on Form 10-K for the year ended December      31, 2006. Such forward-looking *

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*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**

*ESOP*

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**Critical      Accounting Policies**

*GAAP*

**Allowance      for Losses on      Loans.**

*SFAS*
*Accounting for      Contingencies. *

*Accounting by Creditors for Impairment of a Loan.*

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*table          of contents*

**Income      Tax      Accounting.**
* *

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

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*table          of contents*

|                                                                                                                     |   | **Three                  Months Ended March 31,** |      |
|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|
|                                                                                                                     |   | **2007**                                          |      |   | **2006** |   |
|                                                                                                                     |   | **Average****Balance**                            |      | **Interest** |   | **Average** **Yield/Cost** |   |   | **Average****Balance** |   | **Interest** |   | **Average** **Yield/Cost** |   |
|                                                                                                                     |   | (Dollars                  in thousands)           |      |
| Interest-earning                  assets:                                                                                |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable (1)                                                                               |   | $                                                 | 793,852   |   | $ | 14,052 |   |   | 7.18 | % |   | $ | 894,496 |   | $ | 14,903 |   |   | 6.76 | % |
| Securities                  (2)                                                                                     |   |                                              | 302,405   |   |   | 3,523 |   |   | 4.66 |   |   |   | 240,746 |   |   | 2,491 |   |   | 4.14 |   |
| Other                  interest-earning assets (3)                                                                  |   |                                              | 83,119    |   |   | 1,076 |   |   | 5.25 |   |   |   | 48,553 |   |   | 563 |   |   | 4.70 |   |
| Total                  interest-earning assets                                                                      |   |                                              | 1,179,376 |   |   | 18,651 |   |   | 6.41 |   |   |   | 1,183,795 |   |   | 17,957 |   |   | 6.15 |   |
|                                                                                                                     |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                  earning assets                                                                        |   |                                              | 76,944    |   |   |   |   |   |   |   |   |   | 69,401 |   |   |   |   |   |   |   |
| Total                  assets                                                                                       |   | $                                                 | 1,256,320 |   |   |   |   |   |   |   |   | $ | 1,253,196 |   |   |   |   |   |   |   |
|                                                                                                                     |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing                  liabilities:                                                                           |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                                                |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                                                  |   | $                                                 | 101,009   |   |   | 249 |   |   | 1.00 |   |   | $ | 104,815 |   |   | 249 |   |   | 0.96 |   |
| Money                  market accounts                                                                              |   |                                              | 191,296   |   |   | 1,670 |   |   | 3.54 |   |   |   | 126,884 |   |   | 742 |   |   | 2.37 |   |
| Savings                  accounts                                                                                   |   |                                              | 149,715   |   |   | 233 |   |   | 0.63 |   |   |   | 167,528 |   |   | 145 |   |   | 0.35 |   |
| Certificates                  of deposit                                                                            |   |                                              | 403,518   |   |   | 4,542 |   |   | 4.56 |   |   |   | 374,428 |   |   | 3,412 |   |   | 3.70 |   |
| Total                  deposits                                                                                     |   |                                              | 845,538   |   |   | 6,694 |   |   | 3.21 |   |   |   | 773,655 |   |   | 4,548 |   |   | 2.38 |   |
|                                                                                                                     |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowed                  money:                                                                                         |   |                                              |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  short-term borrowings (4)                                                                    |   |                                              | 24,895    |   |   | 258 |   |   | 4.20 |   |   |   | 4,041 |   |   | 38 |   |   | 3.81 |   |
| FHLB                  debt (5)(6)                                                                                   |   |                                              | 179,722   |   |   | 3,175 |   |   | 7.07 |   |   |   | 257,845 |   |   | 5,135 |   |   | 7.97 |   |
| Total                  borrowed money                                                                               |   |                                              | 204,617   |   |   | 3,433 |   |   | 6.71 |   |   |   | 261,886 |   |   | 5,173 |   |   | 7.90 |   |
| Total                  interest-bearing liabilities                                                                 |   |                                              | 1,050,155 |   |   | 10,127 |   |   | 3.91 |   |   |   | 1,035,541 |   |   | 9,721 |   |   | 3.81 |   |
| Non-interest                  bearing deposits                                                                      |   |                                              | 59,483    |   |   |   |   |   |   |   |   |   | 61,046 |   |   |   |   |   |   |   |
| Non-interest                  bearing liabilities                                                                   |   |                                              | 15,609    |   |   |   |   |   |   |   |   |   | 16,596 |   |   |   |   |   |   |   |
| Total                  liabilities                                                                                  |   |                                              | 1,125,247 |   |   |   |   |   |   |   |   |   | 1,113,183 |   |   |   |   |   |   |   |
| Stockholders'                  equity                                                                               |   |                                              | 131,073   |   |   |   |   |   |   |   |   |   | 140,013 |   |   |   |   |   |   |   |
| Total                  liabilities and stockholders' equity                                                              |   | $                                                 | 1,256,320 |   |   |   |   |   |   |   |   | $ | 1,253,196 |   |   |   |   |   |   |   |
| Net                  interest-earning assets                                                                        |   | $                                                 | 129,221   |   |   |   |   |   |   |   |   | $ | 148,254 |   |   |   |   |   |   |   |
| Net                  interest income / interest rate spread                                                              |   |                                              |      |   | $ | 8,524 |   |   | 2.50 | % |   |   |   |   | $ | 8,236 |   |   | 2.34 | % |
| Net                  interest margin                                                                                |   |                                              |      |   |   |   |   |   | 2.93 | % |   |   |   |   |   |   |   |   | 2.82 | % |
| Ratio                  of average interest-earning assets to                  average interest-bearing liabilities  |   |                                              |      |   |   |   |   |   | 112.30 | % |   |   |   |   |   |   |   |   | 114.32 | % |

