10-Q

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, 2008.

OR

£ 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, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer £  Accelerated filer R          Non-accelerated filer £  Smaller Reporting Company £

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 10,680,124 shares of Common Stock issued and outstanding as of April 30, 2008.

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	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	34
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Submission of Matters to a Vote of Security Holders	35
Item 5.	Other Information	35
Item 6.	Exhibits	39
Signature Page		41
Certifications for Principal Executive Officer and Principal Financial Officer		42

                                       Exhibit 31.1

                              Exhibit 31.2

                              Exhibit 32.0

2 

CFS BANCORP, INC.

Condensed Consolidated Statements of Condition

	March 31, 2008			December 31, 2007
	(Unaudited)
ASSETS	(Dollars in thousands)
Cash and amounts due from depository institutions	$	17,314		$	25,825
Interest-bearing deposits		55,078			9,744
Federal funds sold		14,922			3,340
Cash and cash equivalents		87,314			38,909
Securities available-for-sale, at fair value		247,380			224,594
Securities held-to-maturity, at cost		3,940			3,940
Investment in Federal Home Loan Bank stock, at cost		23,944			23,944
Loans receivable		765,476			793,136
Allowance for losses on loans		(8,347	)		(8,026	)
Net loans		757,129			785,110
Interest receivable		5,035			5,505
Other real estate owned		1,038			1,162
Office properties and equipment		19,760			19,326
Investment in bank-owned life insurance		36,884			36,475
Other assets		10,434			10,079
Goodwill and intangible assets		1,218			1,234
Total assets	$	1,194,076		$	1,150,278
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	879,543		$	863,272
Borrowed money		163,295			136,459
Advance payments by borrowers for taxes and insurance		4,335			3,341
Other liabilities		15,112			17,792
Total liabilities		1,062,285			1,019,864
Commitments and contingencies		–			–
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; 10,679,611 and 10,705,510 shares outstanding		234			234
Additional paid-in capital		191,242			191,162
Retained earnings		97,547			97,029
Treasury stock, at cost; 12,609,251 and 12,583,856 shares		(155,357	)		(154,895	)
Treasury stock held in Rabbi Trust, at cost; 134,444 and 133,940 shares		(1,773	)		(1,766	)
Unallocated common stock held by Employee Stock Ownership Plan		(3,048	)		(3,126	)
Accumulated other comprehensive income, net of tax		2,946			1,776
Total stockholders’ equity		131,791			130,414
Total liabilities and stockholders’ equity	$	1,194,076		$	1,150,278

See accompanying notes.

3 

CFS BANCORP, INC.

Condensed Consolidated Statements of Income

	Three Months Ended March 31,
	2008		2007
	(Unaudited)
	(Dollars in thousands, except share and per share data)
Interest income:
Loans	$	12,788	$	14,052
Securities		3,079		3,523
Other		447		1,076
Total interest income		16,314		18,651
Interest expense:
Deposits		5,688		6,694
Borrowed money		2,061		3,433
Total interest expense		7,749		10,127
Net interest income		8,565		8,524
Provision for losses on loans		742		187
Net interest income after provision for losses on loans		7,823		8,337
Non-interest income:
Service charges and other fees		1,439		1,569
Card-based fees		380		341
Commission income		58		31
Security gains, net		69		11
Other asset gains, net		–		11
Income from bank-owned life insurance		409		405
Other income		172		241
Total non-interest income		2,527		2,609
Non-interest expense:
Compensation and employee benefits		4,336		5,255
Net occupancy expense		833		753
Furniture and equipment expense		551		534
Data processing		458		563
Professional fees		274		570
Marketing		208		211
Amortization of core deposit intangibles		16		16
Other general and administrative expenses		1,369		1,365
Total non-interest expense		8,045		9,267
Income before income taxes		2,305		1,679
Income tax expense		526		366
Net income	$	1,779	$	1,313
Per share data:
Basic earnings per share	$	0.17	$	0.12
Diluted earnings per share		0.17		0.12
Cash dividends declared per share		0.12		0.12
Weighted-average shares outstanding		10,387,292		10,726,506
Weighted-average diluted shares outstanding		10,658,026		11,036,978

See accompanying notes.

4 

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			Accumulated Other Compre-hensive Income (Loss)			Total
& #160;                       (Unaudited)
& #160;                       (Dollars in thousands, except per share data)
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
Balance at January 1, 2008	$	234	$	191,162		$	97,029		$	(156,661	)	$	(3,126	)	$	1,776		$	130,414
Net income		–		–			1,779			–			–			–			1,779
Comprehensive income: Change in unrealized appreciation on available-for-sale securities, net of reclassification and tax																1,170			1,170
Total comprehensive income																			2,949
Purchase of treasury stock		–		–			–			(1,055	)		–			–			(1,055	)
Net purchases of Rabbi Trust shares		–		–			–			(7	)		–			–			(7	)
Shares earned under ESOP		–		33			–			–			78			–			111
Exercise of stock options		–		16			–			593			–			–			609
Tax benefit related to stock options exercised		–		31			–			–			–			–			31
Dividends declared on common stock ($0.12 per share)		–		–			(1,261	)		–			–			–			(1,261	)
Balance at March 31, 2008	$	234	$	191,242		$	97,547		$	(157,130	)	$	(3,048	)	$	2,946		$	131,791

See accompanying notes.

 5

CFS BANCORP, INC.

Condensed Consolidated Statements of Cash Flows

	Three Months Ended March 31,
	2008			2007
	(Unaudited)
	(Dollars in thousands)
OPERATING ACTIVITIES
Net income	$	1,779		$	1,313
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans		742			187
Depreciation and amortization		426			420
Premium amortization on the early extinguishment of debt		527			1,352
Net premium amortization on securities available-for-sale		(280	)		(152	)
Deferred income tax (benefit) expense		(134	)		515
Tax benefit from exercises of non-qualified stock options		(31	)		(171	)
Amortization of cost of stock benefit plans		111			315
Proceeds from sale of loans held-for-sale		45			2,371
Origination of loans held-for-sale		–			(2,416	)
Net realized gains on sale of securities available-for-sale		(69	)		(11	)
Net realized gains on sale of other assets		–			(11	)
Net increase in cash surrender value of bank-owned life insurance		(409	)		(405	)
Increase in other assets		(487	)		(1,311	)
(Decrease) increase in other liabilities		(2,454	)		1,025
Net cash (used for) provided by operating activities		(234	)		3,021
INVESTING ACTIVITIES
Securities, available-for-sale:
Proceeds from sales		1,992			2,366
Proceeds from maturities and paydowns		26,033			29,370
Purchases		(48,616	)		(32,927	)
Net loan fundings and principal payments received		27,260			(2,286	)
Proceeds from sales of loans and loan participations		–			21
Proceeds from sale of real estate owned		–			171
Purchases of property and equipment		(844	)		(1,383	)
Net cash provided by (used for) investing activities		5,825			(4,668	)
FINANCING ACTIVITIES
Proceeds from exercise of stock options		609			1,158
Tax benefit from exercises of nonqualified stock options		31			171
Dividends paid on common stock		(1,301	)		(1,356	)
Purchase of treasury stock		(1,055	)		(3,898	)
Net purchase of Rabbi Trust shares		(7	)		(7	)
Net increase (decrease) in deposit accounts		16,234			(12,720	)
Net increase in advance payments by borrowers for taxes and insurance		994			955
Increase (decrease) in short term borrowings		12,350			(5,569	)
Proceeds from Federal Home Loan Bank debt		60,000			–
Repayments of Federal Home Loan Bank debt		(45,041	)		(39	)
Net cash flows provided by (used for) financing activities		42,814			(21,305	)
Increase (decrease) in cash and cash equivalents		48,405			(22,952	)
Cash and cash equivalents at beginning of period		38,909			67,167
Cash and cash equivalents at end of period	$	87,314		$	44,215
Supplemental disclosures:
Loans transferred to real estate owned	$	5		$	503
Cash paid for interest on deposits		5,435			6,782
Cash paid for interest on borrowings		1,508			2,085
Cash paid for taxes		100			–

See accompanying notes.

6 

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, 2008 and for the three months ended March 31, 2008 and March 31, 2007 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, 2008 are not necessarily indicative of the results expected for the full year ending December 31, 2008.  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, 2008 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K.  The condensed consolidated statement of condition of the Company as of December 31, 2007 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 tax expense are highly dependent on management’s estimates, judgments and assumptions where changes in any of those 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.     Fair Value Measurements – Adoption of SFAS 157 and SFAS 159

The Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), effective January 1, 2008.  SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosures about fair value measurements.  SFAS 157 has been applied prospectively as of the beginning of the year.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.  These two types of

7 

inputs create the following fair value hierarchy:

Level 1 – Unadjusted quoted prices for identical instruments in active markets;

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable; and

Level 3 – Instruments whose significant value drivers are unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table sets for the Company’s financial assets by level within the fair value hierarchy that were measured at fair value basis during the first quarter of 2008.

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Recurring:
Securities available-for-sale	$	247,380	$	–	$	247,380	$	–

Securities available-for-sale are measured at fair value on a recurring basis.  These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market.  Market pricing is based upon specific CUSIP identification for each individual security.  Level 1 securities include certain government sponsored entity securities and equity securities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include mortgage backed securities, collateralized mortgage obligations, trust preferred securities and certain other government sponsored entity securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.  Changes in fair market value are recorded in other comprehensive income as the securities are available for sale.

The Company also adopted SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (SFAS 159), 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.  The Company did not elect to measure any financial instruments at fair value under SFAS 159 upon adoption.

8 

3. 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,
	2008		2007
	(Dollars in thousands, except per share data)
Net income	$	1,779	$	1,313
Weighted average common shares outstanding		10,387,292		10,726,506
Common share equivalents (1)		270,734		310,472
Weighted average common shares and common shareequivalents outstanding		10,658,026		11,036,978
Basic earnings per share	$	0.17	$	0.12
Diluted earnings per share		0.17		0.12

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

For the three months ended March 31, 2008 and 2007, the Company had 206,000 and 20,000, respectively, anti-dilutive options which were not included in the above earnings per share calculations.

4. Share-Based Compensation

The Company accounts for its stock options in accordance with 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.

For additional details on the Company’s share-based compensation plans and related disclosures, see Note 9 to the consolidated financial statements as presented in the Company’s Annual Report on Form 10-K.

Omnibus Equity Incentive Plan

On April 29, 2008, the shareholders of the Company approved at the Annual Meeting the CFS Bancorp, Inc. 2008 Omnibus Equity Incentive Plan (Equity Incentive Plan) which had been approved by the Company’s Board of Directors on March 17, 2008.  In connection with the approval of the Equity Incentive Plan, the Board of Directors froze the CFS Bancorp, Inc. 2003 Stock Option Plan and the CFS Bancorp, Inc. 1998 Recognition and Retention Plan such that no new awards will be made under either of those plans.

9 

The Equity Incentive Plan authorizes the issuance of 270,000 shares of common stock of the Company.  In addition, the 32,000 shares that had not yet been issued under the 2003 Stock Option Plan plus any shares subject to outstanding stock options under the 2003 Stock Option Plans that lapse or are unexercised at the end of the option term will be available for any type of stock-based awards in the future under the Equity Incentive Plan.  Since January 1, 2008, there were a total of 22,000 stock options that lapsed under the 2003 Stock Option Plan, and these shares are eligible for awards under the Equity Incentive Plan.

Participants in the Equity Incentive Plan will be officers, key employees and non-employee directors of the Company or any of its affiliates as determined by the Compensation Committee of the Board of Directors.  The Equity Incentive Plan permits grants of non-qualified stock options, incentive stock options, restricted stock, three types of stock appreciation rights, performance units and performance shares.  No more than 25,000 shares will be available for grant during any fiscal year to any one participant and no more than 120,000 shares in the aggregate will be granted in any single year.

Awards under the Equity Incentive Plan may be subject to the achievement of performance goals based on specific business criteria set forth in the Equity Incentive Plan.  If the performance goals are achieved, then continued service with the Company or one of its affiliates also will generally be required before the award becomes fully vested.  Awards that are not subject to the achievement of performance goals will require continued service with the Company or one of its affiliates for a period of years prior to full vesting of the award.  The Compensation Committee will determine whether an award will be subject to the achievement of performance goals and, if so, which performance goals must be achieved.  For further details about the Equity Incentive Plan and for a copy of the complete Equity Incentive Plan, see the Company’s Proxy Statement dated and filed with the Securities and Exchange Commission on March 17, 2008.

On May 1, 2008, the Compensation Committee of the Board of Directors granted awards under the Equity Incentive Plan.  A total of 100,134 shares of restricted stock was granted to officers and key employees of the Company.  The grants included 65,034 shares of restricted stock as performance-based awards to a total of thirty-six officers and key employees.  These awards are subject to the achievement of “core” diluted earnings per share targets of the Company for the year ended December 31, 2008.  The grants also included 35,100 shares of restricted stock as service-based awards to twelve key employees.  Both the earned performance-based awards and the service-based awards will vest as follows:

Date	Cumulative Percent Vested
May 1, 2010		33	%
May 1, 2011		66
May 1, 2012		100

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 were fully vested as of December 31, 2005.

10 

On March 17, 2008, in conjunction with the Board of Directors approval of the Equity Incentive Plan, the Board of Directors froze the CFS Bancorp, Inc. 2003 Stock Option Plan and the CFS Bancorp, Inc. 1998 Recognition and Retention Plan so that no new awards will be made under either of these plans.  At the date the plans were frozen, the 2003 Stock Option Plan had 32,000 remaining stock option awards.  In addition, since January 1, 2008, forfeited stock options under the 2003 Stock Option Plan totaled 22,000 stock options.  These shares are eligible for award under the Equity Incentive Plan discussed above.

The following table presents the activity related to options under the Company’s stock option plans for the three months ended March 31, 2008.  The number of shares presented is in thousands.

	Number of Shares			Weighted-Average Exercise Price
Options outstanding at January 1, 2008		1,253		$	12.23
Granted		–			–
Exercised		(48	)		12.64
Forfeited		(22	)		14.38
Options outstanding at March 31, 2008		1,183			12.17
Options exercisable at March 31, 2008		1,183

For stock options outstanding at March 31, 2008, the range of exercise prices was $8.19 to $14.76 and the weighted-average remaining contractual term was 3.8 years.

At March 31, 2008, the aggregate intrinsic value of options outstanding totaled $2.7 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, 2008 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, 2008.

The aggregate intrinsic value of options exercised during the three months ended March 31, 2008 and 2007 was $84,000 and $462,000, respectively.  The exercise of options during the three months ended March 31, 2008 and 2007 resulted in cash receipts of $609,000 and $1.2 million and a tax benefit of $31,000 and $171,000, respectively.

The Company reissues treasury shares to satisfy option exercises.

Recognition and Retention Plan

In February 1999, the Company, with shareholder approval, established the RRP, which is a restricted stock-based incentive plan.  The Bank contributed $7.5 million to the RRP to purchase an aggregate total of 714,150 shares of Company common stock.  On April 1, 1999, the Compensation Committee of the Board of Directors granted an aggregate of 707,000 shares under this plan to 92 participants.  On April 1, 2003, the Compensation Committee made an additional grant of an aggregate of 21,000 shares to five participants.  On April 1, 2004, the remaining 1,050 shares were granted to two participants.  As discussed above under Stock Options, this plan was frozen effective January 1, 2008 and the 1,000 shares available at December 31, 2007 are no longer available for grant.

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

11 

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 additional paid-in capital.  At March 31, 2008 the remaining unamortized cost of the RRP totaled $38,000.

The following table presents the activity for the RRP for the three months ended March 31, 2008.

