Edgar Filing: CFS BANCORP INC

CFS Bancorp, Inc. Form 10-Q 033107

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2007.

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

For the transition period from _________ to __________.

Commission file number: 0-24611

CFS Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

707 Ridge Road, Munster, Indiana 46321

(Address of principal executive offices)

(219) 836-5500

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES R NO £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £ Accelerated filer R Non-accelerated filer £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES £ NO R

The Registrant had 10,975,051 shares of Common Stock issued and outstanding as of April 30, 2007.

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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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 shares outstanding		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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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.

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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.

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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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CFS BANCORP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Financial Statements Presentation

The condensed consolidated financial statements of CFS Bancorp, Inc. (including its consolidated subsidiaries, the Company) as of March 31, 2007 and for the three months ended March 31, 2007 and March 31, 2006 are unaudited; however, the financial information reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows of the Company for the interim periods. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results expected for the full year ending December 31, 2007. The accompanying condensed consolidated financial statements do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles. The March 31, 2007 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K. The condensed consolidated statement of condition of the Company as of December 31, 2006 has been derived from the audited consolidated statement of condition as of that date.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments or assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates, judgments and assumptions affect the amounts reported in the condensed consolidated financial statements and the disclosures provided. The determination of the allowance for losses on loans and the accounting for income taxes are highly dependent on management’s estimates, judgments and assumptions where changes in those estimates and assumptions could have a significant impact on the financial statements.

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

2. Share-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) addresses all forms of share-based payment awards, including shares under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS 123(R) requires all share-based payments to be recognized as expense, based upon their fair values, in the financial statements over the vesting period of the awards. The Company has elected the modified prospective application.

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Since all of the stock options that have been granted by the Company vested prior to January 1, 2006, the Company did not record any compensation expense related to its stock options for the three months ended March 31, 2007 and 2006.

Prior to the adoption of SFAS 123(R), unearned compensation related to the Company’s RRP was classified as a separate component of stockholders’ equity. In accordance with the provisions of SFAS 123(R), on January 1, 2006, the remaining balance of the Company’s unearned common stock related to the RRP was reclassified to additional paid-in capital on the Company’s statement of financial condition.

Stock Options

The Company has stock option plans under which shares of Company common stock are reserved for the grant of both incentive and non-qualified stock options to directors, officers and employees. The dates the stock options are first exercisable and expire are determined by the Compensation Committee of the Company’s Board of Directors at the time of the grant. The exercise price of the stock options is equal to the fair market value of the common stock on the grant date. All of the Company’s options are fully vested. The Company did not grant any options during the three months ended March 31, 2007 and 2006.

The following table presents the activity related to options under the Company’s stock option plans for the three months ended March 31, 2007. The number of shares presented is in thousands.

	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

For stock options outstanding at March 31, 2007, the range of exercise prices was $8.19 to $14.76 and the weighted-average remaining contractual term was 4.8 years.

At March 31, 2007, the aggregate intrinsic value of options outstanding totaled $3.8 million. This value represents the difference between the Company’s closing stock price on the last day of trading for the three months ended March 31, 2007 and the exercise price multiplied by the number of in-the-money options assuming all option holders had exercised their stock options on March 31, 2007.

The aggregate intrinsic value of options exercised during the three months ended March 31, 2007 and 2006 was $462,000 and $610,000, respectively. The exercise of options during the three months ended March 31, 2007 and 2006 resulted in cash receipts of $1.2 million and $1.7 million and a tax benefit of $171,000 and $200,000, respectively.

The Company reissues treasury shares to satisfy option exercises.

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Recognition and Retention Plan

In February 1999, the Company, with shareholder approval, established the RRP, which is a stock-based incentive plan, and a stock option plan. The Bank contributed $7.5 million to the RRP to purchase an aggregate total of 714,150 shares of Company common stock. At January 1, 2006, there were no shares available to be granted under this plan.

The shares granted in the RRP vest to the participants at the rate of 20% per year. As a result, expense for this plan is being recorded over a 60-month period from the date of grant and is based on the market value of the Company’s stock as of the date of grant. The remaining unamortized cost of the RRP is reflected as a reduction in stockholders’ equity. As of March 31, 2007, the remaining unamortized cost of the RRP totaled $98,000. The majority of the cost is expected to be recognized over the next twelve months.

The following table presents the activity for the RRP for the three months ended March 31, 2007.