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

| (3) | Includes                Federal Home Loan Bank stock, money market accounts, federal funds                sold                and interest-earning bank deposits. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (5) | The                2007 period includes an average of $185.3 million of contractual                FHLB                borrowings reduced by an average of $5.6 million of unamortized deferred                premium on the early extinguishment of debt. Interest expense on                borrowed                money includes $1.4 million of amortization of the deferred premium                on the                early extinguishment of debt. The amortization of the deferred premium                increased the average cost of borrowed money as reported to 6.71%                compared                to an average contractual rate of                3.96%. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | The                2006 period includes an average of $272.5 million of contractual                FHLB                borrowings reduced by an average of $14.7 million of unamortized                deferred                premium on the early extinguishment of debt. Interest expense on                borrowed                money includes $2.6 million of amortization of the deferred premium                on the                early extinguishment of debt. The amortization of the deferred premium                increased the average cost of borrowed money as reported to 7.90%                compared                to an average contractual rate of                3.78%. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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*table          of contents*

**Rate      / Volume Analysis**

|                                                                                                |   | **Three                  Months Ended March 31, 2007 Compared** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
|                                                                                                |   | **to                  Three Months Ended March 31, 2006**       |   |
|                                                                                                |   | **Increase                  (Decrease) Due to**                 |   |
|                                                                                                |   |  **Rate**                                                  |   |  **Volume** |   | **Rate/****Volume** |   | **Total                  Net Increase /****(Decrease)** |   |
|                                                                                                |   | (Dollars                  in thousands)                         |   |
| Interest-earning                  assets:                                                           |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Loans                  receivable                                                              |   | $                                                               | 931    |   | $ | (1,677 | ) | $ | (105 | ) | $ | (851 | ) |
| Securities                                                                                     |   |                                                            | 314    |   |   | 638 |   |   | 80 |   |   | 1,032 |   |
| Other                  interest-earning assets                                                 |   |                                                            | 65     |   |   | 401 |   |   | 47 |   |   | 513 |   |
| Total                  net change in income on interest-earning                  assets        |   |                                                            | 1,310  |   |   | (638 | ) |   | 22 |   |   | 694 |   |
| Interest-bearing                  liabilities:                                                      |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                                                                           |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Checking                  accounts                                                             |   |                                                            | 9      |   |   | (9 | ) |   | - |   |   | - |   |
| Money                  market accounts                                                         |   |                                                            | 365    |   |   | 377 |   |   | 186 |   |   | 928 |   |
| Savings                  accounts                                                              |   |                                                            | 115    |   |   | (15 | ) |   | (12 | ) |   | 88 |   |
| Certificates                  of deposit                                                       |   |                                                            | 803    |   |   | 265 |   |   | 62 |   |   | 1,130 |   |
| Total                  deposits                                                                |   |                                                            | 1,292  |   |   | 618 |   |   | 236 |   |   | 2,146 |   |
| Borrowed                  money:                                                                    |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Other                  short-term borrowings                                                   |   |                                                            | 4      |   |   | 196 |   |   | 20 |   |   | 220 |   |
| FHLB                  debt                                                                     |   |                                                            | (580   | ) |   | (1,556 | ) |   | 176 |   |   | (1,960 | ) |
| Total                  borrowed money                                                          |   |                                                            | (576   | ) |   | (1,360 | ) |   | 196 |   |   | (1,740 | ) |
| Total                  net change in expense on interest-bearing                  liabilities  |   |                                                            | 716    |   |   | (742 | ) |   | 432 |   |   | 406 |   |
| Net                  change in net interest income                                             |   | $                                                               | 594    |   | $ | 104 |   | $ | (410 | ) | $ | 288 |   |

**Analysis      of Statements of Income **

*Net      Interest Income. *

*Interest      Income.*

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*table          of contents*

*Wall Street Journal*

*Interest      Expense.*

*Premium Amortization*

*Non-interest      income. *

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*table          of contents*

|                                                       |   | **Quarters                Ended**     |   |                              |   |
|------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------|--------|
|                                                       |   | **March                31, 2007**     |   | **March                31, 2006** |   | **%                Change** |   |
|                                                       |   | (Dollars                in thousands) |   |
| Service                charges and other fees         |   | $                                     | 1,569  |                              | $      | 1,602 |   |   | (2.1 | )% |
| Card-based                fees                        |   |                                  | 341    |                              |   | 318 |   |   | 7.2 |   |
| Commission                income                      |   |                                  | 31     |                              |   | 62 |   |   | (50.0 | ) |
| Subtotal                fee based revenues                 |   |                                  | 1,941  |                              |   | 1,982 |   |   | (2.1 | ) |
| Income                from bank-owned life insurance  |   |                                  | 405    |                              |   | 392 |   |   | 3.3 |   |
| Other                income                           |   |                                  | 241    |                              |   | 189 |   |   | 27.5 |   |
| Subtotal                                                   |   |                                  | 2,587  |                              |   | 2,563 |   |   | 0.9 |   |
| Security                gains (losses), net           |   |                                  | 11     |                              |   | (127 | ) |   | 108.7 |   |
| Other                asset gains, net                 |   |                                  | 11     |                              |   | 1 |   |   | NM |   |
| Total                non-interest income                   |   | $                                     | 2,609  |                              | $      | 2,437 |   |   | 7.1 | % |