	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested at December 31, 2007		2,610	$	13.87
Granted		–		–
Vested		–		–
Forfeited		–		–
Unvested as of March 31, 2008		2,610	$	13.87

5. Other Comprehensive Income (Loss)

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

	Three Months Ended March 31,
	2008			2007
	(Dollars in thousands)
Unrealized holding gains arising during the period:
Unrealized net gains	$	1,912		$	979
Related tax expense		(699	)		(368	)
Net		1,213			611
Less:  reclassification adjustment for net gains realized during the period:
Realized net gains		69			11
Related tax expense		(26	)		(4	)
Net		43			7
Total other comprehensive income	$	1,170		$	604

6. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations (SFAS 141R).  SFAS 141R established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.  SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141R is effective for business combinations where the acquisition date is on or after fiscal years beginning after December 15, 2008.  SFAS 141R is expected to have an impact on the Company’s accounting for any business combinations closing on or after January 1, 2009.

In December 2007, the FASB issues SFAS 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS 160).  SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a

12 

subsidiary.  SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests.  All other requirements of SFAS 160 shall be applied prospectively.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.

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

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, 2007.  Such forward-looking statements are not guarantees of future performance.  The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Overview

The Company’s net income for the first quarter of 2008 increased 35.4% to $1.8 million from $1.3 million compared to the same period in 2007 driven primarily by an improved net interest margin and reduced operating costs and was partially offset by an increased provision for losses on loans.  Diluted earnings per share increased $0.05 per share or 41.7% to $0.17 for the first quarter of 2008 from $0.12 per share for the first quarter of 2007.

The Company’s net interest margin expanded 28 basis points or 9.6% to 3.21% for the first quarter of 2008 from 2.93% for the first quarter of 2007.  Although the Company’s variable rate assets were impacted by the 300 basis point decrease in the prime lending rate since the first quarter of 2007, the Company’s net interest margin was positively impacted by decreases in the cost of funds, both on

13 

borrowed money and deposits.  The Company’s cost of borrowed money decreased due to lower amortization of the deferred premium on the early extinguishment of the Company’s Federal Home Loan Bank (FHLB) debt (Premium Amortization) and lower average balances of FHLB debt.  In addition, the Company’s cost of deposits decreased 34 basis points to 2.87% for the first quarter of 2008.  The cost of the Company’s short-term variable rate borrowings, which are primarily tied to the federal funds interest rate, was also positively impacted by the aforementioned rate cuts.

The Company’s 2007 cost-savings initiatives resulted in a 13.2% decrease in non-interest expense to $8.0 million for the first quarter of 2008 from $9.3 million for the comparable 2007 period.  The decrease was primarily related to reductions in compensation and benefits expense related to a 16% decrease in the Company’s average full-time-equivalent employees for the first quarter of 2008 compared to the 2007 period.  The decrease in non-interest expense resulted in the improvement in the Company’s efficiency ratio to 72.5% for the first quarter of 2008 from 83.2% for the comparable 2007 period.  The Company’s core efficiency ratio improved to 69.7% for the first quarter of 2008 from 74.4% for the comparable 2007 period.  For the Company’s calculations of its efficiency and core efficiency ratios see the “Analysis of Statements of Income - Non-Interest Expense” below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Total loans receivable were $765.5 million at March 31, 2008 compared to $793.1 million at December 31, 2007.  During the first quarter of 2008, the Company had total loan fundings of $65.1 million which were offset by $92.3 million of loan repayments and sales.  The Company continues to focus on building its commercial and industrial loan portfolio which will increase its relationship opportunities, diversify its credit risk and reduce its reliance on large loans collateralized by commercial real estate.  During April of 2008, the Company hired Dale S. Clapp as Executive Vice President – Business Banking.  Mr. Clapp brings over 24 years of experience in Community and Business Banking and Sales Management.  In addition to growing the Company’s commercial and industrial loan portfolio, Mr. Clapp will also be responsible for the development and recommendation of commercial loan objectives, policies and practices.

Deposits increased to $879.5 million at March 31, 2008 from $863.3 million at December 31, 2007 primarily as a result of a $31.6 million increase in money market deposits for municipalities and other public entities.  Total public fund deposits were $85.9 million at March 31, 2008 and $62.5 million at December 31, 2007.

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 estimates, 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 the Company’s Annual Report on Form 10-K for December 31, 2007.  These policies, along with the disclosures presented in other financial statement notes and in this management’s discussion and

14 

analysis, provide information on the methodology used 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 management’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 consists of expected losses resulting in specific credit allocations for individual loans not considered within the above mentioned loan pools.  The analysis of 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 a level deemed appropriate by management.  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 additional 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 allowance 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

15 

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.  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.

	Three Months Ended March 31,
	2008							2007
	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable (1)	$	786,877	$	12,788		6.54	%	$	793,852	$	14,052		7.18	%
Securities (2)		238,942		3,079		5.10			302,405		3,523		4.66
Other interest-earning assets (3)		46,454		447		3.87			83,119		1,076		5.25
Total interest-earning assets		1,072,273		16,314		6.12			1,179,376		18,651		6.41
Non-interest earning assets		89,627							76,944
Total assets	$	1,161,900						$	1,256,320
Interest-bearing liabilities:
Deposits:
Checking accounts	$	103,685		188		0.73		$	101,009		249		1.00
Money market accounts		181,692		1,253		2.77			191,296		1,670		3.54
Savings accounts		125,020		180		0.58			149,715		233		0.63
Certificates of deposit		386,038		4,067		4.24			403,518		4,542		4.56
Total deposits		796,435		5,688		2.87			845,538		6,694		3.21
Borrowed money:
Other short-term borrowings (4)		17,478		114		2.62			24,895		258		4.20
FHLB debt (5)(6)		137,689		1,947		5.59			179,722		3,175		7.07
Total borrowed money		155,167		2,061		5.25			204,617		3,433		6.71
Total interest-bearing liabilities		951,602		7,749		3.28			1,050,155		10,127		3.91
Non-interest bearing deposits		62,025							59,483
Non-interest bearing liabilities		16,027							15,609
Total liabilities		1,029,654							1,125,247
Stockholders' equity		132,246							131,073
Total liabilities and stockholders' equity	$	1,161,900						$	1,256,320
Net interest-earning assets	$	120,671						$	129,221
Net interest income/interest rate spread			$	8,565		2.84	%			$	8,524		2.50	%
Net interest margin						3.21	%						2.93	%
Ratio of average interest-earning assets to average interest-bearing liabilities						112.68	%						112.30	%

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(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 2008 period includes an average of $156.6 million of contractual FHLB borrowings reduced by an average of $1.4 million of unamortized deferred premium on the early extinguishment of debt.  Interest expense on borrowed money includes $527,000 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 5.25% compared to an average contractual rate of 4.09%.

(6) 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%.

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, 2008 Compared
	to Three Months Ended March 31, 2007
	Increase (Decrease) Due to
	Rate			Volume			Rate/ Volume			Total Net Increase / (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	(1,151	)	$	(123	)	$	10		$	(1,264	)
Securities		373			(739	)		(78	)		(444	)
Other interest-earning assets		(276	)		(475	)		122			(629	)
Total net change in income on interest- earning assets		(1,054	)		(1,337	)		54			(2,337	)
Interest-bearing liabilities:
Deposits:
Checking accounts		(66	)		7			(2	)		(61	)
Money market accounts		(351	)		(84	)		18			(417	)
Savings accounts		(18	)		(38	)		3			(53	)
Certificates of deposit		(291	)		(197	)		13			(475	)
Total deposits		(726	)		(312	)		32			(1,006	)
Borrowed money:
Other short-term borrowings		(95	)		(77	)		28			(144	)
FHLB debt		(633	)		(743	)		148			(1,228	)
Total borrowed money		(728	)		(820	)		176			(1,372	)
Total net change in expense on interest- bearing liabilities		(1,454	)		(1,132	)		208			(2,378	)
Net change in net interest income	$	400		$	(205	)	$	(154	)	$	41

17 

Analysis of Statements of Income

Net Interest Income.  The Company’s net interest income for the three months ended March 31, 2008 was stable at $8.6 million compared to $8.5 million for the 2007 period.  The net interest margin for the first quarter of 2008 increased 28 basis points to 3.21% from 2.93% for the 2007 period.  Although the decreases since March 31, 2007 in the prime lending rate have negatively impacted the Company’s variable rate earning assets, the Company was able to expand its margin through a decrease in the amount of interest expense related to the amortization of the deferred premium on the early extinguishment of FHLB debt.  In addition, the decreases in the federal funds interest rate had a favorable impact on the cost of the Company’s interest-bearing deposit accounts and its short-term borrowings for the first quarter of 2008.

Interest Income.  The Company’s interest income decreased 12.5% to $16.3 million for first quarter of 2008 from $18.7 million for the comparable 2007 period.  The weighted-average yield on the Company’s interest-earning assets for the 2008 period decreased 29 basis points to 6.12% from 6.41% for the comparable 2007 period.  The decrease was primarily a result of the impact of prime lending rate cuts on adjustable-rate assets combined with a 9.1% decrease in the average balances of interest-earning assets, primarily securities and other interest-earning assets.  The decrease in these assets is a result of (i) the Company utilizing proceeds from security sales and maturities and other interest-earning assets to fund the repayment of maturing FHLB debt and Company stock repurchases and (ii) the managed run-off of single-service, high-rate certificates and a decrease in the balance of savings accounts as depositors sought higher yields in alternative investment products.

Interest Expense.  The Company’s interest expense decreased 23.5% or $2.4 million to $7.7 million for the first quarter of 2008 compared to $10.1 million for the 2007 period.  The decrease was primarily a result of a 9.4% decrease in the average balances of interest-bearing liabilities and a 63 basis point decrease in the Company’s cost of funds.

Interest expense on interest-bearing deposits decreased 15.0% to $5.7 million for the first quarter of 2008 compared to $6.7 million for the 2007 period which was related to the decrease in the federal funds interest rate coupled with a 5.8% decrease in the average balance of interest-bearing deposits.  The average cost of interest-bearing deposits decreased 34 basis points from the 2007 period due to the repricing of money market accounts and certificates of deposit to the lower federal funds interest rates experienced since the third quarter of 2007.

The Company’s cost of borrowings decreased to 5.25% for the first quarter of 2008 compared to 6.71% for the first quarter of 2007.  The decrease was primarily the result of a decrease in the amortization of the deferred premium on the Company’s Federal Home Loan Bank (FHLB) debt that is included in the Company’s total interest expense on borrowings and lower average balances of FHLB debt.  The premium amortization adversely impacted the Company’s net interest margin by 20 basis points and 47 basis points, respectively, for the first quarter of 2008 and the first quarter of 2007.  The Company’s interest expense on borrowings is detailed in the tables below for the periods indicated.

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					Change from
	Three Months Ended				March 31, 2007
	March 31,		March 31,		to March 31, 2008
	2008		2007		$			%
	(Dollars in thousands)
Interest expense on short-term borrowings at contractual rates	$	114	$	258	$	(144	)	(55.8	)%
Interest expense on FHLB borrowings at contractual rates		1,420		1,823		(403	)	(22.1	)
Amortization of deferred premium		527		1,352		(825	)	(61.0	)
Total interest expense on borrowings	$	2,061	$	3,433	$	(1,372	)	(40.0	)

The interest expense related to the premium amortization on the early extinguishment of debt continues to have a smaller impact on the Company’s weighted-average cost of interest-bearing liabilities and is expected to be $449,000, $270,000, $206,000 and $72,000 before taxes in the quarters ending June 30, September 30, and December 31, 2008 and March 31, 2009, respectively.

Provision for losses on loans.  The Company’s provision for losses on loans was $742,000 for the three months ended March 31, 2008 compared to $187,000 for the 2007 period which reflects net charge-offs of $421,000, additional impairment reserves of $61,000 and increased general reserves of $260,000.  The increase in provision resulted in an increase in the allowance for losses on loans to total loans to 1.09% at March 31, 2008 from 1.01% at December 31, 2007.  For more information, see “Changes in Financial Condition – Allowance for Losses on Loans” below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Non-interest income.  The Company’s non-interest income for the first quarter of 2008 decreased 3.1% to $2.5 million from $2.6 million for the 2007 period.  The following table identifies the changes in non-interest income for the periods presented:

	Quarters Ended
	March 31, 2008		March 31, 2007		% Change
	(Dollars in thousands)
Service charges and other fees	$	1,439	$	1,569		(8.3	)%
Card-based fees		380		341		11.4
Commission income		58		31		87.1
Subtotal fee based revenues		1,877		1,941		(3.3	)
Income from bank-owned life insurance		409		405		1.0
Other income		172		241		(28.6	)
Subtotal		2,458		2,587		(5.0	)
Security gains (losses), net		69		11	NM
Other asset gains, net		–		11	NM
Total non-interest income	$	2,527	$	2,609		(3.1	)%

The Company’s service charges and other fees decreased from the 2007 period due to lower overdraft fees during the quarter as deposit customers continue to change their behavior patterns related to overdrafts and fees.  Card-based fees increased during the first quarter of 2008 from the comparable 2007 period due to a 7.8% increase in the number of ATM and debit card transactions from the first quarter of 2007.  Other income decreased during the 2008 period primarily due to the absence of gains on the sale of single-family mortgage loans to the secondary market during the first quarter of 2008

19 

because the Company began retaining single-family mortgage loans in its loan portfolio during 2008.

Non-interest expense.  Non-interest expense for the first quarter of 2008 decreased 13.2% to $8.0 million compared to $9.3 million for the 2007 period.  The following table identifies the changes in non-interest expense for the periods presented:

	Quarters Ended
	March 31, 2008		March 31, 2007		% Change
	(Dollars in thousands)
Compensation and mandatory benefits	$	3,719	$	4,662		(20.2	)%
Retirement and stock related compensation		286		337		(15.1	)
Medical and life benefits		300		225		33.3
Other employee benefits		31		31		–
Subtotal compensation and employee benefits		4,336		5,255		(17.5	)
Net occupancy expense		833		753		10.6
Furniture and equipment expense		551		534		3.2
Data processing		458		563		(18.7	)
Professional fees		274		570		(51.9	)
Marketing		208		211		(1.2	)
Other general and administrative expense		1,385		1,381		0.2
Total non-interest expense	$	8,045	$	9,267		(13.2	)%

Compensation and mandatory benefits expense decreased during the first quarter of 2008 as a result of a decrease in compensation and employee benefits expense including severance costs related to the reduction in the Company’s full-time-equivalent employees from 360 at December 31, 2006 to 297 at March 31, 2008.  In addition, the first quarter of 2007 included non-recurring separation costs of $280,000.  The Company also realized cost savings of $204,000 during the first quarter of 2008 due to its 2007 ESOP loan restructure which was offset by an increase of $210,000 in pension expense during the first quarter of 2008.  Professional fees decreased during the first quarter of 2008 due to the absence of the consulting fees associated with the 2007 implementation of the Company’s customer-centric relationship management program and 2007 legal expenses relating to the Bank’s benefits plan, the reduction in its workforce and new SEC proxy disclosure requirements.

The Company’s efficiency ratio for the first quarter of 2008 improved to 72.5% from 83.2% for the first quarter of 2007 driven primarily by the decrease in non-interest expense.  The Company’s core efficiency ratio improved to 69.7% for the first quarter of 2008 from 74.4% for the 2007 period as a result of lower non-interest expense but was adversely impacted by lower net interest income after adjusting for the amortization of the deferred premium on the early extinguishment of debt when compared to the first quarter of 2007.  The Company’s efficiency and core efficiency ratios for the three months ended March 31, 2008 and 2007 are presented in the following table:

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	Three Months Ended March 31,
	2008			2007
	(Dollars in thousands)
Efficiency Ratio:
Non-interest expense	$	8,045			$	9,267
Net interest income plus non-interest income	$	11,092			$	11,133
Efficiency ratio		72.5	%			83.2	%
Core Efficiency Ratio:
Non-interest expense	$	8,045			$	9,267
Net interest income plus non-interest income	$	11,092			$	11,133
Adjustments:
Net realized gains on sales of securities available-for-sale		(69	)			(11	)
Net realized gains on sales of other assets		–				(11	)
Amortization of deferred premium on the early extinguishment of debt		527				1,352
Net interest income plus non-interest income – as adjusted	$	11,550			$	12,463
Core efficiency ratio		69.7	%			74.4	%

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 divided by the sum of net interest income before the provision for losses on loans, excluding the Premium Amortization, 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 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.