	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)

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

	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

The following table sets forth the computation of basic and diluted earnings per share for the periods presented:

	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.

For the three months ended March 31, 2007 and 2006, the Company had 20,000 and 220,000, respectively, anti-dilutive options which were not included in the above earnings per share calculations.

5. Change in Accounting Principle

The Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of FIN 48, no material reserves for uncertain income tax positions have been recorded, however, the Company reduced its reserves for certain tax positions by $240,000. This reduction was recorded as a cumulative adjustment to equity.

The Company files income tax returns in the U.S. federal, Indiana, and Illinois jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years before 2003.

The Company’s policy for recording interest and penalties associated with audits is to record these items as a component of income tax expense in the consolidated statement of income. For the first quarter of 2007, the Company did not record any expense associated with interest or penalties.

6. Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements required under other accounting

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pronouncements, but does not change existing guidance as to whether an instrument is carried at fair value. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Earlier application is encouraged provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 which will permit entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the Fair Value Option). The Fair Value Option permits all entities to choose to measure eligible items at fair value at specified election dates. An entity will be required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is expected to improve financial reporting by providing entities with the opportunity to mitigate volatility without having to apply complex hedge accounting provisions and is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, Fair Value Measurements. The Company did not elect to early adopt SFAS No. 159 and has not yet made a determination if it will elect to apply the options available in SFAS No. 159.

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

The Company’s net income for the first quarter of 2007 was relatively stable at $1.3 million when compared to the same period in 2006. Diluted earnings per share increased $0.01 per share or 9.1% to $0.12 for the first quarter of 2007 from $0.11 per share for the first quarter of 2006.

The Company’s net interest margin increased 35 basis points or 13.6% to 2.93% for the first quarter of 2007 from 2.58% for the fourth quarter of 2006 and 11 basis points or 3.9% from 2.82% for the first quarter of 2006. The Company’s net interest income increased $442,000 or 5.5% to $8.5 million for the first quarter of 2007 from $8.1 million for the fourth quarter of 2006 and $288,000 or 3.5% from $8.2 million for the first quarter of 2006.

During the first quarter of 2007, the Company implemented cost-savings initiatives related to compensation and benefits expense. The Company modified its loan to the Employee Stock Ownership Plan (ESOP) by extending the term of the loan an additional eight years from December 31, 2009 to 2017 and reducing the interest rate on the loan from 8.5% to 4.64%. The loan modification is expected to reduce the expense related to the plan by $1.1 million (pre-tax) in 2007.

In addition, the Company reduced its overall staffing level by 7.5% through attrition, consolidation and voluntary separation. The reduction involved a twelve week period of process reviews, performance reviews, analyses of new software upgrades and purchases, and an executive separation offering. In conjunction with the separations, the Company recorded a pre-tax charge of $280,000 for termination benefits. The staffing level reduction is expected to reduce salary and benefits expense by $1.3 million annually and the Company expects to reach that annualized run rate of savings by the end of the first quarter of 2008.

Total loans receivable were $804.2 million at March 31, 2007 compared to $802.4 million at December 31, 2006. During the first quarter of 2007, the Company had total loan fundings and purchases of $76.3 million which were offset by $74.0 million of loan repayments and sales. The amount of loan repayments and sales for the 2007 period decreased from the higher level of repayments experienced during 2006 which included $109.5 million in the fourth quarter of 2006. At March 31, 2007, the Company had $112.2 million of commercial and construction loans approved not yet closed, which is up $66.2 million or 144% from $46.0 million at December 31, 2006. Management attributes this increase in the loan pipeline to the staffing level and experience of its current commercial lenders.

Total deposits were $894.4 million at March 31, 2007 compared to $907.1 million at December 31, 2006. Total core deposits increased $9.4 million or 1.9% from December 31, 2006 due primarily to increases in non-interest bearing deposits and other low cost deposit accounts. During the first quarter of 2007, the Company implemented its customer-centric relationship management program which is designed to increase core deposit relationships with new and existing customers. The increase in core deposits was more than offset by a $22.0 million decrease in certificates of deposit due to the managed run-off of maturing high-rate promotional certificates during the first quarter of 2007.