*Non-interest      expense.*

|                                                           |   | **Quarters                Ended**     |   |                              |   |
|----------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------|--------|
|                                                           |   | **March                31, 2007**     |   | **March                31, 2006** |   | **%                Change** |   |
|                                                           |   | (Dollars                in thousands) |   |
| Compensation                and mandatory benefits        |   | $                                     | 4,662  |                              | $      | 3,926 |   |   | 18.7 | % |
| Retirement                and stock related compensation  |   |                                  | 337    |                              |   | 721 |   |   | (53.3 | ) |
| Medical                and life benefits                  |   |                                  | 225    |                              |   | 300 |   |   | (25.0 | ) |
| Other                employee benefits                    |   |                                  | 31     |                              |   | 76 |   |   | (59.2 | ) |
| Subtotal                compensation and employee benefits     |   |                                  | 5,255  |                              |   | 5,023 |   |   | 4.6 |   |
| Net                occupancy expense                      |   |                                  | 753    |                              |   | 662 |   |   | 13.7 |   |
| Professional                fees                          |   |                                  | 570    |                              |   | 351 |   |   | 62.4 |   |
| Data                processing                            |   |                                  | 563    |                              |   | 673 |   |   | (16.3 | ) |
| Furniture                and equipment expense            |   |                                  | 534    |                              |   | 427 |   |   | 25.1 |   |
| Marketing                                                 |   |                                  | 211    |                              |   | 198 |   |   | 6.6 |   |
| Other                general and administrative expense   |   |                                  | 1,381  |                              |   | 1,393 |   |   | 0.9 |   |
| Total                non-interest expense                      |   | $                                     | 9,267  |                              | $      | 8,727 |   |   | 6.2 | % |

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*table          of contents*

|                                                                                                      |   | **Three                Months Ended****March                31,** |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|
|                                                                                                      |   | **2007**                                                          |   | **2006** |
|                                                                                                      |   | (Dollars                in thousands)                             |   |
| Efficiency                Ratio:                                                                          |   |                                                              |   |   |   |   |   |   |
| Non-interest                expense                                                             |   | $                                                                 | 9,267 |   |   | $ | 8,727 |   |
| Net                interest income plus non-interest income                                          |   | $                                                                 | 11,133 |   |   | $ | 10,673 |   |
| Efficiency                ratio                                                                      |   |                                                              | 83.24 | % |   |   | 81.77 | % |
|                                                                                                      |   |                                                              |   |   |   |   |   |   |
| Core                Efficiency Ratio:                                                                     |   |                                                              |   |   |   |   |   |   |
| Non-interest                expense                                                                  |   | $                                                                 | 9,267 |   |   | $ | 8,727 |   |
|                                                                                                      |   |                                                              |   |   |   |   |   |   |
| Net                interest income plus non-interest income                                          |   | $                                                                 | 11,133 |   |   | $ | 10,673 |   |
| Adjustments:                                                                                              |   |                                                              |   |   |   |   |   |   |
| Net                realized (gains) losses on sales of securities                available-for-sale  |   |                                                              | (11 | ) |   |   | 127 |   |
| Net                realized gains on sales of other assets                                           |   |                                                              | (11 | ) |   |   | (1 | ) |
| Amortization                of deferred premium on the early extinguishment of debt                  |   |                                                              | 1,352 |   |   |   | 2,568 |   |
| Net                interest income plus non-interest income - as adjusted                            |   | $                                                                 | 12,463 |   |   | $ | 13,367 |   |
| Core                efficiency ratio                                                                 |   |                                                              | 74.36 | % |   |   | 65.29 | % |

----

*table          of contents*

*Income      Tax Expense.*

**Changes      in Financial Condition**

*Securities.*

----

*table          of contents*

|                                                                                 |   |  **Amortized****Cost**             |    | **Gross**** Unrealized****Gains** |   | **Gross****Unrealized****Losses** |   |  **Fair****Value** |   |
|--------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|-----------------------------------|--------|-------------------------|--------|
|                                                                                 |   | (Dollars                  in thousands) |    |
| At                  March 31, 2007:                                                  |   |                                    |    |                                   |   |                              |   |                    |   |   |   |   |   |
| Government                  sponsored entity (*GSE*)                  securities (1) |   | $                                       | 275,562 |                                   | $      | 1,238                             |   | $                       | (615   | ) | $ | 276,185 |   |
| Mortgage-backed                  securities                                          |   |                                    | 16,419  |                                   |   | -                                 |   |                    | (186   | ) |   | 16,233 |   |
| Collateralized                  mortgage obligations                                 |   |                                    | 7,493   |                                   |   | 17                                |   |                    | (78    | ) |   | 7,432 |   |
| Equity                  securities                                                   |   |                                    | 1,260   |                                   |   | 138                               |   |                    | -      |   |   | 1,398 |   |
|                                                                                 |   | $                                       | 300,734 |                                   | $      | 1,393                             |   | $                       | (879   | ) | $ | 301,248 |   |
|                                                                                 |   |                                    |    |                                   |   |                              |   |                    |   |   |   |   |   |
| At                  December 31, 2006:                                               |   |                                    |    |                                   |   |                              |   |                    |   |   |   |   |   |
| Government                  sponsored entity (*GSE*)                  securities (1) |   | $                                       | 267,148 |                                   | $      | 905                               |   | $                       | (1,139 | ) | $ | 266,914 |   |
| Mortgage-backed                  securities                                          |   |                                    | 20,234  |                                   |   | 8                                 |   |                    | (254   | ) |   | 19,988 |   |
| Collateralized                  mortgage obligations                                 |   |                                    | 10,612  |                                   |   | 22                                |   |                    | (112   | ) |   | 10,522 |   |
| Equity                  securities                                                   |   |                                    | 1,385   |                                   |   | 116                               |   |                    | -      |   |   | 1,501 |   |
|                                                                                 |   | $                                       | 299,379 |                                   | $      | 1,051                             |   | $                       | (1,505 | ) | $ | 298,925 |   |