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Income Tax Expense.  The Company’s income tax expense totaled $526,000 for the first quarter of 2008 compared to $366,000 for the comparable 2007 period reflecting an increase in the effective tax rate to 22.8% for the first quarter of 2008 from 21.8% for the comparable 2007 period.  The increase in the effective tax rate was primarily due to the realization of lower tax credits during the first quarter of 2008 when compared to 2007.  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, spread relationships 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:

	Amortized Cost		Gross  Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
At March 31, 2008:
Government sponsored entity (GSE) securities	$	119,629	$	4,797	$	–		$	124,426
Mortgage-backed securities		16,741		84		(52	)		16,773
Collateralized mortgage obligations		75,015		993		(277	)		75,731
Trust preferred securities		28,018		289		(827	)		27,480
Equity securities		3,344		60		(434	)		2,970
	$	242,747	$	6,223	$	(1,590	)	$	247,380
At December 31, 2007:
Government sponsored entity (GSE) securities	$	140,301	$	2,859	$	(14	)	$	143,146
Mortgage-backed securities		12,587		15		(39	)		12,563
Collateralized mortgage obligations		56,672		525		(17	)		57,180
Trust preferred securities		8,900		–		–			8,900
Equity securities		3,344		5		(544	)		2,805
	$	221,804	$	3,404	$	(614	)	$	224,594

During the first quarter of 2008, the Company sold approximately $2.0 million of available-for-sale securities realizing $69,000 in net gains on the sales.  As a result of opportunities created by market imbalances associated with fears surrounding securities with mortgage related collateral or tied to the mortgage industry, the Company purchased $3.1 million of agency collateralized mortgage obligations; $6.9 million of agency mortgage backed securities; $4.6 million of AAA-rated senior tranches of collateralized mortgage obligations; $9.7 million of seasoned, senior, AAA-rated commercial mortgage backed securities; and $21.1 million in deeply discounted, AAA-rated, super-senior trust preferred securities pools during the first quarter of 2008.

At March 31, 2008 and December 31, 2007, the Company also had held-to-maturity securities

22 

with an amortized cost of $3.9 million invested in state and municipal securities.  The securities had $93,000 and $38,000, respectively, in gross unrecognized holding gains at March 31, 2008 and December 31, 2007.

The Company evaluates all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, 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.  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 in the issuer 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 (as other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.

At March 31, 2008, all securities available-for-sale with a loss position were, in management’s belief, attributable to a lack of market liquidity.  Management does not believe any of these securities are other-than-temporarily impaired.  At March 31, 2008, 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 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, 2008					December 31, 2007
	Amount		% of Total			Amount		% of Total			% Change
	(Dollars in thousands)
Commercial and construction loans:
Commercial real estate	$	326,850		42.7	%	$	328,427		41.4	%		(0.5	)%
Construction and land development		117,686		15.4			128,584		16.2			(8.5	)
Commercial and industrial		50,947		6.6			60,398		7.6			(15.6	)
Total commercial and construction loans		495,483		64.7			517,409		65.2			(4.2	)
Retail loans:
One-to-four family residential		207,603		27.1			212,598		26.8			(2.3	)
Home equity lines of credit		59,661		7.8			60,326		7.6			(1.1	)
Other		2,729		0.4			2,803		0.4			(2.6	)
Total retail loans		269,993		35.3			275,727		34.8			(2.1	)
Total loans receivable, net of unearned fees	$	765,476		100.0	%	$	793,136		100.0	%		(3.5	)%

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At March 31, 2008, the Company’s net loan portfolio included $181.5 million of variable-rate loans indexed to the prime lending rate as listed in the Wall Street Journal and another $299.0 million of variable-rate loans tied to other indices.

The Company’s total loans decreased $27.7 million, or 3.5%, to $765.5 million at March 31, 2008 from $793.1 million at December 31, 2007.  The Company continues to reduce its exposure in the commercial real estate and commercial and construction segments of its portfolio as it shifts its emphasis to commercial and industrial loans.  The commercial and construction loan portfolio decreased $21.9 million, or 4.2%, primarily as a result of loan repayments totaling $73.7 million partially offset by loan fundings and purchases totaling $52.8 million.  The Company’s commercial and industrial loan portfolio was negatively impacted by the early paydown of $15.6 million of loans to local municipalities.  Excluding these paydowns, the Company’s commercial and industrial loans increased 10.1% from December 31, 2007.

As the Company continues to diversify its credit risk it may, as appropriate, develop exit strategies for certain of its loans, primarily commercial real estate, construction and land development loans and purchased participations.  While the focus on risk tolerance may reduce its total loans outstanding in the short-term, it will also reduce its risk related to larger commercial real estate properties.

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 management’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.  Management believes that at March 31, 2008 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:

	Three Months Ended March 31,
	2008			2007
	(Dollars in thousands)
Balance at beginning of period	$	8,026		$	11,184
Loans charged-off		(458	)		(120	)
Recoveries of loans previously charged-off		37			149
Net loan (charge-offs) recoveries		(421	)		29
Provision for losses on loans		742			187
Balance at end of period	$	8,347		$	11,400

	March 31,  2008			December 31, 2007			March 31, 2007
Allowance for losses on loans	$	8,347		$	8,026		$	11,400
Total loans receivable, net of unearned fees		765,476			793,136			804,242
Allowance for losses on loans to total loans		1.09	%		1.01	%		1.42	%
Allowance for losses on loans to non-performing loans		27.59			27.11			41.40

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 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.  During the first quarter of 2008, the Company identified one commercial real estate loan totaling $1.2 million as impaired with a required impairment reserve of $61,000.  There have been no other significant changes to the Company’s impaired loans since December 31, 2007.

	March 31,  2008		December 31, 2007
	(Dollars in thousands)
Impaired loans:
With a valuation reserve	$	11,362	$	10,190
With no valuation reserve required		13,967		14,441
Total impaired loans		25,329		24,631
Other non-accrual loans		4,930		4,969
Total non-accrual loans	$	30,259	$	29,600
Valuation reserve relating to impaired loans	$	1,263	$	1,202
Average impaired loans		24,869		20,675

Non-performing Assets.  The following table provides information relating to the Company’s non-performing assets at the dates presented.  Loans are placed on non-accrual status when, in management’s judgment, the probability of collection of interest is deemed to be insufficient to warrant further accrual.  The Company had no loans past due 90 days or more still on interest accrual at either date presented.

	March 31, 2008			December 31, 2007
	(Dollars in thousands)
Non-accrual loans:
Commercial and construction loans:
Commercial real estate	$	9,805		$	9,605
Construction and land development		16,533			16,240
Commercial and industrial		276			281
Total commercial and construction loans		26,614			26,126
Retail loans:
One-to-four family residential		2,836			2,706
Home equity lines of credit		770			749
Other		39			19
Total retail loans		3,645			3,474
Total non-accruing loans		30,259			29,600
Other real estate owned, net		1,038			1,162
Total non-performing assets		31,297			30,762
90 days past due and still accruing interest		–			–
Total non-performing assets plus 90 days past due loans still accruing interest	$	31,297		$	30,762
Non-performing assets to total assets		2.62	%		2.67	%
Non-performing loans to total loans		3.95	%		3.73	%

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During the first quarter of 2008 the Company’s non-performing loans increased $659,000 to $30.3 million from December 31, 2007 primarily as the result of a $293,000 increase in construction and land development loans due to the transfer of a $767,000 loan to non-accrual status.  Partially offsetting the transfer were payments totaling $372,000 on a non-accrual construction and land development loan.  There were no other significant changes to the Company’s non-performing assets during the first quarter of 2008.  Subsequent to the first quarter of 2008, the Company received a $368,000 principal payment on the above mentioned construction and land development loan transferred to non-accrual.

Potential Problem Assets.  The Company’s potential problem assets, defined as loans classified substandard, doubtful, or loss pursuant to the Company’s internal loan grading system that do not meet the definition of a non-performing loan, totaled $3.3 million at March 31, 2008 and $4.4 million at December 31, 2007.  The decrease from December 31, 2007 was a result of the Company identifying one commercial real estate loan totaling $1.1 million as impaired as previously discussed.

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, 2008					December 31, 2007
	Amount		% of Total			Amount		% of Total			% Change
	(Dollars in thousands)
Checking accounts:
Non-interest bearing	$	60,890		6.9	%	$	62,306		7.2	%		(2.3	)%
Interest-bearing		112,112		12.7			107,467		12.5			4.3
Money market accounts		203,043		23.1			171,470		19.9			18.4
Savings accounts		124,588		14.2			127,297		14.7			(2.1	)
Core deposits		500,633		56.9			468,540		54.3			6.9
Certificates of deposit:
Less than $100,000		256,615		29.2			263,134		30.5			(2.5	)
$100,000 or greater		122,295		13.9			131,598		15.2			(7.1	)
Time deposits		378,910		43.1			394,732		45.7			(4.0	)
Total deposits	$	879,543		100.0	%	$	863,272		100.0	%		1.9

The Company’s total deposits increased 1.9% to $879.5 million at March 31, 2008 from $863.3 million at December 31, 2007.  Total core deposits increased $32.1 million from December 31, 2007 as a result of a $31.6 million increase in money market accounts, primarily with municipalities and other public entities, and a $4.6 million increase in interest bearing deposits.  The increase in core deposits was offset by a $15.8 million decrease in certificates of deposit due to the managed run-off of maturing higher-rate certificates.

The Company offers specific deposit agreements to local municipalities and other public entities.  The following table identifies the dollar amount of municipal deposits in each deposit category for the dates indicated.

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	March 31, 2008					December 31, 2007
	Amount		% of Total			Amount		% of Total			% Change
	(Dollars in thousands)
Checking accounts:
Non-interest bearing	$	436		0.5	%	$	1,028		1.6	%		(57.6	)%
Interest-bearing		17,651		20.6			13,022		20.9			33.5
Money market accounts		53,824		62.6			31,610		50.6			70.3
Core deposits		71,911		83.7			45,660		73.1			57.5
Certificates of deposit		14,016		16.3			16,803		26.9			(16.6	)
Total municipal deposits	$	85,927		100.0	%	$	62,463		100.0	%		37.6	%

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 classified as other short-term borrowings which provide a lower-cost funding alternative for the Company as compared to FHLB advances.  At March 31, 2008, the Company had $36.4 million in Repo Sweeps of which $28.5 million were Repo Sweeps with municipalities and other public entities.  The Repo Sweeps are included in the below table and 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.

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

	March 31, 2008						December 31, 2007
	Weighted Average Contractual Rate			Amount			Weighted Average Contractual Rate			Amount
	(Dollars in thousands)
Short-term variable-rate borrowings:
Repo Sweep accounts		1.80	%	$	36,365			3.42	%	$	18,014
Overnight federal funds purchased		–			–			4.50	%		6,000
Secured advances from FHLB – Indianapolis:
Maturing in 2008 – fixed-rate		3.89			72,000			3.89			72,000
Maturing in 2009 – fixed-rate		3.99			30,000			3.99			30,000
Maturing in 2011 – fixed-rate		3.75			15,000			–			–
Maturing in 2014 – fixed-rate (1)		6.71			1,169			6.71			1,169
Maturing in 2018 – fixed-rate (1)		5.54			2,707			5.54			2,707
Maturing in 2019 – fixed-rate (1)		6.31			7,154			6.31			7,196
					128,030						113,072
Less:  deferred premium on early extinguishment of debt					(1,100	)					(1,627	)
Net FHLB – Indianapolis advances					126,930						111,445
Total borrowed money				$	163,295					$	135,459
Weighted-average contractual interest rate		3.59	%					4.06	%

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

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Early in the first quarter of 2008, the Company took advantage of a steeper yield curve and market imbalances by borrowing $30.0 million of FHLB debt and investing in higher yielding securities.  The Company also repaid $15.0 million of FHLB debt maturing during the first quarter of 2008.

At March 31, 2008, 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.  At March 31, 2008, the Bank had no borrowings under these lines.  During the first quarter of 2008, these lines were used for liquidity purposes.  The maximum amount borrowed pursuant to these lines was $7.5 million and the weighted-average rate paid during the first quarter of 2008 was 3.55%.

At March 31, 2008, 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, 2009.

Capital Resources.  The Company’s stockholders’ equity at March 31, 2008 was $131.8 million compared to $130.4 million at December 31, 2007.  The increase was primarily due to:

• net income of $1.8 million;

•     an increase in accumulated other comprehensive income of $1.2 million; and

•     proceeds from stock option exercises totaling $609,000.

The following decreases in stockholders’ equity during the first quarter of 2008 partially offset the aforementioned increases:

• repurchases of shares of the Company’s common stock during 2008 totaling $1.1 million; and

• cash dividends declared during 2008 totaling $1.3 million.

During the first quarter of 2008, the Company repurchased 73,595 shares of its common stock at an average price of $14.34 per share pursuant to the repurchase plan approved in February 2007.  At March 31, 2008, the Company had 53,130 shares remaining to be repurchased under this plan.  The Company previously announced in March 2008 the approval to repurchase an additional 530,000 shares of its outstanding common stock.  Since its initial public offering, the Company has repurchased an aggregate of 13,919,642 shares of its common stock at an average price of $12.21 per share.  For additional information, see “Part II. Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.”

At March 31, 2008, the Bank was deemed to be well capitalized and 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, 2008 and at December 31, 2007 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, 2008:
Total capital to risk-weighted assets	$	128,199		14.06	%	$	72,953	>8.00	%		$	91,191	>10.00	%
Tier 1 (core) capital to risk-weighted assets		119,879		13.15			36,476	>4.00				45,596	>5.00
Tier 1 (core) capital to adjusted total assets		119,879		10.11			47,445	>4.00				59,307	>5.00
Tangible capital to adjusted total assets		119,879		10.11			17,792	>1.50				23,723	>2.00
As of December 31, 2007:
Total capital to risk-weighted assets	$	128,225		13.93	%	$	73,661	>8.00	%		$	92,077	>10.00	%
Tier 1 (core) capital to risk-weighted assets		120,227		13.06			36,831	>4.00				55,246	>5.00
Tier 1 (core) capital to adjusted total assets		120,227		10.50			45,782	>4.00				57,227	>5.00
Tangible capital to adjusted total assets		120,227		10.50			17,168	>1.50				22,891	>2.00

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 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, 2008, the Company had cash and cash equivalents of $87.3 million which was an increase from $38.9 million at December 31, 2007.  The increase was mainly the result of:

• proceeds from sales, maturities and paydowns of securities aggregating $28.0 million;

• net repayments of loans totaling $27.3 million;

• increases in the balance of deposit accounts totaling $16.2 million;

• net proceeds from FHLB debt totaling $15.0 million; and

• increases in short-term borrowings totaling $12.5 million.

The above cash outflows were partially offset by purchases of available-for-sale securities totaling $48.6 million.

29 

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 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 a 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, during 2008, the Company received $1.8 million in dividends from the Bank.  At March 31, 2008, the parent company had $3.2 million in cash and cash equivalents and $137,000 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, 2008:

	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)	$	72,274	$	45,608	$	697	$	9,451	$	128,030
Short term borrowings (2)		36,365		–		–		–		36,365
Operating leases		549		440		111		–		1,100
Dividends payable on common stock		1,298		–		–		–		1,298
	$	110,486	$	46,048	$	808	$	9,451	$	166,793

(1) Does not include interest expense at the weighted-average contractual rate of 4.09% for the periods presented.

(2) Does not include interest expense at the weighted-average contractual rate of 1.80% for the periods presented.

See the “Deposits and Borrowed Money” section for further discussion surrounding the Company’s FHLB advances.  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 total $304.4 million at March 31, 2008.  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 Bank.