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Critical Accounting Policies

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

The Company’s significant accounting policies are presented in Note 1 to the consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” of its Annual Report on Form 10-K for the year ended December 31, 2006. These policies, along with the disclosures presented in the notes to the Company’s unaudited financial statements included in Item 1 of this Form 10-Q and in this management’s discussion and analysis, provide information on the methodology for the valuation of significant assets and liabilities in the Company’s financial statements. Management views critical accounting policies to be those that are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for losses on loans and the accounting for income taxes to be critical accounting policies.

Allowance for Losses on Loans. The Company maintains an allowance for losses on loans at a level management believes is sufficient to absorb credit losses inherent in the loan portfolio. The allowance for losses on loans represents the Company’s estimate of probable incurred losses in the loan portfolio at each statement of condition date and is based on the review of available and relevant information.

One component of the allowance for losses on loans contains allocations for probable inherent but undetected losses within various pools of loans with similar characteristics pursuant to Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies. This component is based in part on certain loss factors applied to various loan pools as stratified by the Company. In determining the appropriate loss factors for these loan pools, management considers historical charge-offs and recoveries; levels of and trends in delinquencies, impaired loans and other classified loans; concentrations of credit within the commercial loan portfolios; volume and type of lending; and current and anticipated economic conditions.

The second component of the allowance for losses on loans contains allocations for probable losses that have been identified relating to specific borrowing relationships pursuant to SFAS No. 114, Accounting by Creditors for Impairment of a Loan. This component of the allowance for losses on loans consists of expected losses resulting in specific credit allocations for individual loans not considered within the above mentioned loan pools. The analysis on each loan involves a high degree of judgment in estimating the amount of the loss associated with the loan, including the estimation of the amount and timing of future cash flows and collateral values.

Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. The Company assesses the adequacy of the allowance for losses on loans on a quarterly basis and adjusts the allowance for losses on loans by recording a provision for losses on loans in an amount sufficient to maintain the allowance at an appropriate level.

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The evaluation of the adequacy of the allowance for losses on loans is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur. To the extent that actual outcomes differ from management estimates, an additional provision for losses on loans could be required which could adversely affect earnings or the Company’s financial position in future periods. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the provision for losses on loans for the Bank and the carrying value of its other non-performing loans, based on information available to them at the time of their examinations. Any of these agencies could require the Bank to make additional provisions for losses on loans.

Income Tax Accounting. Income tax expense recorded in the Company’s consolidated statements of income involves management’s interpretation and application of certain accounting pronouncements and federal and state tax codes. As such, the Company has identified income tax accounting as a critical accounting policy. The Company is subject to examination by various regulatory taxing authorities. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment of tax liabilities, the impact of which could be significant to the consolidated results of operations and reported earnings.

In addition, the Company adopted FIN 48 effective January 1, 2007. FIN 48 requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the Company’s operating results. Management believes the tax liabilities are adequately and properly recorded in the Company’s consolidated financial statements.

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

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

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	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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Rate / Volume Analysis

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

	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. The Company’s net interest income for the three months ended March 31, 2007 increased 3.5% to $8.5 million from $8.2 million for the 2006 period. The net interest margin for the first quarter of 2007 increased 11 basis points to 2.93% from 2.82%. Although the first quarter of 2007 continued to see an inverted yield curve, the Company increased its net interest income and net interest margin as a result of higher rates earned on the Company’s interest earning assets combined with a decrease in the amount of interest expense related to the amortization of the deferred premium on the early extinguishment of FHLB debt. These favorable variances on interest income were partially offset by an increase in market rates paid on deposits.

Interest Income. The Company’s interest income increased 3.9% to $18.7 million for first quarter of 2007 from $18.0 million for the comparable 2006 period. The weighted-average yield on the Company’s interest-earning assets for the 2007 period increased 26 basis points to 6.41% from 6.15%

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for the comparable 2006 period. This increase was primarily a result of the upward repricing of adjustable-rate loans reflecting higher market rates of interest combined with the Company’s reinvestment of proceeds from maturities and paydowns of relatively low rate securities into higher yielding securities. At March 31, 2007, the Company’s $804.2 million net loan portfolio consisted of $195.1 million of variable-rate loans indexed to the Wall Street Journal Prime lending rate and another $350.8 million of variable-rate loans tied to other indices.