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

----

*table          of contents*

*Loans.*

|                                                                      |   | **March                  31, 2007**     |    | **December                  31, 2006** |   |       |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|---------|----------------------------------------|--------|------------|--------|
|                                                                      |   | **Amount**                              |    | **%                  of Total**        |   | **Amount** |   | **%                  of Total** |   | **%                  Change** |   |
|                                                                      |   | (Dollars                  in thousands) |    |
| Commercial                  and construction loans:                       |   |                                    |    |                                   |   |       |   |   |   |   |   |   |   |   |   |   |
| Commercial                  real estate                              |   | $                                       | 344,148 |                                   |   | 42.8       | %      | $ | 339,110 |   |   | 42.2 | % |   | 1.5 | % |
| Construction                  and land development                   |   |                                    | 125,334 |                                   |   | 15.6       |   |   | 128,529 |   |   | 16.0 |   |   | (2.5 | ) |
| Commercial                  and industrial                           |   |                                    | 41,434  |                                   |   | 5.1        |   |   | 35,743 |   |   | 4.5 |   |   | 15.9 |   |
| Total                  commercial loans                              |   |                                    | 510,916 |                                   |   | 63.5       |   |   | 503,382 |   |   | 62.7 |   |   | 1.5 |   |
|                                                                      |   |                                    |    |                                   |   |       |   |   |   |   |   |   |   |   |   |   |
| Retail                  loans:                                            |   |                                    |    |                                   |   |       |   |   |   |   |   |   |   |   |   |   |
| Single-family                  residential                           |   |                                    | 221,891 |                                   |   | 27.7       |   |   | 225,007 |   |   | 28.1 |   |   | (1.4 | ) |
| Home                  equity lines of credit                         |   |                                    | 67,939  |                                   |   | 8.4        |   |   | 70,527 |   |   | 8.8 |   |   | (3.7 | ) |
| Other                                                           |   |                                    | 3,496   |                                   |   | 0.4        |   |   | 3,467 |   |   | 0.4 |   |   | 0.8 |   |
| Total                  retail loans                                  |   |                                    | 293,326 |                                   |   | 36.5       |   |   | 299,001 |   |   | 37.3 |   |   | (1.9 | ) |
|                                                                      |   |                                    |    |                                   |   |       |   |   |   |   |   |   |   |   |   |   |
| Total                  loans receivable, net of unearned fees   |   | $                                       | 804,242 |                                   |   | 100.0      | %      | $ | 802,383 |   |   | 100.0 | % |   | 0.2 | % |

*Allowance      for Losses on Loans.*

----

*table          of contents*

|                                                      |   | **Three                Months Ended****March                31,** |   |
|-----------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                      |   | **2007**                                                          |   | **2006** |   |
|                                                      |   | (Dollars                in thousands)                             |   |
| Balance                at beginning of period             |   | $                                                                 | 11,184 |   | $ | 12,939 |   |
| Loans                charged-off                          |   |                                                              | (120   | ) |   | (147 | ) |
| Recoveries                of loans previously charged-off |   |                                                              | 149    |   |   | 160 |   |
| Net                loan recoveries                        |   |                                                              | 29     |   |   | 13 |   |
| Provision                for losses on loans              |   |                                                              | 187    |   |   | 385 |   |
| Balance                at end of period                   |   | $                                                                 | 11,400 |   | $ | 13,337 |   |
|                                                      |   |                                                              |   |   |   |   |   |

|                                                                 |   | **March                31****,****2007** |    | **December                31,****2006** |   | **March                31,****2006** |   |
|----------------------------------------------------------------------|--------|------------------------------------------|---------|-----------------------------------------|--------|--------------------------------------|--------|
| Allowance                for losses on loans                         |   | $                                        | 11,400  |                                    | $      | 11,184                               |   | $ | 13,337 |   |
| Total                loans receivable, net of unearned fees          |   |                                     | 804,242 |                                    |   | 802,383                              |   |   | 878,161 |   |
| Allowance                for losses on loans to total loans          |   |                                     | 1.42    | %                                       |   | 1.39                                 | %      |   | 1.52 | % |
| Allowance                for losses on loans to non-performing loans |   |                                     | 41.40   |                                    |   | 40.64                                |   |   | 52.22 |   |