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

30 

same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The following table details the amounts and expected maturities of significant commitments at March 31, 2008:

	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	$	12,570	$	2,202	$	2,255	$	78	$	17,105
Retail		4,267		–		–		–		4,267
Commitments to fund unused construction loans		16,112		19,996		473		742		37,323
Commitments to fund unused lines of credit:
Commercial		21,584		7,923		–		247		29,754
Retail		11,880		10		250		51,939		64,079
Letters of credit		5,388		459		699		–		6,546
Credit enhancements		8,487		22,380		–		–		30,867
	$	80,288	$	52,970	$	3,677	$	53,006	$	189,941

     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 2012.  Credit enhancements expire at various times through 2010.

The Company also has commitments to fund community investments through investments in various 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 $793,000 to be funded over six 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.

31 

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 imbalances 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 various assets and liabilities as well as options (such as loan prepayment options).

The Bank maintains a written Asset/Liability Management Policy that establishes written guidelines for the asset/liability management function, including the management of 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 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 valuations, 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, 2007 and 2006, 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 increments up to 300 basis points and down 200 basis points in accordance with OTS regulations.  Information as of March 31, 2008 was not available prior to the filing of this Form 10-Q.

32 

		Net Portfolio Value
		At December 31, 2007								At December 31, 2006
		$ Amount		$ Change			% Change			$ Amount		$ Change			% Change
		(Dollars in thousands)
Assumed Change in Interest Rates (Basis Points)
	+300	$	148,908	$	(18,532	)		(11.1	)%	$	145,688	$	(32,565	)		(18.3	)%
	+200		158,403		(9,037	)		(5.4	)		157,889		(20,364	)		(11.4	)
	+100		166,898		(542	)		(0.3	)		168,493		(9,760	)		(5.5	)
	0		167,440		–			–			178,253		–			–
	-100		178,059		10,619			6.3			185,481		7,228			4.1
	-200		180,955		13,515			8.1			192,248		13,995			7.9

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, 2008			December 31, 2007
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, 2008 and December 31, 2007, respectively.

		Percentage Change in Net Interest Income Over a Twelve Month Time Period
		March 31, 2008			December 31, 2007
Assumed Change in Interest Rates  (Basis Points):
	+300		1.9	%		(0.8	)%
	+200		1.8			–
	+100		1.0			0.3
	-100		(1.5	)		(1.3	)
	-200		(2.8	)		(4.3	)

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

33 

move up 300 basis points, net interest income would be expected to increase 1.9% in year one; and if interest rates were to move down 200 basis points, net interest income would be expected to decrease 2.8% in year one.  The primary causes for the changes in net interest income over the twelve month period were a result of the changes in the composition of the Bank’s assets and liabilities along with changes in interest rates.

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.  The Bank currently plans on continuing to reduce its exposure to falling interest rates by lengthening the duration of its securities portfolio increasing its core deposit balances and replacing fixed-rate borrowings with variable-rate borrowings.  On a quarterly basis, the ALCO reviews the calculations of all IRR measures for compliance with the Board approved tolerance limits.  At March 31, 2008, 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 not have a 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 Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the quarter ended March 31, 2008 that has materially affected or is reasonable 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 on such 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.

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.

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

34 

ended December 31, 2007.  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, 2007.

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, 2008		–	$	–		–		126,725
February 1-29, 2008		60,400		14.36		60,400		66,325
March 1-31, 2008		13,195		14.27		13,195		53,130
Total		73,595		14.34		73,595		53,130

(1) The Company publicly announced on February 27, 2007 a repurchase program for 600,000 shares.  Prior to January 1, 2008, 473,275 shares had been repurchased under that program.  A total of 73,595 shares were repurchased under this program during the first quarter of 2008.  On March 20, 2008, the Company publicly announced a new share repurchase plan for an additional 530,000 shares.  The Company did not repurchase any shares during April 2008 under either 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.

(c)           Not applicable.

(d)           Not applicable.

Item 5.           Other Information

CFS Bancorp, Inc. 2008 Omnibus Equity Incentive Plan

On April 29, 2008, the shareholders of CFS Bancorp, Inc. (Company) approved at the Annual Meeting the CFS Bancorp, Inc. 2008 Omnibus Equity Incentive Plan (Equity Incentive Plan) which had

35 

been approved by the Company’s Board of Directors on March 17, 2008.  In connection with the approval of the Equity Incentive Plan, the Board of Directors froze the CFS Bancorp, Inc. 2003 Stock Option Plan and the CFS Bancorp, Inc. 1998 Recognition and Retention Plan such that no new awards will be made under either of those plans.

The Equity Incentive Plan authorizes the issuance of 270,000 shares of common stock of the Company.  In addition, the 32,000 shares that were not issued under the 2003 Stock Option Plan plus any shares subject to outstanding stock options under the 2003 Stock Option Plan that lapse or are unexercised at the end of the option term will be available for any type of stock-based awards in the future under the Equity Incentive Plan.  Since January 1, 2008, there were a total of 22,000 stock options that were forfeited under the 2003 Stock Option Plan and these shares are eligible for awards under the Equity Incentive Plan.

Participants in the Equity Incentive Plan will be officers, key employees and non-employee directors of the Company or any of its affiliates as determined by the Compensation Committee of the Board of Directors.  The Equity Incentive Plan permits grants of non-qualified stock options, incentive stock options, restricted stock, three types of stock appreciation rights, performance units and performance shares.  No more than 25,000 shares will be available for grant during any fiscal year to any one participant and no more than 120,000 shares in the aggregate will be granted in any single year.

Awards under the Equity Incentive Plan may be subject to the achievement of performance goals based on specific business criteria set forth in the Equity Incentive Plan.  If the performance goals are achieved, then continued service with the Company or one of its affiliates also will generally be required before the award becomes fully vested.  Awards that are not subject to the achievement of performance goals will require continued service with the Company or one of its affiliates for a period of years prior to full vesting of the award.  The Compensation Committee will determine whether an award will be subject to the achievement of performance goals and, if so, which performance goals must be achieved.  For further details about the Equity Incentive Plan and for a copy of the complete Equity Incentive Plan, see the Company’s Proxy Statement dated and filed with the Securities Exchange Commission on March 17, 2008.

On May 1, 2008, the Compensation Committee of the Board of Directors granted awards under the Equity Incentive Plan to the Company’s named executive officers as identified in its Proxy Statement who are currently employed by the Company and to its newly appointed President as set forth in the following table.  The performance-based awards are subject to the achievement of “core” diluted earnings per share targets of the Company for the year ended December 31, 2008.

Name	Maximum Number of Performance-Based Shares		Number of Service-Based Shares
Thomas F. Prisby		11,577		11,100
Daryl D. Pomranke (1)		5,863		6,600
Charles V. Cole		4,620		3,000
Gregg L. Holley		1,500		—
Jeffrey C. Stur		2,846		1,200

(1)  Daryl D. Pomranke was appointed President of the Company by its Board of Directors on April 21, 2008.

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2008 Cash Incentive Compensation Program

On April 29, 2008, the Compensation Committee of the Board of Directors approved a Cash Incentive Compensation Program (Cash Incentive Program) for officers and key employees including the Company’s named executive officers and President.  The Cash Incentive Program provides for an opportunity of a cash bonus based on the actual performance of the Company or the individual.

The performance targets for Mr. Prisby, Mr. Pomranke and Mr. Cole are 30%, 27.5% and 25%, respectively, of each executive’s average base compensation and are based on the Company’s “core” diluted earnings per share for the year ended December 31, 2008.  Mr. Holley’s performance targets are based on 10% of his average base compensation and are comprised of two components and assigned a weighted percentage:  “core” diluted earnings per share as described above (50%) and business unit performance objectives (50%).  Mr. Stur’s performance targets are based on 15% of his average base compensation and are comprised of two components and assigned a weighted percentage:  “core” diluted earnings per share as described above (50%) and a combination of business unit and individual performance objectives (50%).

Bonuses under the Cash Incentive Program are expected to be paid in February 2009.  If the performance targets are achieved, a person will be entitled to receive a bonus only if he or she is employed by the Company or one of its affiliates on the bonus payment date.

The table below identifies the potential future payouts to the Company’s named executive officers and President under the Cash Incentive Program assuming the performance targets are achieved:

Name	Threshold		Target		Maximum
Thomas F. Prisby		—	$	115,769	$	173,653
Daryl D. Pomranke (1)		—		58,629		87,944
Charles V. Cole		—		46,200		69,299
Gregg L. Holley		—		15,000		22,500
Jeffrey C. Stur		—		21,348		32,022

(1)  Daryl D. Pomranke was appointed President of the Company by its Board of Directors on April 21, 2008.

Employment Agreements

On May 1, 2008, the Company and Citizens Financial Bank (Bank and collectively Employers) entered into new employment agreements with each of Messrs. Thomas F. Prisby, Daryl D. Pomranke and Charles V. Cole (collectively Executives).  These agreements superseded any existing employment agreements between the Executives and the Employers.

Under the new agreements, the Employers agreed to employ Mr. Prisby, Mr. Pomranke and Mr. Cole for a term of 36, 24 and 18 months, respectively, each in their current respective positions. Under the agreements, Mr. Prisby, Mr. Pomranke and Mr. Cole are entitled to a minimum base salary of $391,000, $220,000 and $186,000, respectively, which may be increased from time to time as determined by the Boards of Directors of the Employers.  In addition, the Executives are entitled to receive bonus payments as determined by the Boards of Directors of the Employers.  The Executives are also entitled to participate in and receive benefits from the Employers’ employee benefit plans.

The employment agreements are reviewed annually by the Employers’ respective Boards of

37 

Directors. The initial term of each Executive’s employment agreement with the Company is extended daily for a successive additional one-day period unless the Company provides notice not less than 60 days prior to such date of its intention not to extend the employment term. The initial term of each Executive’s existing agreement with the Bank is for the specified term in each agreement.  Mr. Prisby’s employment agreement may be periodically extended by the Bank.  The existing agreements for Messrs. Pomranke and Cole will be automatically extended for the period of time stated in the respective employment agreement provided that neither the Bank nor the Executive has provided notice to the other that the term will not be extended further.

Each of the employment agreements is terminable with or without cause by the Employers. The Executives have no right to compensation, severance payments or other benefits (except as set forth below) pursuant to the employment agreements for any period (i) after termination of employment by the Executive without good reason or termination by the Employers for cause or disability, (ii) following the expiration of the term of the agreement if the Employers determine not to further extend the agreement, or (iii) following the Executive’s retirement or death, the Executive (other than in the event of his death) and his spouse are entitled, at the Employer’s cost, to continued life and medical insurance coverage for the remaining term of the employment agreement.

In the event that (i) the Employers terminate the employment of an Executive without cause (ii) the Executive terminates his employment because of the Employers’ material breach of the employment agreement without cure by the Employers, or (iii) the employment agreement is terminated by the Executive for good reason following a change in control of the Employers, the Executive will be entitled to a cash severance amount and continued participation in the Employers’ group life, health, accident and disability insurance and other welfare benefit plans for a limited time following termination of employment.  The cash severance amounts payable to Mr. Prisby, Mr. Pomranke and Mr. Cole would be equal to 300%, 200% and 150%, respectively, of their average annual compensation, as defined in each employment agreement.

The employment agreements with the Company also provide that in the event any of the payments to be made thereunder upon a termination of employment following a change in control are deemed to constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code, as amended (Code), and such payments will cause the Executive to incur an excise tax under the Code, the Company shall pay the Executive an amount such that after the payment of all federal, state, and local income taxes and any additional excise tax, the Executive will be fully reimbursed for the amount of such excise tax.

During the employment of each of the Executives and for a period of time as specified in each employment agreement, the employment agreements prohibit the Executives from competing against the Employers and from soliciting any customers or employees of the Employers to leave the Employers.

For a complete copy of each employment agreement, please refer to the employment agreements included as Exhibits 10.1, 10.2, 10.6, 10.7, 10.13 and 10.14 to this Form 10-Q.

38 

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. (2)
4.0	Form of Stock Certificate of CFS Bancorp, Inc. (3)
10.1*	Employment Agreement entered into between Citizens Financial Bank and Thomas F. Prisby
10.2*	Employment Agreement entered into between CFS Bancorp, Inc. and Thomas F. Prisby
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
10.7*	Employment Agreement entered into between CFS Bancorp, Inc. and Charles V. Cole
10.8*	Amended and Restated Supplemental ESOP Benefit Plan of CFS Bancorp, Inc. and Citizens Financial Services, FSB (6)
10.9*	CFS Bancorp, Inc. Directors’ Deferred Compensation Plan (7)
10.10*	Separation Agreement entered into between CFS Bancorp, Inc., Citizens Financial Bank and Zoran Koricanac (7)
10.11*	Separation Agreement entered into between CFS Bancorp, Inc., Citizens Financial Bank and Thomas L. Darovic (8)
10.12*	CFS Bancorp, Inc. 2008 Omnibus Equity Incentive Plan (9)
10.13*	Employment Agreement entered into between Citizens Financial Bank and Daryl D. Pomranke
10.14*	Employment Agreement entered into between CFS Bancorp, Inc. and Daryl D. Pomranke
10.15*	CFS Bancorp, Inc. 2008 Cash Incentive Compensation Program
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 Form 8-K filed on October 25, 2007.

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

(7) Incorporated by Reference from the Company’s Form 8-K filed on November 16, 2007.

(8) Incorporated by Reference from the Company’s Form 8-K filed on January 3, 2008.

39 

(9) Incorporated by Reference from the Company’s Definitive Proxy Statement from the Annual

                Meeting of Stockholders files with the SEC on March 17, 2008.

*          Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.

40 

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 5, 2008	By:	/s/ Thomas F. Prisby
		Thomas F. Prisby, Chairman of the Board and
		Chief Executive Officer
Date:  May 5, 2008	By:	/s/ Charles V. Cole
		Charles V. Cole, Executive Vice President and
		Chief Financial Officer

41 

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated this 1st day of May, 2008 is made and entered into by and between CITIZENS FINANCIAL BANK (the “Bank”), a federally chartered savings bank, and Thomas F. Prisby (the “Executive”), a resident of the State of Illinois,

WITNESSETH:

WHEREAS, the Executive is presently employed as an officer of the Bank and CFS Bancorp, Inc. (the “Corporation”) (together, the “Employers”);

WHEREAS, the Employers desire to be ensured of the Executive’s continued active participation in the business and senior management of the Employers, and the Executive desires to continue to actively participate in the business and senior management of the Employers;

WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and

WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify in this Agreement the employment arrangement between the Bank and the Executive as well as certain restrictions, covenants, agreements and severance payments of the Bank and/or the Executive.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1)   Definitions.