The Company’s average interest-earning assets were stable at $1.2 billion for the first quarter of 2007 compared to the 2006 period. The average balance of loans receivable for the first quarter of 2007 were negatively impacted by the unusually high level of loan repayments experienced during 2006 due to: (i) the borrower’s sale of the underlying collateral to take advantage of recent increases in real estate values; (ii) the Company’s focus on strengthening its credit quality by allowing certain lending relationships to be refinanced elsewhere; and (iii) the availability of lower interest rates for borrowers through conduit financing arrangements.

Interest Expense. The Company’s interest expense was $10.1 million for the first quarter of 2007 compared to $9.7 million for the 2006 period. The Company’s average cost of interest-bearing liabilities was 3.91% for the first quarter of 2007 compared to 3.81% for the 2006 period. The increases were primarily a result of the increased costs of money market accounts and certificates of deposit which were partially offset by decreased borrowing costs.

Interest expense on interest-bearing deposits was $6.7 million for the first quarter of 2007 compared to $4.5 million for the 2006 period. The average cost of interest-bearing deposits increased 83 basis points from the 2006 period due to the increase in the average balances and the upward repricing of money market and certificates of deposit as a result of higher market rates of interest existing since March 2006. With the implementation of the Company’s customer-centric relationship management program, the Company anticipates an increase in the level of non-interest bearing deposit accounts and lower cost checking and savings accounts which could help mitigate the future impact of rising market interest rates on deposit accounts.

The Company’s total interest expense for the first quarter of 2007 was positively impacted by decreases in interest expense on borrowed money of $1.7 million or 33.6% from the 2006 period. The decrease was a result of lower amortization of the deferred premium on the early extinguishment of debt (Premium Amortization) to $1.4 million for the first quarter of 2007 from $2.6 million for 2006. The Premium Amortization adversely impacted the Company’s net interest margin by 47 basis points and 88 basis points, respectively, for the first quarter of 2007 and 2006. The interest expense related to the Premium Amortization is expected to be $1.3 million, $1.1 million, $851,000 and $527,000 before taxes in the quarters ended June 30, 2007, September 30, 2007, December 31, 2007 and March 31, 2008, respectively.

Non-interest income. The Company’s non-interest income for the first quarter of 2007 increased 7.1% to $2.6 million from $2.4 million for the 2006 period. The following table identifies the changes in non-interest income for the periods presented:

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	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	%

The Company’s service charges and other fees decreased from the 2006 period due to lower overdraft fees during the quarter as deposit customers are changing their behavior patterns related to overdrafts and fees. Card-based fees increased during the first quarter of 2007 from the comparable 2006 period due to higher usage of and an increase in the number of active ATM and debit cards. Commission income from the Company’s third-party service provider for the sale of investment products was lower for the 2007 period as rates offered on certificates of deposit have become more competitive relative to the yields available on non-deposit products. Other income increased during the 2007 period primarily due to an increase in rental income from the Company’s Darien, Illinois office as the space was leased at the end of 2006 as well as an increase in net gains on the sale of single-family mortgage loans to the secondary market during the first quarter of 2007.

Non-interest expense. Non-interest expense for the first quarter of 2007 was $9.3 million compared to $8.7 million for the 2006 period. The following table identifies the changes in non-interest expense for the periods presented:

	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	%

Compensation and mandatory benefits expense increased during the first quarter of 2007 as a result of the hiring of eight additional commercial lenders since early 2006. The Company also incurred $280,000 of termination benefits expense related to its review and reduction of staffing levels completed

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during the first quarter of 2007. Partially offsetting these increases was a reduction in retirement and stock related compensation totaling $128,000 related to the first quarter 2007 ESOP loan modification and $360,000 relating to a reduction in pension expense. Professional fees were negatively impacted by consulting fees associated with the implementation of the Company’s customer-centric relationship management program combined with increased legal expenses relating to modifications to the Bank’s ESOP loan and 401(k) benefit plan, the reduction in the workforce and new SEC proxy disclosure requirements. In addition, net occupancy expense and furniture and equipment expense increased due to the opening of the Company’s Tinley Park, Illinois office during the first quarter of 2007.

The Company’s efficiency and core efficiency ratios for the three months ended March 31, 2007 and 2006 are presented in the following table:

	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	%

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

The Company’s core efficiency ratio is calculated as non-interest expense, excluding any prepayment penalties incurred as a result of the early extinguishment of debt, divided by the sum of net interest income before the provision for losses on loans, excluding the deferred premium amortization related to the early extinguishment of debt, and non-interest income, adjusted for gains or losses on the sale of securities and other assets and other-than-temporary impairments. Management believes that the core efficiency ratio enhances investors’ understanding of its business and performance. The measure is also believed to be useful in understanding the Company’s performance trends and to facilitate

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comparisons with the performance of others in the financial services industry. Management further believes the presentation of the core efficiency ratio provides useful supplemental information, a clearer understanding of the Company’s financial performance, and better reflects the Company’s core operating activities.