*Non-performing Assets*

|                                                              |   | **March                31,****2007**  |   | **December                31,****2006** |   |
|-------------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
|                                                              |   | (Dollars                in thousands) |   |
| Impaired                loans:                                    |   |                                  |   |                                    |   |   |   |
| With                a valuation reserve                 |   | $                                     | 12,299 |                                    | $      | 12,343 |   |
| With                no valuation reserve required            |   |                                  | 5,837  |                                    |   | 5,837 |   |
| Total                impaired loans                          |   |                                  | 18,136 |                                    |   | 18,180 |   |
| Other                non-accrual loans                       |   |                                  | 9,401  |                                    |   | 9,337 |   |
| Total                non-accrual loans                       |   | $                                     | 27,537 |                                    | $      | 27,517 |   |
| Valuation                reserve relating to impaired loans  |   | $                                     | 5,193  |                                    | $      | 4,541 |   |
| Average                impaired loans                        |   |                                  | 18,165 |                                    |   | 17,527 |   |

----

*table          of          contents*

*Non-performing      Assets. *

|                                                                                                               |   | **March                31,****2007**  |   | **December                31,****2006** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                               |   | (Dollars                in thousands) |   |
| Non-accrual                loans:                                                                                  |   |                                  |
| Commercial                and construction loans:                                                                  |   |                                  |   |                                    |   |   |   |
| Commercial                real estate                                                                         |   | $                                     | 15,226 |                                    | $      | 15,863 |   |
| Construction                and land development                                                              |   |                                  | 7,603  |                                    |   | 7,192 |   |
| Commercial                and industrial                                                                      |   |                                  | 521    |                                    |   | 455 |   |
| Total                commercial and construction loans                                                        |   |                                  | 23,350 |                                    |   | 23,510 |   |
|                                                                                                               |   |                                  |   |                                    |   |   |   |
| Retail                loans:                                                                                       |   |                                  |   |                                    |   |   |   |
| Single-family                residential                                                                      |   |                                  | 3,259  |                                    |   | 3,177 |   |
| Home                equity lines of credit                                                                    |   |                                  | 889    |                                    |   | 772 |   |
| Other                                                                                                         |   |                                  | 39     |                                    |   | 58 |   |
| Total                retail loans                                                                             |   |                                  | 4,187  |                                    |   | 4,007 |   |
| Total                non-accruing loans                                                                       |   |                                  | 27,537 |                                    |   | 27,517 |   |
| Other                real estate owned, net                                                                   |   |                                  | 679    |                                    |   | 321 |   |
| Total                non-performing assets                                                                    |   |                                  | 28,216 |                                    |   | 27,838 |   |
| 90                days past due and still accruing interest                                                   |   |                                  | -      |                                    |   | - |   |
| Total                non-performing assets plus 90 days past due loans stillaccruing                interest  |   | $                                     | 28,216 |                                    | $      | 27,838 |   |
| Non-performing                assets to total assets                                                          |   |                                  | 2.28   | %                                       |   | 2.22 | % |
| Non-performing                loans to total loans                                                            |   |                                  | 3.42   | %                                       |   | 3.43 | % |

*Deposits      and Borrowed Money.*

|                                       |   | **March                31, 2007**     |    |   | **December                31, 2006** |   |   |       |   |
|--------------------------------------------|--------|---------------------------------------|---------|--------|--------------------------------------|--------|--------|------------|--------|
|                                       |   | **Amount**                            |    |   | **%                of Total**        |   |   | **Amount** |   |   | **%                of Total** |   |   | **%                Change** |   |
|                                       |   | (Dollars                in thousands) |    |
| Checking                accounts:          |   |                                  |    |   |                                 |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest                bearing   |   | $                                     | 63,644  |   |                                 |   | 7.1    | %          |   | $ | 58,547 |   |   |   | 6.5 | % |   |   | 8.7 | % |
| Interest-bearing                      |   |                                  | 100,919 |   |                                 |   | 11.3   |       |   |   | 100,912 |   |   |   | 11.1 |   |   |   | - |   |
| Money                market accounts  |   |                                  | 184,092 |   |                                 |   | 20.6   |       |   |   | 182,153 |   |   |   | 20.1 |   |   |   | 1.1 |   |
| Savings                accounts       |   |                                  | 151,024 |   |                                 |   | 16.9   |       |   |   | 148,707 |   |   |   | 16.4 |   |   |   | 1.6 |   |
| Core                deposits          |   |                                  | 499,679 |   |                                 |   | 55.9   |       |   |   | 490,319 |   |   |   | 54.1 |   |   |   | 1.9 |   |
| Certificates                of deposit:    |   |                                  |    |   |                                 |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Less                than $100,000     |   |                                  | 270,995 |   |                                 |   | 30.3   |       |   |   | 281,810 |   |   |   | 31.0 |   |   |   | (3.8 | ) |
| $100,000                or greater    |   |                                  | 123,747 |   |                                 |   | 13.8   |       |   |   | 134,966 |   |   |   | 14.9 |   |   |   | (8.3 | ) |
| Time                deposits          |   |                                  | 394,742 |   |                                 |   | 44.1   |       |   |   | 416,776 |   |   |   | 45.9 |   |   |   | (5.3 | ) |
| Total                deposits         |   | $                                     | 894,421 |   |                                 |   | 100.0  | %          |   | $ | 907,095 |   |   |   | 100.0 | % |   |   | (1.4 | ) |