The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a)   Average Annual Compensation.  The Executive’s “Average Annual Compensation” for purposes of this Agreement shall be deemed to mean the average Base Salary, cash bonuses, vested amounts allocated to the Executive under the ESOP and the Corporation’s vested matching contributions made to the Executive’s account under the Corporation’s 401(k) plan for the three fiscal years preceding the Executive’s Date of Termination.

b)   Base Salary.  “Base Salary” shall have the meaning set forth in Section 4(a) hereof.

c)   Corporation Agreement.  “Corporation Agreement” means the employment agreement between the Corporation and the Executive dated of even date herewith.

d)   Cause. Termination of the Executive’s employment for “Cause” shall mean termination by the Bank because of any of the following by the Executive:

i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities under this Agreement; or

ii) any dishonesty, fraud, theft or embezzlement by the Executive; or

iii) any willful misconduct or breach of fiduciary duty involving personal profit by the Executive; or

iv) any willful or knowing violation by the Executive of any law, statute, rule, regulation or government requirement (other than traffic violations or similar offenses) or any final cease and desist order; or

v) any material and intentional noncompliance by the Executive with any provision of any employee handbook, code of conduct or ethics, corporate governance guidelines or any rule, policy or procedure of either of the Employers as are currently in effect or as may hereafter be in effect from time to time; or

vi) any material breach by the Executive of any provision of this Agreement.

e)   Change in Control.  “Change in Control” means the occurrence of any of the following relating to the Corporation:  (i) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (“1934 Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period and, in such case, each new director so approved will be considered for purposes of this section to have been a director at the beginning of such period.

            i) For purposes of the definition of “Change in Control,” a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the “ESOP”), or any other employee benefit plan, subsidiary or affiliate of the Corporation or the Bank, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

2

            ii)   For purposes of this Agreement (including without limitation the definition of “Change in Control”), the term “Person” means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority.

f)   Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

g)   Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, (ii) if the Executive’s employment is terminated for any other reason (except in the case of death), the date on which a Notice of Termination is given or as specified in such Notice, and (iii) if the Executive dies during his employment hereunder, the date of his death.

h)   Disability.  Termination by the Bank of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment, incapacity or condition which qualifies the Executive for disability benefits under the applicable long-term disability plan or policy maintained by the Employers or any subsidiary or, if no such plan or policy applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

i)   Good Reason.  Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive within two years following a Change in Control of the Corporation based on:

            (i)   Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Chief Executive Officer of the Employers or a material adverse change made by the Employers in the Executive’s functions, duties or responsibilities as Chief Executive Officer of the Employers as such functions, duties or responsibilities exist immediately prior to the effective time of the Change in Control;

            (ii)   Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of employee benefits provided to the Executive taken as a whole;

            (iii)   The principal executive office of the Bank is relocated more than 50 miles from Munster, Indiana or, without the Executive’s express written consent, either of the Employers require the Executive to be based anywhere other than where the Bank’s principal executive office is located or has been relocated as provided above, except for required travel on business of the Employers;

            (iv)   Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (l) below; or

3

            (v)   The failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor.

The Executive must notify the Bank in writing within ninety (90) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason.  The Bank shall then have thirty (30) days following the effectiveness of such notice during which it may cure such circumstances and, if so cured, shall not be required to make any severance payments pursuant to Section 6(d) hereof.

j)   IRS. “IRS” shall mean the Internal Revenue Service.

k)   Key Employee.  “Key Employee” means an employee who is:

i)      An officer of the Corporation having annual compensation greater than $150,000; or

ii)     A beneficial owner of 5% or more of the outstanding securities of the Corporation; or

                iii)    A beneficial owner 1% or more of the outstanding securities of the Corporation and has an annual compensation greater than $150,000.

For purposes of determining who is an officer for purposes of Section 1(k)(i), no more than 50 employees (or, if lesser, the greater of three or 10% of the employees) shall be treated as officers, and those categories of employees listed in Code Section 414(q)(5) shall be excluded.  The $150,000 amount in Section 1(k)(i) shall be adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

l)   Notice of Termination.  Any purported termination of the Executive’s employment by the Bank for any reason, including without limitation with or without Cause or upon the occurrence of a Disability, or by the Executive for any reason, including without limitation with or without Good Reason or upon Retirement, shall be communicated by written “Notice of Termination” to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Bank’s termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof.

m)   Retirement.  “Retirement” shall mean voluntary termination by the Executive after the Executive attains the age 55, with at least five years of active service.

n)  Separation from Service.  “Separation from Service” means the date of the Executive’s death or Retirement or the date on which the Executive otherwise experiences a Termination of

4

Employment with the Corporation; provided, however, a Separation from Service does not occur if the Executive is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if the leave is for a longer period, so long as the Executive’s right to reemployment with the Corporation is provided either by statute or by contract.  For purposes of this paragraph (n), a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Executive will return to perform services for the Corporation.  If the period of leave exceeds six (6) months and the Executive’s right to reemployment is not provided either by statute or contract, there shall be a Separation from Service on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months and where such impairment causes the Executive to be unable to render the services or carry out the duties and responsibilities set forth in this Agreement, then a 29-month period of absence may be substituted for such six-month period.  The Executive shall incur a “Termination of Employment” when a termination of employment is incurred under Treasury Regulation 1.409A-1(h)(ii).

 o)   Specified Employee.  “Specified Employee” means an employee who is a “Key Employee” if the Corporation’s stock is publicly traded on an established securities market.  An employee shall be a Specified Employee for the twelve-month period beginning on the April 1st following any calendar year in which the employee is a Key Employee.

 2)   Term of Employment.

a)   The Bank hereby employs the Executive as Chairman and Chief Executive Officer, and the Executive hereby accepts said employment and agrees to render such services to the Bank on the terms and conditions set forth in this Agreement.  The term of this Agreement shall be a period of three years commencing as of the date hereof (the "Commencement Date"), subject to earlier termination as provided herein.  Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms.  The Board of Directors of the Bank shall review on a periodic basis (and no less frequently than annually) whether to permit further extensions of the term of this Agreement.  As part of such review, the Board of Directors shall consider all relevant factors, including the Executive's performance hereunder, and shall either expressly approve further extensions of the time of this Agreement or decide to provide notice to the contrary.

b)   During the term of this Agreement, the Executive shall perform such executive services for the Bank as may be consistent with his titles and from time to time assigned to him by the Bank’s Board of Directors. The Executive further agrees to serve without additional compensation as an officer and director of any of the Bank's subsidiaries and agrees that any amounts received from such corporation may be offset against the amounts due hereunder. In addition, it is agreed that the Bank may assign the Executive to one of its subsidiaries for payroll purposes.

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3)   Loyalty, Confidentiality and Non-Competition.

a)   The Executive shall devote his full time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement.  During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution, wherever located.

b)   For a period of three years from the Date of Termination relating to a termination by the Bank of the Executive’s employment hereunder for Cause or a Disability or a termination by the Executive of his employment hereunder upon Retirement, without Good Reason or his election not to extend the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution within a fifty (50) mile radius from any present or future office of either of the Employers or any of their subsidiaries or affiliates.

c)   For purposes of this Agreement, directly or indirectly engaging in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates includes, but is not limited to, serving or acting as an owner, partner, member, agent, beneficiary, employee, officer, director or consultant of any Person engaged in any banking, lending, financial services or other business, operation or activity in which the Bank or any of its subsidiaries or affiliates is engaged or is actively developing or pursuing on the Date of Termination; except that nothing herein contained shall be deemed to prevent or limit the right of the Executive to invest any of his funds in the capital stock or other securities of any such Person whose stock or securities are publicly owned or are regularly traded on any national exchange so long as the Executive is not the beneficial owner of more than 1% of the outstanding capital stock or securities of such Person, nor shall anything herein contained be deemed to prevent or limit the right of the Executive to invest any of his funds in real estate.

       d)  All information relating to business of the Employers or any of their subsidiaries or affiliates including, but not limited to, that business obtained or serviced by the Executive, all customer lists, customer information, contact lists, asset, liability, loan, deposit and investment information, financial records or information, instruments, documents, papers and other material used in connection with, and all trade secrets, estimates, projections, goals, strategies and techniques relating to, such business, shall be the exclusive property of the Employers or the subsidiary or affiliate.  The Executive shall maintain the confidentiality of all such information and material that is confidential, proprietary or not publicly available (other than through a breach of this Agreement by the Executive or any other impermissible disclosure); none of it shall be copied, reproduced, duplicated or disclosed without the express written permission of the Employers (other than in connection with the performance

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of the Executive’s services hereunder), and the Executive shall return all such information and materials to the Employers upon their request or upon termination of employment.  The Executive also agrees that he shall not utilize such information or materials, either directly or indirectly, for any purposes except rendering his services and carrying out his duties and responsibilities hereunder and in furtherance of the Employers’ business, unless otherwise expressly authorized by the Employers in writing in advance.

e)   The Executive agrees that, during his employment, and for a period of three years following the Date of Termination of the Executive’s employment hereunder for Cause, without Good Reason, upon Retirement, upon the occurrence of a Disability or the election of the Executive not to extend the term of this Agreement, the Executive:

            i)   shall not solicit any of the Employers’ past or current customers or clients for the benefit of anyone other than the Employers or their subsidiaries or affiliates;

            ii)   shall not divulge the names of any of the Employers’ past or then current customers to any other Person; and

            iii)   shall not, either directly or indirectly, induce or solicit any person to leave the employ of either of the Employers.

f)   The provisions of Sections 3(b), 3(c) and 3(e) hereof shall be construed independent of any other provision of this Agreement and shall survive any termination of this Agreement.  The existence of any claim or cause of action of the Executive against the Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Bank of Sections 3(b), 3(c) and 3(e) hereof.

g)   The restrictions and covenants contained in this Section shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply during the full periods specified herein.  The Bank and the Executive understand, acknowledge and agree that the restrictions and covenants contained in this Section are reasonable in view of the Executive’s position at the Bank, the competitive and confidential nature of the information of which the Executive has or will have knowledge and the competitive and the nature of the business in which the Bank and its subsidiaries and affiliates are or may be engaged.

4)   Compensation and Benefits.

a)   The Employers shall collectively compensate and pay the Executive for his services during the term of this Agreement at an aggregate minimum base salary of $391,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Boards of Directors of the Employers.

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b)   During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension, retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans made available to employees and executives of the Employers, to the extent commensurate with his position with the Employers, in accordance with the terms of the applicable plans and as fixed by the Boards of Directors of the Employers. The Bank shall not make any changes in such plans which would adversely affect the Executive’s rights or benefits thereunder, unless such change is applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Executive’s Base Salary.  Notwithstanding the foregoing or anything in this Agreement to the contrary, the Executive understands, acknowledges and agrees that the Employers may from time to time, in their sole discretion, amend, modify, replace, freeze, suspend or terminate any or all of the incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership, perquisite or other plans, benefits and privileges given to employees and executives of the Employers, as well as any other rules, policies or procedures applicable to executives of the Employers, but only so long as any such actions apply to all executive officers of the Bank and do not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank.

c)   During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers.  The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers.

d)   In the event the Executive’s employment is terminated due to Disability, Retirement or death, and provided the Executive is not otherwise receiving substantially similar benefits from another employer, consultant or otherwise, the Employers shall provide, at their cost, all existing life and medical insurance coverage for the Executive and his spouse for a period until they both become eligible for Medicare coverage.  Thereafter, the Executive may continue, at his cost, the health insurance coverage as an eligible retried employee under the Employer’s health and medical benefit plans.

e)   The Executive’s Base Salary, compensation, benefits and expenses shall be paid by and allocated between the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

f)   During the term of this Agreement, the Employers shall provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the performance of the duties and responsibilities assigned to the Executive hereunder.

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g)   During the term of this Agreement, the Employers shall provide to Executive the use of an automobile of Executive’s choice with an average annual lease cost not to exceed $15,000 per year.  The Employers agree to replace the automobile with a new one at Executive’s request no more often than once every two years.  Either of the Employers shall pay all automobile operating expenses incurred by the Executive in the performance of Executive’s duties hereunder.  Either of the Employers shall procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

h)   During the term of this Agreement, the Employers shall provide to the Executive, at the Employer’s cost, all perquisites which all other senior executives of the Bank are generally entitled to receive, including the payment of his annual dues at his country club.

5)   Expenses.  The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, travel expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations and requirements as may be established by the Boards of Directors of the Employers.  If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor.  Any such reimbursement of expenses provided in this Section 5 shall be made no later than December 31 of the year following the year in which the expense was incurred.

6)   Termination.

a)   The Bank shall have the right at any time, upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation termination with or without Cause, upon a Disability or the election of the Bank not to extend the term of this Agreement.  The Executive shall have the right at any time, upon prior Notice of Termination, to terminate his employment hereunder for any reason, including without limitation with or without Good Reason, upon Retirement or the election of the Executive not to extend the term of this Agreement.

b)   In the event that (i) the Executive’s employment hereunder is terminated by the Bank for Cause or upon the election of the Bank not to extend the term of this Agreement or (ii) the Executive terminates his employment hereunder without Good Reason or upon the election of the Executive not to extend the term of this Agreement, the Executive shall in each such case have no right pursuant to this Agreement to any severance payments, compensation or other benefits for any period after the applicable Date of Termination.

c)   In the event that the Executive’s employment hereunder is terminated as a result of a Disability, Retirement or the Executive’s death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to severance payments, compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 4(d) hereof.

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d)   In the event that (i) the Executive’s employment hereunder is terminated by the Bank without Cause or (ii) the Executive’s employment hereunder is terminated by the Executive (y) due to a material breach of this Agreement by the Bank, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (z) for Good Reason, then the Bank shall so long as the Executive does not breach this Agreement following the Date of Termination:

            i)   pay to the Executive, a cash severance amount equal to three times that portion of the Executive’s Average Annual Compensation paid by the Bank, in twoequal installments, with the first installment to be paid on the first business day of the month following the Executive’s Date of Termination and the second installment to be paid on the first anniversary of the Date of Termination; and

            ii)   maintain and provide for a period ending at the earlier of (A) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (B) the date of the Executive’s employment by or affiliation with another employer, consultant or Person (provided that the Executive is entitled under the terms of such employment or affiliation to benefits substantially similar to those described in this subparagraph, at the same or lesser cost to the Executive as under the Bank’s plans, programs and arrangements on the Date of Termination), the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other welfare benefit plans, programs and arrangements offered by the Bank in which the Executive was entitled to participate immediately prior to the Date of Termination (and excluding (x) Base Salary, bonuses and other items of compensation included in Average Annual Compensation, (y) incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans, programs or arrangements of the Bank, and (z) perquisites and any vehicle provided by the Bank), provided that in the event that the Executive’s participation in any such plan, program or arrangement as provided in this subparagraph is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Bank shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

Any severance payment made to the Executive under this Agreement shall be offset against and reduce any severance payment that would otherwise be required to made to the Executive under the Corporation Agreement.

e)  If at the time of the Executive’s Separation from Service, for any reason other than death, the Executive meets the definition of a Specified Employee, payment of all amounts under subsections 6(d)(i) and 6(d)(ii) shall be suspended for six (6) months following the Executive’s Separation from Service.  In such event, the first installment shall be paid on the first day following the end of the six-month suspension period.  The second installment shall be paid no later than January 15th of the calendar year following the year in which the first installment was paid.  If the Executive incurs a Separation from Service due to death, regardless of whether the Executive meets the definition of a Specified Employee, payment

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of his benefit shall not be suspended; provided, however, that the six-month suspension period shall not apply to the provision of any group insurance, life insurance, health and accident insurance or disability insurance under subsection 6(d)(ii).

f)   Upon any termination of the Executive’s employment hereunder, the Executive covenants and agrees (i) to return promptly to the Bank, at the Bank’s headquarters, all confidential information or materials that are still in the Executive’s possession or control on his last day of employment with the Bank or the location of which the Employee knows (including, but not limited to, any confidential information or materials contained on the Executive’s personal data assistant or personal or home computer), and (ii) to return promptly to the Bank, at the Bank’s headquarters, all vehicles, equipment, computers, credit cards, keys, access cards, passwords and other property of the Bank that are still in the Executive’s possession or control on his last day of employment or the location of which the Employee knows, and to cease using any of the foregoing on and after his last day of employment.

7)   Limitation of Benefits under Certain Circumstances.  If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits payable by the Bank pursuant to Section 6 hereof shall be reduced, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 6 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code.  The parties hereto agree that the present value of the payments and benefits payable pursuant to this Agreement to the Executive upon termination shall be limited to three (3) times the Executive’s Average Annual Compensation.  The determination of any reduction in the payments and benefits to be made pursuant to Section 6 shall be based upon the opinion of independent counsel selected by the Bank's independent public accountants and paid by the Bank.  Such counsel shall be reasonably acceptable to the Bank and the Executive; shall promptly prepare the foregoing opinion, but in no event later than sixty (60) days following such counsel’s selection; and may use such actuaries as such counsel deems necessary or advisable for the purpose.  Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment under any circumstances other than as specified in this Section 7, or a reduction in the payments and benefits specified in Section 6 below zero.