The risks associated with utilizing operating measures (such as the efficiency ratio) are that various persons might disagree as to the appropriateness of items included or excluded in these measures and that other companies might calculate these measures differently. Management of the Company compensates for these limitations by providing detailed reconciliations between GAAP information and its core efficiency ratio above.

Income Tax Expense. The Company’s income tax expense totaled $366,000 for the first quarter of 2007 compared to $252,000 for the comparable 2006 period reflecting an increase in the effective tax rate to 21.8% for the first quarter of 2007 from 16.1% for the comparable 2006 period. The increase in the effective tax rate was due to lower tax credits available during the quarter which reduce the Company’s income tax expense. Permanent tax differences, primarily related to the Company’s investment in bank-owned life insurance, and the application of available tax credits continue to have a favorable impact on income tax expense.

Changes in Financial Condition

Securities. The Company manages its securities portfolio to adjust balance sheet interest rate sensitivity to insulate net interest income against the impact of changes in market interest rates, to maximize the return on invested funds within acceptable risk guidelines and to meet pledging and liquidity requirements.

The Company adjusts the size and composition of its securities portfolio according to a number of factors including expected loan growth, the interest rate environment and projected liquidity. The amortized cost of the Company’s securities available-for-sale and their fair values were as follows at the dates indicated:

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	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

(1) At March 31, 2007 and December 31, 2006, the Company held $12.3 million and $15.3 million, respectively in callable GSE securities, which had call features at amounts not less than par, which were purchased at a discount.

During the first quarter of 2007, approximately $2.4 million of available-for-sale securities were sold incurring an aggregate net gain on the sales of $11,000. In addition, the Company reinvested funds from maturities and paydowns totaling $29.4 million by purchasing $32.9 million of securities during the quarter.

The Company evaluates all securities to determine if an other-than-temporary impairment (OTTI) exists pursuant to guidelines established in FSP 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments on a quarterly basis, and more frequently when economic conditions warrant additional evaluations. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial conditions and near-term prospects of the issuer, and the ability and intent of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. If management determines that an investment experienced an OTTI, the loss is recognized in the income statement as a realized loss. Any recoveries related to the value of these securities are recorded as an unrealized gain of other comprehensive income in stockholders’ equity and not recognized in income until the security is ultimately sold.

At March 31, 2007, all securities available-for-sale with a loss position were issued by the federal government, its agencies or GSEs, including the Federal National Mortgage Association and Freddie Mac, and in management’s belief, the unrealized losses were attributable to changes in market interest rates and not the credit quality of the issuers. Management does not believe any of these securities are other-than-temporarily impaired. At March 31, 2007, the Company has both the intent and ability to hold these impaired securities for a period of time necessary to recover the unrealized losses; however, the Company may from time to time dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net

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proceeds could be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Loans. Loans receivable, net of unearned fees, and the percentage of loans by category are presented in the following table at the dates indicated:

	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	%

Total loans increased $1.9 million at March 31, 2007 from December 31, 2006 primarily as a result of total loan fundings and purchases of $76.3 million for the quarter being offset by $74.0 million of loan repayments and sales. The amount of loan repayments and sales for the 2007 period has decreased from the higher level of repayments experienced during 2006 which included $109.5 million during the fourth quarter of 2006. At March 31, 2007, the Company had $112.2 million of commercial and construction loans approved not yet closed, which is up $66.2 million or 144% from $46.0 million at December 31, 2006.

Allowance for Losses on Loans. The Company maintains the allowance for losses on loans at a level that management believes is sufficient to absorb credit losses inherent in the loan portfolio. The allowance for losses on loans represents the Company’s estimate of inherent losses existing in the loan portfolio that are both probable and reasonable to estimate at each balance sheet date and is based on its review of available and relevant information. The Company believes that at March 31, 2007 the allowance for losses on loans was adequate.