----

*table          of contents*

*Repo Sweep*

|                                                                                 |   | **March                31, 2007**              |   |   | **December                31, 2006** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|--------|--------------------------------------|--------|
|                                                                                 |   | **Weighted****Average****Contractual****Rate** |   |   |   **Amount**               |   |   | **Weighted****Average****Contractual****Rate** |   |   |   **Amount** |   |
|                                                                                 |   | (Dollars                in thousands)          |   |
| Other                short-term borrowings                                      |   |                                           | 4.20   | %      |                                 | $      | 17,548 |   |   |   | 4.75 | % |   | $ | 23,117 |   |
|                                                                                 |   |                                           |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Secured                advances from FHLB - Indianapolis:                            |   |                                           |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| 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   |   |                                 |   | 1,190 |   |   |   | 6.71 |   |   |   | 1,190 |   |
| Maturing                in 2018 - fixed-rate (1)                                     |   |                                           | 5.54   |   |                                 |   | 2,763 |   |   |   | 5.54 |   |   |   | 2,763 |   |
| Maturing                in 2019 - fixed-rate (1)                                     |   |                                           | 6.31   |   |                                 |   | 7,333 |   |   |   | 6.31 |   |   |   | 7,372 |   |
|                                                                                 |   |                                           |   |   |                                 |   | 185,286 |   |   |   |   |   |   |   | 185,325 |   |
| Less:                deferred premium on early extinguishment of                debt |   |                                           |   |   |                                 |   | (4,815 | ) |   |   |   |   |   |   | (6,167 | ) |
| Net                FHLB - Indianapolis advances                                 |   |                                           |   |   |                                 |   | 180,471 |   |   |   |   |   |   |   | 179,158 |   |
|                                                                                 |   |                                           |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total                borrowed money                                             |   |                                           |   |   |                                 | $      | 198,019 |   |   |   |   |   |   | $ | 202,275 |   |
| Weighted-average                contractual interest rate                       |   |                                           | 3.96   | %      |                                 |   |   |   |   |   | 4.02 | % |   |   |   |   |

----

*table          of contents*

*Capital      Resources. *

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

*OTS*

----

*table          of contents*

|                                    |   | **Actual**                            |    |   |  **For                Capital Adequacy****Purposes** |   |   |  **To                Be Well-Capitalized Under Prompt Corrective****Action                Provisions** |   |
|-----------------------------------------|--------|---------------------------------------|---------|--------|-----------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|                                    |   | **Amount**                            |    |   | **Ratio**                                                 |   |   |  **Amount**                                                                                            |   |   | **Ratio** |   |   |  **Amount** |   |   | **Ratio** |   |
|                                    |   | (Dollars                in thousands) |    |
| As                of March 31, 2007:    |   |                                  |    |   |                                                      |   |   |                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                              |   | $                                     | 131,305 |   |                                                      |   | 13.91  | %                                                                                                           |   | $ | 75,544 |   |   |   | >8.00 | % |   | $ | 94,430 |   |   |   | >10.00 | % |
| Tangible                                |   |                                  | 119,936 |   |                                                      |   | 9.71   |                                                                                                        |   |   | 18,519 |   |   |   | >1.50 |   |   |   | 24,692 |   |   |   | >2.00 |   |
| Core                                    |   |                                  | 119,936 |   |                                                      |   | 9.71   |                                                                                                        |   |   | 49,384 |   |   |   | >4.00 |   |   |   | 61,730 |   |   |   | >5.00 |   |
|                                    |   |                                  |    |   |                                                      |   |   |                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As                of December 31, 2006: |   |                                  |    |   |                                                      |   |   |                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Risk-based                              |   | $                                     | 132,762 |   |                                                      |   | 14.10  | %                                                                                                           |   | $ | 75,332 |   |   |   | >8.00 | % |   | $ | 94,165 |   |   |   | >10.00 | % |
| Tangible                                |   |                                  | 121,599 |   |                                                      |   | 9.71   |                                                                                                        |   |   | 18,780 |   |   |   | >1.50 |   |   |   | 25,040 |   |   |   | >2.00 |   |
| Core                                    |   |                                  | 121,599 |   |                                                      |   | 9.71   |                                                                                                        |   |   | 50,080 |   |   |   | >4.00 |   |   |   | 62,600 |   |   |   | >5.00 |   |

**Liquidity      and Commitments **

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

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

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

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

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

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

----

*table          of contents*

*Contractual      Obligations.*
** **

|                                                   |   | **Payments                Due By Period**             |    |
|--------------------------------------------------------|--------|-------------------------------------------------------|---------|
|                                                   |   | **One                Year****Or                Less** |    | **Over                One****Through****Three                Years** |   | **Over                Three Through****Five                Years** |   | **Over                Five****Years** |   | **Total** |   |
|                                                   |   | (Dollars                in thousands)                 |    |
| FHLB                advances (1)                  |   | $                                                     | 87,256  |   | $ | 87,568 |   | $ | 651 |   | $ | 9,811 |   | $ | 185,286 |   |
| Repo                Sweeps (2)                    |   |                                                  | 17,548  |   |   | - |   |   | - |   |   | - |   |   | 17,548 |   |
| Operating                leases                   |   |                                                  | 522     |   |   | 682 |   |   | 133 |   |   | 20 |   |   | 1,357 |   |
| Dividends                payable on common stock  |   |                                                  | 1,333   |   |   | - |   |   | - |   |   | - |   |   | 1,333 |   |
|                                                   |   | $                                                     | 106,659 |   | $ | 88,250 |   | $ | 784 |   | $ | 9,831 |   | $ | 205,524 |   |