8)   Mitigation; Exclusivity of Benefits.

a)   The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise so long as the Executive has not breached this Agreement.  In the event of any breach of this Agreement by the Executive following the Date of Termination, the Executive shall immediately repay to the Bank all severance payments paid to him under Section 6 hereof, plus interest at the rate of 10% per annum from the date of such breach until all such severance payments have been repaid in full to the Bank.

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b)   The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

9)   Withholding.  All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to taxes and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation.

10)   Assignability.  The Bank may, without the consent of the Executive, assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other Person with or into which the Bank may hereafter merge or consolidate or to which the Bank may transfer all or substantially all of its assets, if in any such case such corporation, bank or other Person shall by operation of law or expressly in writing assume all obligations of the Bank hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11)   Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand; (ii) sent by certified United States Mail, return receipt requested, first class postage pre-paid; (iii) sent by overnight delivery service; or (iv) sent by facsimile transmission if such fax is confirmed immediately thereafter by also mailing a copy of such notice or other communication by regular (not certified or registered) United States Mail, first class postage pre-paid, as follows:

a)   To the Corporation:      CFS Bancorp, Inc.

      Attention: Corporate Secretary

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

b)   To the Bank:                Citizens Financial Bank

      Attention: Corporate Secretary

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

c)   To the Executive:          Thomas F. Prisby

Hinsdale, Illinois

or to such other address or facsimile number as either party hereto may have furnished to the other in writing in accordance herewith.  The Executive shall promptly provide any changes to his address, telephone number and facsimile number to the Bank.

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All such notices and other communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail in the manner provided herein, two (2) business days after deposit with the United States Postal Service; (iii) if sent by overnight delivery service, on the next business day after deposit with such service; or (iv) if sent by facsimile transmission, on the date indicated on the fax confirmation page if such fax also is confirmed by regular (not certified or registered) United States mail.

12)   Amendment; Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  The failure or delay of either party at any time to insist upon the strict performance of any provision of this Agreement or to enforce its or his rights or remedies under this Agreement shall not be construed as a waiver or relinquishment of the right to insist upon strict performance of such provision, or to pursue any of its rights or remedies for any breach hereof, at a future time.

13)   Governing Law; Venue.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana.  Any claim, demand or action relating to this Agreement shall be brought only in a state court located in Porter County, Indiana.  In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims, defenses or objections of lack of jurisdiction of or proper or preferred venue by such court.

14)   Nature of Obligations.  Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank.

15)   Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16)   Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect; provided, however, if any provision of Sections 3(b), 3(c) and 3(e) of this Agreement shall be determined by a court of competent jurisdiction to be unenforceable because of the provision’s scope, duration, geographic restriction or other factor, then such provision shall be considered divisible and the court making such determination shall have the power to reduce or limit (but not increase or make greater) such scope, duration, geographic restriction or other factor or to reform (but not increase or make greater) such provision to make it enforceable to the maximum extent permitted by law, and such provision shall then be enforceable against the appropriate party hereto in its reformed, reduced or limited form.

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17)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

18)   Regulatory Actions.  The following provisions shall be applicable to the parties to the extent that they are required to be included in employment agreements between a savings association and its employees pursuant to Section 563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R. §563.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 6 hereof.

a)   If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. §§1818(e)(3) and 1818(g)(1)), the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may, in its discretion (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

b)   If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. §§1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Bank as of the date of termination shall not be affected.

c)   If the Bank is in default, as defined in Section 3(x)(1) of the FDIA (12 U.S.C. §1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but vested rights of the Executive and the Bank as of the date of termination shall not be affected.

d)   All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. §563.39(b)(5) (except to the extent that it is determined that continuation of the Agreement for the continued operation of the Bank is necessary) (i) by the Director of the Office of Thrift Supervision (“OTS”), or his/her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C. §1823(c)), or (ii) by the Director of the OTS, or his/her designee, at the time the Director, or his/her designee, approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition.  Notwithstanding the foregoing, vested rights of the Executive and the Bank as of the date of termination shall not be affected.

19)   Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.  In the

14

event of the Executive’s termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination.  Furthermore, following such termination for Cause, the Executive shall not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

20)   Payment of Costs and Legal Fees and Reinstatement of Benefits.  In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and any other cash compensation, employee benefits and any compensation and benefits due but not paid to the Executive under this Agreement.

21)   Entire Agreement.  This Agreement embodies the entire agreement between the Bank and the Executive with respect to the matters agreed to herein.  All prior agreements between the Bank and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.  Notwithstanding the foregoing, nothing contained in this Agreement shall affect the Corporation Agreement which is being executed contemporaneously herewith.

22)   Construction.  This Agreement shall be deemed to have been drafted by both parties hereto.  This Agreement shall be construed in accordance with the fair meaning of its provisions and its language shall not be strictly construed against, nor shall ambiguities be resolved against, any party.

23)   Recitals.  The recitals or “Whereas” clauses contained on page 1 of this Agreement are expressly incorporated into and made a part of this Agreement.

24)   Non-disparagement.  During the Executive’s employment with the Bank and following any termination of the Executive’s employment with the Bank, the Executive shall not publicly disparage or make or publish any negative statements or comments about the Bank, any of the Bank’s subsidiaries or affiliates or any of their respective products, services, directors, officers or employees.  During the Executive’s employment with the Bank and following any termination of the Executive’s employment with the Bank, and subject to applicable law, no executive officer of the Bank or member of the Bank’s Board of Directors shall publicly disparage or make or publish any negative statements or comments about the Executive.

25)   Cooperation.  For a period of five (5) years following any termination of the Executive’s employment with the Bank and upon the request of the Bank or any of its subsidiaries or affiliates, the Executive shall reasonably cooperate, assist and make himself available (for testimony or otherwise) at appropriate times and places as reasonably determined by the Bank or any of its subsidiaries or affiliates in connection with any claim, demand, action, suit, proceeding, discovery, examination, investigation or litigation by, against or affecting the Bank or any of its subsidiaries or affiliates.  In connection with the foregoing, the Bank shall pay the Executive a fee of $1,000 for each day that the Bank or any subsidiary or affiliate of the Bank requests the Executive to cooperate, assist or make himself available, and shall also reimburse the Executive for his reasonable out-of-pocket travel expenses that are approved in advance by the Chairman of

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the Bank; provided, however, that the Bank shall not pay such fee or reimburse for such expenses in connection with any claim, demand, action, suit or proceeding relating to this Agreement.

26)   Certain Remedies.  The Executive agrees that the Bank will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any actual, threatened or attempted breach by the Executive of any provision of Section 3.  Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3, in addition to all other remedies to which the Bank is entitled at law, in equity or otherwise, the Bank shall be entitled to a temporary restraining order, a permanent injunction and/or a decree of specific performance of any provision of Section 3.  The parties agree that a bond posted by the Bank in the amount of One Thousand Dollars ($1,000) shall be adequate and appropriate in connection with such restraining order or injunction and that actual damages need not be proved by the Bank prior to it being entitled to obtain such restraining order, injunction or specific performance.  The foregoing remedies shall not be deemed to be the exclusive rights or remedies of the Bank for any breach of or noncompliance with this Agreement by the Executive but shall be in addition to all other rights and remedies available to the Bank at law, in equity or otherwise.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

_/s/ Thomas F. Prisby _______________

 Thomas F. Prisby

Attest:                                                                   CITIZENS FINANCIAL BANK

By: /s/ Monica F. Sullivan                                    By:_/s/ Agnes C. Lasics_______________

Corporate Secretary
 (Name and Title)

KD_IM-1325991_3.DOC

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated this 1st day of May, 2008 is made and entered into by and between CFS BANCORP, INC. (the “Corporation”), an Indiana corporation, and Thomas F. Prisby (the “Executive”), a resident of the State of Illinois,

WITNESSETH:

WHEREAS, the Executive is presently employed as an officer of the Corporation and Citizens Financial Bank (the “Bank”) (together, the “Employers”);

WHEREAS, the Employers desire to be ensured of the Executive’s continued active participation in the business and senior management of the Employers, and the Executive desires to continue to actively participate in the business and senior management of the Employers;

WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and

WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify in this Agreement the employment arrangement between the Corporation and the Executive as well as certain restrictions, covenants, agreements and severance payments of the Corporation and/or the Executive.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1)   Definitions.

The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a)   Average Annual Compensation.  The Executive’s “Average Annual Compensation” for purposes of this Agreement shall be deemed to mean the average Base Salary, cash bonuses, vested amounts allocated to the Executive under the ESOP and the Corporation’s vested matching contributions made to the Executive’s account under the Corporation’s 401(k) plan for the three fiscal years preceding the Executive’s Date of Termination.

b)   Base Salary.  “Base Salary” shall have the meaning set forth in Section 4(a) hereof.

c)   Bank Agreement.  “Bank Agreement” means the employment agreement between the Bank and the Executive dated of even date herewith.

d)   Cause. Termination of the Executive’s employment for “Cause” shall mean termination by the Corporation because of any of the following by the Executive:

i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities under this Agreement; or

ii) any dishonesty, fraud, theft or embezzlement by the Executive; or

iii) any willful misconduct or breach of fiduciary duty involving personal profit by the Executive; or

iv) any willful or knowing violation by the Executive of any law, statute, rule, regulation or government requirement (other than traffic violations or similar offenses) or any final cease and desist order; or

v) any material and intentional noncompliance by the Executive with any provision of any employee handbook, code of conduct or ethics, corporate governance guidelines or any rule, policy or procedure of either of the Employers as are currently in effect or as may hereafter be in effect from time to time; or

vi) any material breach by the Executive of any provision of this Agreement; or

vii) any termination of the Executive’s employment with the Bank.

e)   Change in Control.  “Change in Control” means the occurrence of any of the following relating to the Corporation:  (i) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (“1934 Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period and, in such case, each new director so approved will be considered for purposes of this section to have been a director at the beginning of such period.

i)   For purposes of the definition of “Change in Control,” a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the “ESOP”), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

ii)   For purposes of this Agreement (including without limitation the definition of “Change in Control”), the term “Person” means any natural person, proprietorship, partnership,

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corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority.

f)   Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

g)   Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, (ii) if the Executive’s employment is terminated for any other reason (except in the case of death), the date on which a Notice of Termination is given or as specified in such Notice, and (iii) if the Executive dies during his employment hereunder, the date of his death.

h)   Disability.  Termination by the Corporation of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment, incapacity or condition which qualifies the Executive for disability benefits under the applicable long-term disability plan or policy maintained by the Employers or any subsidiary or, if no such plan or policy applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

i)   Good Reason.  Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive within two years following a Change in Control of the Corporation based on:

            (i)   Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Chairman and Chief Executive Officer of the Employers or a material adverse change made by the Employers in the Executive’s functions, duties or responsibilities as Chairman and Chief Executive Officer of the Employers as such functions, duties or responsibilities exist immediately prior to the effective time of the Change in Control;

(ii)   Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of employee benefits provided to the Executive taken as a whole;

            (iii) The principal executive office of the Bank is relocated more than 50 miles from Munster, Indiana or, without the Executive’s express written consent, either of the Employers require the Executive to be based anywhere other than where the Bank’s principal executive office is located or has been relocated as provided above, except for required travel on business of the Employers;

            (iv) Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (l) below; or

            (v) The failure by the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor.

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The Executive must notify the Corporation in writing within ninety (90) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason.  The Corporation shall then have thirty (30) days following the effectiveness of such notice during which it may cure such circumstances and, if so cured, shall not be required to make any severance payments pursuant to Section 6(d) hereof.

j)   IRS. “IRS” shall mean the Internal Revenue Service.

k)   Key Employee.  “Key Employee” means an employee who is:

i)      An officer of the Corporation having annual compensation greater than $150,000; or

ii)     A beneficial owner of 5% or more of the outstanding securities of the Corporation; or

iii)    A beneficial owner 1% or more of the outstanding securities of the Corporation and has an annual compensation greater than $150,000.

For purposes of determining who is an officer for purposes of Section 1(k)(i), no more than 50 employees (or, if lesser, the greater of three or 10% of the employees) shall be treated as officers, and those categories of employees listed in Code Section 414(q)(5) shall be excluded.  The $150,000 amount in Section 1(k)(i) shall be adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

l)   Notice of Termination.  Any purported termination of the Executive’s employment by the Corporation for any reason, including without limitation with or without Cause or upon the occurrence of a Disability, or by the Executive for any reason, including without limitation with or without Good Reason or upon Retirement, shall be communicated by written “Notice of Termination” to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Corporation’s termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof.

m)   Retirement.  “Retirement” shall mean voluntary termination by the Executive after the Executive attains the age 55, with at least five years of active service.

n)   Separation from Service.  “Separation from Service” means the date of the Executive’s death or Retirement or the date on which the Executive otherwise experiences a Termination of Employment with the Corporation; provided, however, a Separation from Service does not occur if the Executive is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if the leave is for a longer period, so long as the Executive’s right to reemployment with the Corporation is provided either by statute or by contract.  For purposes of this paragraph (n), a leave of absence constitutes a

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bona fide leave of absence only if there is a reasonable expectation that the Executive will return to perform services for the Corporation.  If the period of leave exceeds six (6) months and the Executive’s right to reemployment is not provided either by statute or contract, there shall be a Separation from Service on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months and where such impairment causes the Executive to be unable to render the services or carry out the duties and responsibilities set forth in this Agreement, then a 29-month period of absence may be substituted for such six-month period.  The Executive shall incur a “Termination of Employment” when a termination of employment is incurred under Treasury Regulation 1.409A-1(h)(ii).

o)   Specified Employee.  “Specified Employee” means an emplyoee who is a “Key Employee” if the Corporation’s stock is publicly traded on an established securities market.  An employee shall be a Specified Employee for the twelve-month period beginning on the April 1st following any calendar year in which the employee in a Key Employee.

2)   Term of Employment.

a)   The Corporation hereby employs the Executive as its Chairman and Chief Operating Officer, and the Executive hereby accepts such employment and agrees to render such services to, and carry out such duties and responsibilities for, the Corporation, on the terms and conditions set forth in this Agreement.  The term of this Agreement shall be a period of three years commencing as of the date hereof (the “Commencement Date”), subject to earlier termination as provided herein.  Beginning on the day following the Commencement Date, and on each day thereafter, the term of this Agreement shall be extended for a period of one day in addition to the then-remaining term, provided that the Corporation has not given notice to the Executive in writing at least sixty (60) days prior to such day that the term of this Agreement shall not be extended further.  Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms.  As part of the review by the Board of Directors of the Corporation on at least an annual basis whether to permit extensions of the term of this Agreement, the Board of Directors shall consider all relevant factors, including without limitation the Executive’s performance hereunder and the input of the Chairman of the Board of the Corporation, and shall determine whether to provide notice to the Executive that the term of this Agreement shall not be further extended.

b)   During the term of this Agreement, the Executive shall render such executive services and carry out such duties and responsibilities consistent with his titles and as may be assigned to him from time to time by the Corporation’s Board of Directors.

The Executive further agrees to serve without additional compensation (except as set forth in the Bank Agreement) as an officer and/or director of any of the Corporation’s or the Bank’s subsidiaries and agrees that any amounts received from such subsidiaries may be offset against the amounts due hereunder.  In addition, it is agreed that the Corporation may assign the Executive to one of its subsidiaries for payroll purposes.

3)   Loyalty, Confidentiality and Non-Competition.