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

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	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

The following table identifies the Company’s impaired loans and non-accrual loans as of the dates presented. See the “Non-performing Assets” section for the detailed classification of the Company’s total non-accrual loans. There were no significant changes to the Company’s impaired loans from December 31, 2006.

	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

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Non-performing Assets. The following table provides information relating to the Company’s non-performing assets at the dates presented. There were no significant changes to the Company’s non-performing assets from December 31, 2006.

	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 still accruing 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. The following table sets forth the dollar amount of deposits and the percentage of total deposits in each category offered by the Bank at the dates indicated:

	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	)

The Company’s total deposits decreased slightly to $894.4 million at March 31, 2007 from $907.1 million at December 31, 2006. Total core deposits increased $9.4 million from December 31, 2006 as a result of increases in non-interest bearing deposits of $5.1 million, savings accounts of $2.3

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million and money market accounts of $1.9 million. During the first quarter of 2007, the Company implemented a customer-centric relationship management program designed to increase core deposit relationships with new and existing customers and to reward for performance within the Bank’s retail sales group. The increase in core deposits was more than offset by a $22.0 million decrease in certificates of deposit due to the managed run-off of maturing high-rate promotional certificates during the first quarter of 2007.

The Company offers specific deposit agreements to local municipalities and other public entities. These public balances are included as a part of the Company’s total deposits and totaled $71.1 million and $70.7 million, respectively, at March 31, 2007 and December 31, 2006.

In addition, the Company offers a repurchase sweep agreement (Repo Sweep) account which allows public entities and other business depositors to earn interest with respect to checking and savings deposit products offered. The depositor’s excess funds are swept from a deposit account and are used to purchase an interest in a pool of multiple securities owned by the Bank. The swept funds are not recorded as deposits by the Bank and instead are considered short-term borrowings which provide a lower-cost funding alternative for the Company. At March 31, 2007, the Company had $17.5 million in Repo Sweeps which are not included in the above deposit totals, of which $13.6 million were Repo Sweeps with municipalities and other public entities. Repo Sweeps are classified as other short-term borrowings in the Company’s consolidated statements of condition.

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

	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	%

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

The Company’s short-term borrowings include its Repo Sweeps which are treated as financings, and the obligations to repurchase securities sold are reflected as short-term borrowings. The securities underlying these Repo Sweeps continue to be reflected as assets of the Company.

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At March 31, 2007, the Company had two lines of credit with a maximum of $40.0 million in unsecured overnight federal funds at the federal funds market rate at the time of any borrowing. During the first quarter of 2007, the Company did not utilize these lines.

At March 31, 2007, the Company also had a $5.0 million revolving line of credit. Each borrowing under the line of credit carries an interest rate of either the Prime Rate minus 75 basis points or the three month London Interbank Offered Rate, at the Company’s option. The line of credit was obtained by the Company and is secured by all of the stock of the Bank held by the Company. The Company has not borrowed any funds under this line of credit. The line of credit matures on March 21, 2008.

Capital Resources. The Company’s stockholders’ equity at March 31, 2007 was $130.4 million compared to $131.8 million at December 31, 2006. The decrease was primarily due to:

• repurchases of shares of the Company’s common stock during 2007 totaling $3.9 million; and

• cash dividends declared during 2007 totaling $1.3 million.

The following increases in stockholders’ equity during the first quarter of 2007 partially offset the aforementioned decreases:

• net income of $1.3 million;

• proceeds from stock option exercises totaling $1.2 million; and

• increases in accumulated other comprehensive income of $604,000.

During the first quarter of 2007, the Company repurchased 263,528 shares of its common stock at an average price of $14.79 per share. The Company’s June 2006 repurchase plan was completed during the first quarter of 2007 when 188,283 shares were repurchased pursuant to the plan. The remaining 75,245 shares were repurchased pursuant to the plan approved in February 2007. At March 31, 2007, the Company had 524,755 shares remaining to be repurchased under this plan. Since its initial public offering, the Company has repurchased an aggregate of 13,448,017 shares of its common stock at an average price of $12.13 per share. For additional information, see “Part II. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.”

At March 31, 2007, the Bank’s regulatory capital was in excess of regulatory requirements set by the Office of Thrift Supervision (OTS). The current requirements and the Bank's actual levels at March 31, 2007 and at December 31, 2006 are provided below:

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	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

The Company’s liquidity, represented by cash and cash equivalents, is a product of operating, investing and financing activities. The Company’s primary sources of funds historically have been:

•

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.