*Deposits and Borrowed      Money*

*Off-Balance      Sheet Obligations.*

----

*table          of contents*

|                                                               |   | **One                Year****or                Less** |    | **Over                One****Through****Three                Years** |   | **Over                Three Through****Five                Years** |   | **Over                Five****Years** |   | **Total** |   |
|--------------------------------------------------------------------|--------|-------------------------------------------------------|---------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|---------------------------------------|--------|-----------|--------|
|                                                               |   | (Dollars                in thousands)                 |    |
| Commitments                to extend credit:                       |   |                                                  |    |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   | $                                                     | 70,756  |                                                                 | $      | 8,217                                                              |   | $                                     | 1,172  |      | $      | 1,097 |   | $ | 81,242 |   |
| Retail                                                             |   |                                                  | 13,570  |                                                                 |   | -                                                                  |   |                                  | -      |      |   | - |   |   | 13,570 |   |
| Commitments                to purchase loans:                      |   |                                                  |    |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   |                                                  | 43,213  |                                                                 |   | -                                                                  |   |                                  | -      |      |   | - |   |   | 43,213 |   |
| Commitments                to fund unused construction loans  |   |                                                  | 19,971  |                                                                 |   | 14,659                                                             |   |                                  | 8,348  |      |   | 7,895 |   |   | 50,873 |   |
| Commitments                to fund unused lines of credit:         |   |                                                  |    |                                                                 |   |                                                               |   |                                  |   |      |   |   |   |   |   |   |
| Commercial                                                         |   |                                                  | 18,508  |                                                                 |   | 9,017                                                              |   |                                  | 357    |      |   | - |   |   | 27,882 |   |
| Retail                                                             |   |                                                  | 12,980  |                                                                 |   | 221                                                                |   |                                  | 260    |      |   | 58,725 |   |   | 72,186 |   |
| Letters                of credit                              |   |                                                  | 4,838   |                                                                 |   | 5,782                                                              |   |                                  | 386    |      |   | - |   |   | 11,006 |   |
| Credit                enhancements                            |   |                                                  | -       |                                                                 |   | 35,951                                                             |   |                                  | 609    |      |   | 5,300 |   |   | 41,860 |   |
|                                                               |   | $                                                     | 183,836 |                                                                 | $      | 73,847                                                             |   | $                                     | 11,132 |      | $      | 73,017 |   | $ | 341,832 |   |

*IDPLOC*

----

*table          of          contents*

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

*IRR*
*NPV*

*ALCO*

----

*table          of contents*

|                                                             |   | **Net                  Portfolio Value**    |    |
|------------------------------------------------------------------|--------|---------------------------------------------|---------|
|                                                             |   | **At                  December 31, 2006**   |    |   | **At                  December 31, 2005** |   |
|                                                             |   | **$                  Amount**               |    | **$                  Change** |   | **%                  Change** |   |   | **$                  Amount** |   | **$                  Change** |   | **%                  Change** |   |
|                                                             |   | **(Dollars                  in thousands)** |    |
| Assumed                  Change in Interest Rates (Basis Points) |   |                                        |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| +300                                                             |   | $                                           | 145,688 |   | $ | (32,565 | ) |   | (18.3 | )% |   | $ | 156,592 |   | $ | (12,288 | ) |   | (7.3 | )% |
| +200                                                             |   |                                        | 157,889 |   |   | (20,364 | ) |   | (11.4 | ) |   |   | 162,507 |   |   | (6,373 | ) |   | (3.8 | ) |
| +100                                                             |   |                                        | 168,493 |   |   | (9,760 | ) |   | (5.5 | ) |   |   | 166,875 |   |   | (2,005 | ) |   | (1.2 | ) |
| 0                                                                |   |                                        | 178,253 |   |   | - |   |   | - |   |   |   | 168,880 |   |   | - |   |   | - |   |
| -100                                                             |   |                                        | 185,481 |   |   | 7,228 |   |   | 4.1 |   |   |   | 168,938 |   |   | 58 |   |   | (0.0 | ) |
| -200                                                             |   |                                        | 192,248 |   |   | 13,995 |   |   | 7.9 |   |   |   | 166,802 |   |   | (2,078 | ) |   | (1.2 | ) |

|                                        |   |   | **Percentage                of Deposits Maturing In First Year** |   |
|---------------------------------------------|--------|--------|------------------------------------------------------------------|--------|
|                                        |   |   | **March                31, 2007**                                |   | **December                31, 2006** |   |
| Deposit                Category:            |   |   |                                                             |   |   |   |   |   |
| Business                checking accounts   |   |   |                                                             | 20     | % |   | 20 | % |
| Interest                checking accounts   |   |   |                                                             | 20     |   |   | 20 |   |
| High-yield                checking accounts |   |   |                                                             | 95     |   |   | 95 |   |
| Savings                accounts             |   |   |                                                             | 30     |   |   | 30 |   |
| Money                market accounts        |   |   |                                                             | 50     |   |   | 50 |   |