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a)   The Executive shall devote his full time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement.  During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution, wherever located.

b)   For a period of three years from the Date of Termination relating to a termination by the Corporation of the Executive’s employment hereunder for Cause or a Disability or a termination by the Executive of his employment hereunder upon Retirement or without Good Reason, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution within a fifty (50) mile radius from any present or future office of either of the Employers or any of their subsidiaries or affiliates.

c)   For purposes of this Agreement, directly or indirectly engaging in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates includes, but is not limited to, serving or acting as an owner, partner, member, agent, beneficiary, employee, officer, director or consultant of any Person engaged in any banking, lending, financial services or other business, operation or activity in which the Corporation or any of its subsidiaries or affiliates is engaged or is actively developing or pursuing on the Date of Termination; except that nothing herein contained shall be deemed to prevent or limit the right of the Executive to invest any of his funds in the capital stock or other securities of any such Person whose stock or securities are publicly owned or are regularly traded on any national exchange so long as the Executive is not the beneficial owner of more than 1% of the outstanding capital stock or securities of such Person, nor shall anything herein contained be deemed to prevent or limit the right of the Executive to invest any of his funds in real estate.

d)   All information relating to business of the Employers or any of their subsidiaries or affiliates including, but not limited to, that business obtained or serviced by the Executive, all customer lists, customer information, contact lists, asset, liability, loan, deposit and investment information, financial records or information, instruments, documents, papers, and other material used in connection with, and all trade secrets, estimates, projections, goals, strategies, techniques relating to, such business, shall be the exclusive property of the Employers or the subsidiary or affiliate.  The Executive shall maintain the confidentiality of all such information and material that is confidential, proprietary or not publicly available (other than through a breach of this Agreement by the Executive or any other impermissible disclosure); none of it shall be copied, reproduced, duplicated or disclosed without the express written permission of the Employers (other than in connection with the performance of the Executive’s services hereunder), and the Executive shall return all such information and materials to the Employers upon their request or upon termination of employment.  The Executive also agrees that he shall not utilize such information or materials, either directly or

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indirectly, for any purposes except rendering his services and carrying out his duties and responsibilities hereunder and in furtherance of the Employers’ business, unless otherwise expressly authorized by the Employers in writing in advance.

e)   The Executive agrees that, during his employment, and for a period of three years following the Date of Termination of the Executive’s employment hereunder for Cause, without Good Reason, upon Retirement or upon the occurrence of a Disability, the Executive:

            i) shall not solicit any of the Employers’ past or current customers or clients for the benefit of anyone other than the Employers or their subsidiaries or affiliates;

            ii) shall not divulge the names of any of the Employers’ past or then current customers to any other Person; and

            iii) shall not, either directly or indirectly, induce or solicit any person to leave the employ of either of the Employers.

f)   The provisions of Sections 3(b), 3(c) and 3(e) hereof shall be construed independent of any other provision of this Agreement and shall survive any termination of this Agreement.  The existence of any claim or cause of action of the Executive against the Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of Sections 3(b), 3(c) and 3(e) hereof.

g)   The restrictions and covenants contained in this Section shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply during the full periods specified herein.  The Corporation and the Executive understand, acknowledge and agree that the restrictions and covenants contained in this Section are reasonable in view of the Executive’s position at the Corporation, the competitive and confidential nature of the information of which the Executive has or will have knowledge and the competitive and the nature of the business in which the Corporation and its subsidiaries and affiliates are or may be engaged.

4)   Compensation and Benefits.

a)   The Employers shall collectively compensate and pay the Executive for his services during the term of this Agreement at an aggregate minimum base salary of $391,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Board of Directors of the Corporation.

b)   During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension, retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans made available to employees and executives of the Employers, to the extent commensurate with his position with the Employers, in accordance with the terms of the applicable plans and as fixed by the Boards of Directors of the Employers. The Corporation shall not make any changes in such plans which would adversely affect the

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Executive’s rights or benefits thereunder, unless such change is applicable to all executive officers of the Corporation and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Executive’s Base Salary.  Notwithstanding the foregoing or anything in this Agreement to the contrary, the Executive understands, acknowledges and agrees that the Employers may from time to time, in their sole discretion, amend, modify, replace, freeze, suspend or terminate any or all of the incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership, perquisite or other plans, benefits and privileges given to employees and executives of the Employers, as well as any other rules, policies or procedures applicable to executives of the Employers, but only so long as any such actions apply to all executive officers of the Corporation and do not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation.

c)   During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers.  The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers.

d)   In the event the Executive’s employment is terminated due to Disability, Retirement or death, and provided the Executive is not otherwise receiving substantially similar benefits from another employer, consultant or otherwise, the Employers shall provide, at their cost, all existing life and medical insurance coverage for the Executive and his spouse for a period until they both become eligible for Medicare coverage.  Thereafter, the Executive may continue, at his cost, the health insurance coverage as an eligible retried employee under the Employer’s health and medical benefit plans.

e)   The Executive’s Base Salary, compensation, benefits and expenses shall be paid by and allocated between the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

f)   During the term of this Agreement, the Employers shall provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the performance of the duties and responsibilities assigned to the Executive hereunder.

g)   During the term of this Agreement, the Employers shall provide to Executive the use of an automobile of Executive’s choice with an average annual lease cost not to exceed $15,000 per year.  The Employers agree to replace the automobile with a new one at Executive’s request no more often than once every two years.  Either of the Employers shall pay all automobile operating expenses incurred by the Executive in the performance of Executive’s duties hereunder.  Either of the Employers shall procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

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h)   During the term of this Agreement, the Employers shall provide to the Executive, at the Employer’s cost, all perquisites which all other senior executives of the Corporation are generally entitled to receive; provided, however, that the Executive understands and agrees that the Chief Executive Officer of the Corporation may receive perquisites that are different from those provided to the Executive or other senior executives of the Corporation.

5)   Expenses.  The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, travel expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations and requirements as may be established by the Boards of Directors of the Employers.  If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor.  Any such reimbursement of expenses provided in this Section 5 shall be made no later than December 31 of the year following the year in which the expense was incurred.

6)   Termination.

a)   The Corporation shall have the right at any time, upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation termination with or without Cause, upon a Disability or the election of the Corporation not to extend the term of this Agreement.  The Executive shall have the right at any time, upon prior Notice of Termination, to terminate his employment hereunder for any reason, including without limitation with or without Good Reason or upon Retirement.

b)   In the event that (i) the Executive’s employment hereunder is terminated by the Corporation for Cause or upon the election of the Corporation not to extend the term of this Agreement or (ii) the Executive terminates his employment hereunder without Good Reason, the Executive shall in each such case have no right pursuant to this Agreement to any severance payments, compensation or other benefits for any period after the applicable Date of Termination.

c)   In the event that the Executive’s employment hereunder is terminated as a result of a Disability, Retirement or the Executive’s death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to severance payments, compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 4(d) hereof.

d)   In the event that (i) the Executive’s employment hereunder is terminated by the Corporation without Cause or (ii) the Executive’s employment hereunder is terminated by the Executive (y) due to a material breach of this Agreement by the Corporation, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (z) for Good Reason, then the Corporation shall so long as the Executive does not breach this Agreement following the Date of Termination:

            i) pay to the Executive, a cash severance amount equal to three times that portion of the Executive’s Average Annual Compensation paid by the Corporation, in twoequal installments, with the first installment to be paid on the first business day of the month

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following the Executive’s Date of Termination and the second installment to be paid on the first anniversary of the Date of Termination; and

            ii) maintain and provide for a period ending at the earlier of (A) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (B) the date of the Executive’s employment by or affiliation with another employer, consultant or Person (provided that the Executive is entitled under the terms of such employment or affiliation to benefits substantially similar to those described in this subparagraph, at the same or lesser cost to the Executive as under the Corporation’s plans, programs and arrangements on the Date of Termination), the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other welfare benefit plans, programs and arrangements offered by the Corporation in which the Executive was entitled to participate immediately prior to the Date of Termination (and excluding (x) Base Salary, bonuses and other items of compensation included in Average Annual Compensation, (y) incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans, programs or arrangements of the Corporation, and (z) perquisites and any vehicle provided by the Corporation), provided that in the event that the Executive’s participation in any such plan, program or arrangement as provided in this subparagraph is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Corporation shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

e)   If at the time of the Executive’s Separation from Service, for any reason other than death, the Executive meets the definition of a Specified Employee, payment of all amounts under subsections 6(d)(i), 6(d)(ii) and 7(a) shall be suspended for six (6) months following the Executive’s Separation from Service.  In such event, the first installment shall be paid on the first day following the end of the six-month suspension period.  The second installment shall be paid no later than January 15th of the calendar year following the year in which the first installment was paid.  If the Executive incurs a Separation from Service due to death, regardless of whether the Executive meets the definition of a Specified Employee, payment of his benefit shall not be suspended; provided, however, that the six-month suspension period shall not apply to the provision of any group insurance, life insurance, health and accident insurance or disability insurance under subsection 6(d)(ii).

f)   Upon any termination of the Executive’s employment hereunder, the Executive covenants and agrees (i) to return promptly to the Corporation, at the Corporation’s headquarters, all confidential information or materials that are still in the Executive’s possession or control on his last day of employment with the Corporation or the location of which the Employee knows (including, but not limited to, any confidential information or materials contained on the Executive’s personal data assistant or personal or home computer), and (ii) to return promptly to the Corporation, at the Corporation’s headquarters, all vehicles, equipment, computers, credit cards, keys, access cards, passwords and other property of the Corporation that are still in the Executive’s possession or control on his last day of employment or the location of which the Employee knows, and to cease using any of the foregoing on and after his last day of employment.

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7)   Payment of Additional Benefits under Certain Circumstances.

a)   If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Employers (including, without limitation, the payments and benefits which the Executive would have the right to receive from the Bank pursuant to Section 6 of the Bank Agreement, before giving effect to any reduction in such amounts pursuant to Section 7 of the Bank Agreement), would constitute a “parachute payment” as defined in Section 280G(b)(2) of the Code (the “Initial Parachute Payment,” which includes the amounts paid pursuant to clause (i) below), then the Corporation shall pay to the Executive, a cash amount in twoequal installments, with the first installment to be paid on the first business day of the month following theDate of Termination and the second installment to be paid on the first anniversary of the Date of Termination.  The cash amount shall be equal to the sum of the following:

            i) the amount by which the payments and benefits that would have otherwise been paid by the Bank to the Executive pursuant to Section 6 of the Bank Agreement are reduced by the provisions of Section 7 of the Bank Agreement;

            ii) twenty percent (or such other percentage equal to the tax rate imposed by Section 4999 of the Code) of the amount by which the Initial Parachute Payment exceeds the Executive’s “base amount” from the Employers, as defined in Section 280G(b)(3) of the Code, with the difference between the Initial Parachute Payment and the Executive’s base amount being hereinafter referred to as the “Initial Excess Parachute Payment”; and

            iii) such additional amount (tax allowance) as may be necessary to compensate the Executive for the payment by the Executive of state and federal income and excise taxes on the payment provided under clause (ii) above and on any payments under this clause (iii).  In computing such tax allowance, the payment to be made under clause (ii) above shall be multiplied by the “gross up percentage” (“GUP”).  The GUP shall be determined as follows:

GUP = Tax Rate / 1 – Tax Rate

iv)   Tax Rate

The Tax Rate for purposes of computing the GUP shall be the highest marginal federal and state income and employment-related tax rate, including any applicable excise tax rate, applicable to the Executive in the year in which the payment under clause (ii) above is made.

            v)   Notwithstanding the foregoing, if it shall subsequently be determined in a final judicial determination or a final administrative settlement to which the Executive is a party that the actual excess parachute payment as defined in Section 280G(b)(1) of the Code is different from the Initial Excess Parachute Payment (such different amount being hereafter referred to as the “Determinative Excess Parachute Payment”), then the Corporation’s independent tax counsel or accountants shall determine the amount (the “Adjustment Amount”) which either the Executive must pay to the Corporation or the Corporation must pay to the Executive in order to put the Executive (or the Corporation, as the case may be) in the same position the Executive (or the Corporation, as the case may be) would have been if the Initial Excess Parachute Payment had been equal to the Determinative Excess Parachute Payment.  In

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determining the Adjustment Amount, the independent tax counsel or accountants shall take into account any and all taxes (including any penalties and interest) paid by or for the Executive or refunded to the Executive or for the Executive’s benefit.  As soon as practicable after the Adjustment Amount has been so determined, the Corporation shall pay the Adjustment Amount to the Executive or the Executive shall repay the Adjustment Amount to the Corporation, as the case may be.

b)   In each calendar year that the Executive receives payments of benefits under this Section 7, the Executive shall report on his state and federal income tax returns such information as is consistent with the determination made by the independent tax counsel or accountants of the Corporation as described above.  The Corporation shall indemnify and hold the Executive harmless from any and all losses, costs and expenses (including without limitation, reasonable attorneys’ fees, interest, fines and penalties) which the Executive incurs as a result of so reporting such information.  The Executive shall promptly notify the Corporation in writing whenever the Executive receives notice of the institution of a judicial or administrative proceeding, formal or informal, in which the federal tax treatment under Section 4999 of the Code of any amount paid or payable under this Section 7 is being reviewed or is in dispute.  The Corporation shall assume control, at its expense, over all legal and accounting matters pertaining to such federal tax treatment (except to the extent necessary or appropriate for the Executive to resolve any such proceeding with respect to any matter unrelated to amounts paid or payable pursuant to this Section) and the Executive shall cooperate fully with the Corporation in any such proceeding.  The Executive shall not enter into any compromise or settlement or otherwise prejudice any rights the Corporation may have in connection therewith without the prior consent of the Corporation.

8)   Mitigation; Exclusivity of Benefits.

a)   The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise so long as the Executive has not breached this Agreement.  In the event of any breach of this Agreement by the Executive following the Date of Termination, the Executive shall immediately repay to the Corporation all severance payments paid to him under Section 6 hereof and all amounts paid to him under Section 7 hereof, plus interest at the rate of 10% per annum from the date of such breach until all such severance payments and other amounts have been repaid in full to the Corporation.

b)   The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

9)   Withholding.  All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to taxes and other payroll deductions as the Corporation may reasonably determine should be withheld pursuant to any applicable law or regulation.

10)   Assignability.  The Corporation may, without the consent of the Executive, assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other

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Person with or into which the Corporation may hereafter merge or consolidate or to which the Corporation may transfer all or substantially all of its assets, if in any such case such corporation, bank or other Person shall by operation of law or expressly in writing assume all obligations of the Corporation hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11)   Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand; (ii) sent by certified United States Mail, return receipt requested, first class postage pre-paid; (iii) sent by overnight delivery service; or (iv) sent by facsimile transmission if such fax is confirmed immediately thereafter by also mailing a copy of such notice or other communication by regular (not certified or registered) United States Mail, first class postage pre-paid, as follows:

a)   To the Corporation:      CFS Bancorp, Inc.

      Corporate Secretary

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

b)   To the Bank:                Citizens Financial Bank

      Corporate Secretary

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

c)   To the Executive:          Thomas F. Prisby

Hinsdale, Illinois

or to such other address or facsimile number as either party hereto may have furnished to the other in writing in accordance herewith.  The Executive shall promptly provide any changes to his address, telephone number and facsimile number to the Corporation.

All such notices and other communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail in the manner provided herein, two (2) business days after deposit with the United States Postal Service; (iii) if sent by overnight delivery service, on the next business day after deposit with such service; or (iv) if sent by facsimile transmission, on the date indicated on the fax confirmation page if such fax also is confirmed by regular (not certified or registered) United States mail.

12)   Amendment; Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Corporation to sign on its behalf.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar

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provisions or conditions at the same or at any prior or subsequent time.  The failure or delay of either party at any time to insist upon the strict performance of any provision of this Agreement or to enforce its or his rights or remedies under this Agreement shall not be construed as a waiver or relinquishment of the right to insist upon strict performance of such provision, or to pursue any of its rights or remedies for any breach hereof, at a future time.

13)   Governing Law; Venue.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana.  Any claim, demand or action relating to this Agreement shall be brought only in a state court located in Porter County, Indiana.  In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims, defenses or objections of lack of jurisdiction of or proper or preferred venue by such court.