Scheduled payments from the amortization of loans, mortgage-backed securities, maturing investment securities and short-term investments are relatively predictable sources of funds, while deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions and competitive rate offerings.

At March 31, 2007, the Company had cash and cash equivalents of $44.2 million which was a decrease from $67.2 million at December 31, 2006. The decrease was mainly the result of:

• purchases of available-for-sale securities totaling $32.9 million;

• decreases in the balance of deposit accounts totaling $12.7 million;

• decreases in short-term borrowings totaling $5.6 million;

• repurchases of the Company’s common stock totaling $3.9 million; and

• net repayments of loans totaling $2.6 million.

The above cash outflows were partially offset by:

• proceeds from sales, maturities and paydowns of securities aggregating $31.7 million; and

• net cash provided by operating activities totaling $3.3 million.

The Company uses its sources of funds primarily to meet its ongoing commitments, fund loan commitments, fund maturing certificates of deposit and savings withdrawals, and maintain a securities

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portfolio. The Company anticipates that it will continue to have sufficient funds to meet its current commitments.

The liquidity needs of the parent company, CFS Bancorp, Inc., consist primarily of operating expenses, dividend payments to stockholders and stock repurchases. The primary sources of liquidity are cash and cash equivalents and dividends from the Bank. CFS Bancorp, Inc. also has $5.0 million of available liquidity under its line of credit. Under OTS regulations, without prior approval, the dividends from the Bank are limited to the extent of the Bank’s cumulative earnings for the year plus the net earnings (adjusted by prior distributions) of the prior two calendar years. On a parent company-only basis, for the three months ended March 31, 2007, the Company received $3.8 million in dividends from the Bank. At March 31, 2007, the parent company had $5.4 million in cash and cash equivalents and $186,000 in securities available-for-sale.

Contractual Obligations. The following table presents significant fixed and determinable contractual obligations to third parties by payment date as of March 31, 2007:

	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

(1) Does not include interest expense at the weighted-average contractual rate of 3.93% for the periods presented.

(2) Does not include interest expense at the weighted-average contractual rate of 4.20% for the periods presented.

See the “Deposits and Borrowed Money” section for further discussion surrounding the Company’s FHLB advances and Repo Sweeps. The Company’s operating lease obligations reflected above include the future minimum rental payments, by year, required under the lease terms for premises and equipment. Many of these leases contain renewal options, and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specific prices.

The Company also has commitments to fund certificates of deposit which are scheduled to mature within one year or less. These deposits totaled $334.9 million at March 31, 2007. Based on historical experience and the fact that these deposits are at current market rates, management believes that a significant portion of the maturing deposits will remain with the Company.

Off-Balance Sheet Obligations. The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the statement of condition. The Company’s exposure to credit loss in the event of non-performance by the third party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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The following table details the amounts and expected maturities of significant commitments at March 31, 2007:

	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

The commitments listed above do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon. All commitments to extend credit or to purchase loans expire within the following year. Letters of credit expire at various times through 2010. Credit enhancements expire at various times through 2014.

The Company also has commitments to fund community investments through investments in limited partnerships, which represent future cash outlays for the construction and development of properties for low-income housing, small business real estate and historic tax credit projects that qualify under the Community Reinvestment Act. These commitments include $1.2 million to be funded over seven years. The timing and amounts of these commitments are projected based upon the financing arrangements provided in each project’s partnership agreement, and could change due to variances in the construction schedule, project revisions or the cancellation of the project. These commitments are not included in the commitment table above.

Credit enhancements are related to the issuance by municipalities of taxable and nontaxable revenue bonds. The proceeds from the sale of such bonds are loaned to for-profit and not-for-profit companies for economic development projects. In order for the bonds to receive a triple-A rating, which provides for a lower interest rate, the FHLB issues, in favor of the bond trustee, an Irrevocable Direct Pay Letter of Credit (IDPLOC) for the account of the Bank. Since the Bank, in accordance with the terms and conditions of a Reimbursement Agreement between the FHLB and the Bank, would be required to reimburse the FHLB for draws against the IDPLOC, these facilities are analyzed, appraised, secured by real estate mortgages and monitored as if the Bank had funded the project initially.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