*rate shocks*

|                                                                          |   | **Percentage                Change in****Net                Interest Income****Over                a Twelve Month****Time                Period** |
|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                          |   | **March                31, 2007**                                                                                                                 |   | **December                31, 2006** |
| Assumed                Change in Interest Rates(Basis                Points): |   |                                                                                                                                              |   |   |   |   |   |   |
| +200                                                                          |   |                                                                                                                                              | (0.5 | )% |   |   | (0.8 | )% |
| +100                                                                          |   |                                                                                                                                              | (0.1 | ) |   |   | (0.2 | ) |
| -100                                                                          |   |                                                                                                                                              | (0.5 | ) |   |   | (0.6 | ) |
| -200                                                                          |   |                                                                                                                                              | (2.7 | ) |   |   | (3.1 | ) |

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*table          of contents*

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

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

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

**Legal      Proceedings**

----

*table          of contents*

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

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

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

| **Period**                         |   | **Total                Number of Shares****Purchased** |    | **Average                Price****Paid                Per Share** |   | **Total                Number of Shares Purchased as Part of Publicly Announced****Plans                or Programs** |   | **Maximum                Number of Shares that May Yet Be Purchased Under the****Plans                or Programs (1)** |    |
|------------------------------------|--------|--------------------------------------------------------|---------|-------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|---------|
| January                1-31, 2007  |   |                                                   | 19,941  |                                                              | $      | 14.68                                                                                                                 |   |                                                                                                                    | 19,941  |   |   | 168,342 |   |
| February                1-28, 2007 |   |                                                   | 140,027 |                                                              |   | 14.79                                                                                                                 |   |                                                                                                                    | 140,027 |   |   | 628,315 |   |
| March                1-31, 20007   |   |                                                   | 103,560 |                                                              |   | 14.83                                                                                                                 |   |                                                                                                                    | 103,560 |   |   | 524,755 |   |
| Total                              |   |                                                   | 263,528 |                                                              |   | 14.79                                                                                                                 |   |                                                                                                                    | 263,528 |   |   | 524,755 |   |

| (1) | The                Company publicly announced on June 15, 2006 a repurchase program                for                600,000 shares. Prior to January 1, 2007, 411,717 shares had been                repurchased under that program. A total of 188,283 shares were repurchased                under this program during the first quarter of 2007. On February                27, 2007,                the Company publicly announced a new share repurchase plan for an                additional 600,000 shares. A total of 75,245 shares were repurchased                under                this program during the first quarter of 2007. During April 2007,                the                Company repurchased 31,761 shares under this                program. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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*table          of          contents*

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

----

*table          of          contents*

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

|   | (a)    |   | List                of exhibits (filed herewith unless otherwise                noted).                                                         |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                            |
|   | 3.1    |   | Certificate                of Incorporation of CFS Bancorp, Inc.                (1)                                                             |
|   | 3.2    |   | Bylaws                of CFS Bancorp, Inc. (1)                                                                                                  |
|   | 4.0    |   | Form                of Stock Certificate of CFS Bancorp, Inc.                (2)                                                                |
|   | 10.1   |   | Employment                Agreement entered into between Citizens Financial                Bank and Thomas F. Prisby (3)                        |
|   | 10.2   |   | Employment                Agreement entered into between CFS Bancorp, Inc.                and Thomas F. Prisby (3)                              |
|   | 10.3   |   | CFS                Bancorp, Inc. Amended and Restated 1998 Stock Option                Plan (4)                                                 |
|   | 10.4   |   | CFS                Bancorp, Inc. Amended and Restated 1998 Recognition and                Retention Plan and Trust Agreement (4)                |
|   | 10.5   |   | CFS                Bancorp, Inc. 2003 Stock Option Plan (5)                                                                                     |
|   | 10.6   |   | Employment                Agreement entered into between Citizens Financial                Bank and Charles V. Cole (3)                         |
|   | 10.7   |   | Employment                Agreement entered into between Citizens Financial                Bank and Thomas L. Darovic (3)                       |
|   | 10.8   |   | Employment                Agreement entered into between CFS Bancorp, Inc.                and Charles V. Cole (3)                               |
|   | 10.9   |   | Employment                Agreement entered into between CFS Bancorp, Inc.                and Thomas L. Darovic (3)                             |
|   | 10.10  |   | Employment                Agreement entered into between Citizens Financial                Services, FSB and Zoran Koricanac (6)                |
|   | 10.11  |   | Employment                Agreement entered into between CFS Bancorp, Inc.                and Zoran Koricanac (6)                               |
|   | 10.12  |   | Amended                and Restated Supplemental ESOP Benefit Plan of CFS                Bancorp, Inc. and Citizens Financial Services, FSB (6) |
|   | 10.13  |   | CFS                Bancorp, Inc. Directors’ Deferred Compensation Plan                (6)                                                 |
|   | 31.1   |   | Rule                13a-14(a) Certification of Chief Executive Officer                                                                          |
|   | 31.2   |   | Rule                13a-14(a) Certification of Chief Financial Officer                                                                          |
|   | 32.0   |   | Section                1350 Certifications                                                                                                      |

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

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

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

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

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

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

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*table          of          contents*

**SIGNATURES**

**CFS      BANCORP, INC.**

| Date:                May 10, 2007 | By:    | /s/                Thomas F. Prisby                          |
|-----------------------------------|--------|--------------------------------------------------------------|
|                              |   | Thomas                F. Prisby, Chairman of the Board and   |
|                              |   | Chief                Executive Officer                       |
|                              |   |                                                         |
| Date:                May 10, 2007 | By:    | /s/                Charles V. Cole                           |
|                              |   | Charles                V. Cole, Executive Vice President and |
|                              |   | Chief                Financial Officer                       |

----