The Bank maintains a written Asset/Liability Management Policy that establishes guidelines for the asset/liability management function, including the management of the net interest margin, IRR and liquidity. The Asset/Liability Management Policy falls under the authority of the Company’s Board of Directors who in turn assigns its formulation, revision and administration to the Asset/Liability Committee (ALCO). ALCO meets monthly and consists of certain senior officers of the Bank and one outside director. The results of the monthly meetings are reported to the Company’s Board of Directors. The primary duties of ALCO are to develop reports and establish procedures to measure and monitor IRR, verify compliance with Board approved IRR tolerance limits, take appropriate actions to mitigate those risks, monitor and discuss the status and results of implemented strategies and tactics, monitor the Bank’s capital position, review the current and prospective liquidity positions and monitor alternative funding sources. The policy requires management to measure the Bank’s overall IRR exposure using the NPV analysis and earnings at risk analysis.

NPV is defined as the net present value of the Bank’s existing assets, liabilities and off-balance sheet contracts. NPV analysis measures the sensitivity of the Bank’s NPV under current interest rates and for a range of hypothetical interest rate scenarios. The hypothetical scenarios are represented by immediate, permanent, parallel movements in interest rates of plus 100, 200 and 300 basis points and minus 100 and 200 basis points. This rate-shock approach is designed primarily to show the ability of the balance sheet to absorb rate shocks on a “theoretical liquidation value” basis. The analysis does not take into account non-rate related issues, which affect equity valuation, such as franchise value or real estate values. This analysis is static and does not consider potential adjustments of strategies by management on a dynamic basis in a volatile rate environment in order to protect or conserve equity values. As such, actual results may vary from the modeled results.

The following table presents, as of December 31, 2006 and December 31, 2005 an analysis of the Bank’s IRR as measured by changes in NPV for immediate, permanent, and parallel shifts in the yield curve in 100 basis point (1%) increments up to 300 basis points and down 200 basis points in accordance with OTS regulations. Information as of March 31, 2007 was not available prior to the filing of this Form 10-Q. The Company does not believe the results as of March 31, 2007 would be significantly different than the results presented as of December 31, 2006.

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	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	)

Earnings at risk analysis measures the sensitivity of net interest income over a twelve month period to various interest rate movements. The interest rate scenarios are used for analytical purposes and do not necessarily represent management’s view of future market movements. Rather, these scenarios are intended to provide a measure of the degree of volatility interest rate movements may introduce into the Bank’s earnings.

A key assumption which is controlled by the Bank for use in its earnings at risk analysis is the assumed repricing sensitivity of its non-maturing core deposit accounts. The following assumptions were used by the Bank for the repricing of non-maturity core deposit accounts.

	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

The following table presents the Bank’s projected changes in net interest income over a twelve month period for the various interest rate change (rate shocks) scenarios at March 31, 2007 and December 31, 2006, respectively.

	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	)

The earnings at risk analysis suggests the Bank is subject to higher IRR in a falling rate environment than in a rising rate environment. The table above indicates that if interest rates were to move up 200 basis points, net interest income would be expected to decrease 0.5% in year one; and if

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interest rates were to move down 200 basis points, net interest income would be expected to decrease 2.7% in one year. The Bank’s exposure to interest rate risk in a falling rate environment has slightly improved at March 31, 2007 from December 31, 2006.

The Bank manages its IRR position by holding assets on the statement of condition with desired IRR characteristics, implementing certain pricing strategies for loans and deposits and implementing various securities portfolio strategies. On a quarterly basis, ALCO reviews the calculations of all IRR measures for compliance with the Board approved tolerance limits. At March 31, 2007, the Bank was in compliance with all of its tolerance limits.

The above IRR analyses include the assets and liabilities of the Bank only. Inclusion of Company-only assets and liabilities would have a non-material impact on the results presented.

Item 4. Controls and Procedures

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

Management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15(d)-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Legal Proceedings

The Company is involved in routine legal proceedings occurring in the ordinary course of its business, which, in the aggregate, are believed to be immaterial to the financial condition of the Company.

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Item 1A. Risk Factors

Information regarding risk factors appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements,” of Part 1 - Item 2 of this Form 10-Q and in Part 1 - Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

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

(a) Not applicable.

(b) Not applicable.

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

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

(a) None.

(b) Not applicable.

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

(a) Not applicable.

(b) Not applicable.

(d) Not applicable.

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Item 5. Other Information

(a) None.

(b) None.

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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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SIGNATURES

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

CFS BANCORP, INC.

Date: May 10, 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