14)   Nature of Obligations.  Nothing contained herein shall create or require the Corporation to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

15)   Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16)   Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect; provided, however, if any provision of Sections 3(b), 3(c) and 3(e) of this Agreement shall be determined by a court of competent jurisdiction to be unenforceable because of the provision’s scope, duration, geographic restriction or other factor, then such provision shall be considered divisible and the court making such determination shall have the power to reduce or limit (but not increase or make greater) such scope, duration, geographic restriction or other factor or to reform (but not increase or make greater) such provision to make it enforceable to the maximum extent permitted by law, and such provision shall then be enforceable against the appropriate party hereto in its reformed, reduced or limited form.

17)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

18)   Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.  In the event of the Executive’s termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination.  Furthermore, following such termination for Cause, the Executive shall not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

19)   Payment of Costs and Legal Fees and Reinstatement of Benefits.  In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the

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payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and any other cash compensation, employee benefits and any compensation and benefits due but not otherwise paid to the Executive under this Agreement.

20)   Indemnification.  The Corporation shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, or in lieu thereof, shall indemnify the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Indiana law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Corporation (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities).  Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements.

21)   Entire Agreement.  This Agreement embodies the entire agreement between the Corporation and the Executive with respect to the matters agreed to herein.  All prior agreements between the Corporation and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.  Notwithstanding the foregoing, nothing contained in this Agreement shall affect the Bank Agreement, which is being executed contemporaneously herewith.

22)   Construction.  This Agreement shall be deemed to have been drafted by both parties hereto.  This Agreement shall be construed in accordance with the fair meaning of its provisions and its language shall not be strictly construed against, nor shall ambiguities be resolved against, any party.

23)   Recitals.  The recitals or “Whereas” clauses contained on page 1 of this Agreement are expressly incorporated into and made a part of this Agreement.

24)   Non-disparagement.  During the Executive’s employment with the Corporation and following any termination of the Executive’s employment with the Corporation, the Executive shall not publicly disparage or make or publish any negative statements or comments about the Corporation, any of the Corporation’s subsidiaries or affiliates or any of their respective products, services, directors, officers or employees.  During the Executive’s employment with the Corporation and following any termination of the Executive’s employment with the Corporation, and subject to applicable law, no executive officer of the Corporation or member of the Corporation’s Board of Directors shall publicly disparage or make or publish any negative statements or comments about the Executive.

25)   Cooperation.  For a period of five (5) years following any termination of the Executive’s employment with the Corporation and upon the request of the Corporation or any of its subsidiaries or affiliates, the Executive shall reasonably cooperate, assist and make himself available (for testimony or otherwise) at appropriate times and places as reasonably determined by the Corporation or any of its subsidiaries or affiliates in connection with any claim, demand, action, suit, proceeding, discovery, examination, investigation or litigation by, against or affecting the Corporation or any of its subsidiaries or affiliates.  In connection with the foregoing, the Corporation shall pay the Executive a fee of $1,000 for each day that the Corporation or any subsidiary or affiliate of the Corporation requests the Executive to cooperate, assist or make himself available, and shall also reimburse the Executive for his reasonable out-of-pocket travel

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expenses that are approved in advance by the Chairman of the Corporation; provided, however, that the Corporation shall not pay such fee or reimburse for such expenses in connection with any claim, demand, action, suit or proceeding relating to this Agreement.

26)   Certain Remedies.  The Executive agrees that the Corporation will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any actual, threatened or attempted breach by the Executive of any provision of Section 3.  Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3, in addition to all other remedies to which the Corporation is entitled at law, in equity or otherwise, the Corporation shall be entitled to a temporary restraining order, a permanent injunction and/or a decree of specific performance of any provision of Section 3.  The parties agree that a bond posted by the Corporation in the amount of One Thousand Dollars ($1,000) shall be adequate and appropriate in connection with such restraining order or injunction and that actual damages need not be proved by the Corporation prior to it being entitled to obtain such restraining order, injunction or specific performance.  The foregoing remedies shall not be deemed to be the exclusive rights or remedies of the Corporation for any breach of or noncompliance with this Agreement by the Executive but shall be in addition to all other rights and remedies available to the Corporation at law, in equity or otherwise.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

_/s/ Thomas F. Prisby______________

 Thomas F. Prisby

Attest:                                                                                 CFS BANCORP, INC.

By:  /s/ Monica F. Sullivan                                                   By: /s/ Agnes C. Lasics_____________

Corporate Secretary                                 

 (Name and Title)

KD_IM-1325990_3.DOC

EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated this 1st day of May, 2008 is made and entered into by and between CITIZENS FINANCIAL BANK (the “Bank”), a federally chartered savings bank, and Charles V. Cole (the “Executive”), a resident of the State of Illinois,

WITNESSETH:

WHEREAS, the Executive is presently employed as an officer of the Bank and CFS Bancorp, Inc. (the “Corporation”) (together, the “Employers”);

WHEREAS, the Employers desire to be ensured of the Executive’s continued active participation in the business and senior management of the Employers, and the Executive desires to continue to actively participate in the business and senior management of the Employers;

WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and

WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify in this Agreement the employment arrangement between the Bank and the Executive as well as certain restrictions, covenants, agreements and severance payments of the Bank and/or the Executive.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1)   Definitions.

The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a)   Average Annual Compensation.  The Executive’s “Average Annual Compensation” for purposes of this Agreement shall be deemed to mean the average Base Salary, cash bonuses, vested amounts allocated to the Executive under the ESOP and the Corporation’s vested matching contributions made to the Executive’s account under the Corporation’s 401(k) plan for the three fiscal years preceding the Executive’s Date of Termination.

b)   Base Salary.  “Base Salary” shall have the meaning set forth in Section 4(a) hereof.

c)   Corporation Agreement.  “Corporation Agreement” means the employment agreement between the Corporation and the Executive dated of even date herewith.

d)   Cause. Termination of the Executive’s employment for “Cause” shall mean termination by the Bank because of any of the following by the Executive:

i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities under this Agreement; or

ii) any dishonesty, fraud, theft or embezzlement by the Executive; or

iii) any willful misconduct or breach of fiduciary duty involving personal profit by the Executive; or

iv) any willful or knowing violation by the Executive of any law, statute, rule, regulation or government requirement (other than traffic violations or similar offenses) or any final cease and desist order; or

v) any material and intentional noncompliance by the Executive with any provision of any employee handbook, code of conduct or ethics, corporate governance guidelines or any rule, policy or procedure of either of the Employers as are currently in effect or as may hereafter be in effect from time to time; or

vi) any material breach by the Executive of any provision of this Agreement.

e)   Change in Control.  “Change in Control” means the occurrence of any of the following relating to the Corporation:  (i) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (“1934 Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period and, in such case, each new director so approved will be considered for purposes of this section to have been a director at the beginning of such period.

i)   For purposes of the definition of “Change in Control,” a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the “ESOP”), or any other employee benefit plan, subsidiary or affiliate of the Corporation or the Bank, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

ii)   For purposes of this Agreement (including without limitation the definition of “Change in Control”), the term “Person” means any natural person, proprietorship, partnership,

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corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority.

f)   Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

g)   Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, (ii) if the Executive’s employment is terminated for any other reason (except in the case of death), the date on which a Notice of Termination is given or as specified in such Notice, and (iii) if the Executive dies during his employment hereunder, the date of his death.

h)   Disability.  Termination by the Bank of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment, incapacity or condition which qualifies the Executive for disability benefits under the applicable long-term disability plan or policy maintained by the Employers or any subsidiary or, if no such plan or policy applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

i)   Good Reason.  Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive within twelve months following a Change in Control of the Corporation based on:

            (i) Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Executive Vice President and Chief Financial Officer of the Employers or a material adverse change made by the Employers in the Executive’s functions, duties or responsibilities as Executive Vice President and Chief Financial Officer of the Employers as such functions, duties or responsibilities exist immediately prior to the effective time of the Change in Control;

            (ii) Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of employee benefits provided to the Executive taken as a whole;

            (iii) The principal executive office of the Bank is relocated more than 50 miles from Munster, Indiana or, without the Executive’s express written consent, either of the Employers require the Executive to be based anywhere other than where the Bank’s principal executive office is located or has been relocated as provided above, except for required travel on business of the Employers;

            (iv) Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (l) below; or

            (v) The failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor.

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The Executive must notify the Bank in writing within ninety (90) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason.  The Bank shall then have thirty (30) days following the effectiveness of such notice during which it may cure such circumstances and, if so cured, shall not be required to make any severance payments pursuant to Section 6(d) hereof.

j)   IRS. “IRS” shall mean the Internal Revenue Service.

k)   Key Employee.  “Key Employee” means an employee who is:

i)      An officer of the Corporation having annual compensation greater than $150,000; or

ii)     A beneficial owner of 5% or more of the outstanding securities of the Corporation; or

                iii)  A beneficial owner 1% or more of the outstanding securities of the Corporation and has an annual compensation greater than $150,000.

For purposes of determining who is an officer for purposes of Section 1(k)(i), no more than 50 employees (or, if lesser, the greater of three or 10% of the employees) shall be treated as officers, and those categories of employees listed in Code Section 414(q)(5) shall be excluded.  The $150,000 amount in Section 1(k)(i) shall be adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

l)   Notice of Termination.  Any purported termination of the Executive’s employment by the Bank for any reason, including without limitation with or without Cause or upon the occurrence of a Disability, or by the Executive for any reason, including without limitation with or without Good Reason or upon Retirement, shall be communicated by written “Notice of Termination” to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Bank’s termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof.

m)   Retirement.  “Retirement” shall mean voluntary termination by the Executive after the Executive attains the age 55, with at least five years of active service.

n)   Separation from Service.  “Separation from Service” means the date of the Executive’s death or Retirement or the date on which the Executive otherwise experiences a Termination of Employment with the Corporation; provided, however, a Separation from Service does not occur if the Executive is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if the leave is for a longer period, so long as the Executive’s right to reemployment with the Corporation is provided either by

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statute or by contract.  For purposes of this paragraph (n), a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Executive will return to perform services for the Corporation.  If the period of leave exceeds six (6) months and the Executive’s right to reemployment is not provided either by statute or contract, there shall be a Separation from Service on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months and where such impairment causes the Executive to be unable to render the services or carry out the duties and responsibilities set forth in this Agreement, then a 29-month period of absence may be substituted for such six-month period.  The Executive shall incur a “Termination of Employment” when a termination of employment is incurred under Treasury Regulation 1.409A-1(h)(ii).

o)   Specified Employee.  “Specified Employee” means an employee who is a “Key Employee” if the Corporation’s stock is publicly traded on an established securities market.  An employee shall be a Specified Employee for the twelve-month period beginning on the April 1st following any calendar year in which the employee is a Key Employee.

2)   Term of Employment.

a)   The Bank hereby employs the Executive as its Executive Vice President and Chief Financial Officer, and the Executive hereby accepts such employment and agrees to render such services to, and carry out such duties and responsibilities for, the Bank, on the terms and conditions set forth in this Agreement.  Subject to earlier termination as provided herein, the initial term of this Agreement shall be a period of eighteen months commencing on of the date hereof and, following such initial term of this Agreement, the term of this Agreement shall be automatically extended upon the same terms and conditions set forth herein for successive eighteen month terms, provided that neither the Bank nor the Executive has given to the other a Notice of Termination at least six (6) months prior to end of the initial term or any extension that the term of this Agreement shall not be extended further.  Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms.  As part of the review by the Board of Directors of the Bank whether to permit extensions of the term of this Agreement, the Board of Directors shall consider all relevant factors, including without limitation the Executive’s performance hereunder and the input of the President of the Bank, and shall determine whether to provide notice to the Executive that the term of this Agreement shall not be further extended.

b)   During the term of this Agreement, the Executive shall perform the following services and have the following duties and responsibilities:

i) those duties and responsibilities set forth in the specific written responsibilities of the Executive Vice President and Chief Financial Officer dated April 2008, as may be revised from time to time by the President of the Bank; and

ii) such other executive services, duties and responsibilities for the Bank as may be consistent with his titles and from time to time assigned to him by the Bank’s President.

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The Executive further agrees to serve without additional compensation (except as set forth in this Agreement) as an officer and/or director of any of the Corporation’s or the Bank’s subsidiaries and agrees that any amounts received from such subsidiaries may be offset against the amounts due hereunder.  In addition, it is agreed that the Bank may assign the Executive to one of its subsidiaries for payroll purposes.

3)   Loyalty, Confidentiality and Non-Competition.

a)   The Executive shall devote his full time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement.  During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution, wherever located.

b)   For a period of eighteen months from the Date of Termination relating to a termination by the Bank of the Executive’s employment hereunder for Cause or a Disability or a termination by the Executive of his employment hereunder upon Retirement, without Good Reason or his election not to extend the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution within a fifty (50) mile radius from any present or future office of either of the Employers or any of their subsidiaries or affiliates.

c)   For purposes of this Agreement, directly or indirectly engaging in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates includes, but is not limited to, serving or acting as an owner, partner, member, agent, beneficiary, employee, officer, director or consultant of any Person engaged in any banking, lending, financial services or other business, operation or activity in which the Bank or any of its subsidiaries or affiliates is engaged or is actively developing or pursuing on the Date of Termination; except that nothing herein contained shall be deemed to prevent or limit the right of the Executive to invest any of his funds in the capital stock or other securities of any such Person whose stock or securities are publicly owned or are regularly traded on any national exchange so long as the Executive is not the beneficial owner of more than 1% of the outstanding capital stock or securities of such Person, nor shall anything herein contained be deemed to prevent or limit the right of the Executive to invest any of his funds in real estate.

d)   All information relating to business of the Employers or any of their subsidiaries or affiliates including, but not limited to, that business obtained or serviced by the Executive, all customer lists, customer information, contact lists, asset, liability, loan, deposit and investment information, financial records or information, instruments, documents, papers and other material used in connection with, and all trade secrets, estimates, projections, goals,

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strategies and techniques relating to, such business, shall be the exclusive property of the Employers or the subsidiary or affiliate.  The Executive shall maintain the confidentiality of all such information and material that is confidential, proprietary or not publicly available (other than through a breach of this Agreement by the Executive or any other impermissible disclosure); none of it shall be copied, reproduced, duplicated or disclosed without the express written permission of the Employers (other than in connection with the performance of the Executive’s services hereunder), and the Executive shall return all such information and materials to the Employers upon their request or upon termination of employment.  The Executive also agrees that he shall not utilize such information or materials, either directly or indirectly, for any purposes except rendering his services and carrying out his duties and responsibilities hereunder and in furtherance of the Employers’ business, unless otherwise expressly authorized by the Employers in writing in advance.

e)   The Executive agrees that, during his employment, and for a period of eighteen months following the Date of Termination of the Executive’s employment hereunder for Cause, without Good Reason, upon Retirement, upon the occurrence of a Disability or the election of the Executive not to extend the term of this Agreement, the Executive:

            i) shall not solicit any of the Employers’ past or current customers or clients for the benefit of anyone other than the Employers or their subsidiaries or affiliates;

            ii) shall not divulge the names of any of the Employers’ past or then current customers to any other Person; and

            iii) shall not, either directly or indirectly, induce or solicit any person to leave the employ of either of the Employers.

f)   The provisions of Sections 3(b), 3(c) and 3(e) hereof shall be construed independent of any other provision of this Agreement and shall survive any termination of this Agreement.  The existence of any claim or cause of action of the Executive against the Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Bank of Sections 3(b), 3(c) and 3(e) hereof.

g)   The restrictions and covenants contained in this Section shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply during the full periods specified herein.  The Bank and the Executive understand, acknowledge and agree that the restrictions and covenants contained in this Section are reasonable in view of the Executive’s position at the Bank, the competitive and confidential nature of the information of which the Executive has or will have knowledge and the competitive and the nature of the business in which the Bank and its subsidiaries and affiliates are or may be engaged.

4)   Compensation and Benefits.

a)   The Employers shall collectively compensate and pay the Executive for his services during the term of this Agreement at an aggregate minimum base salary of $186,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by

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the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the President of the Bank.

b)   During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension, retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans made available to employees and executives of the Employers, to the extent commensurate with his position with the Employers, in accordance with the terms of the applicable plans and as fixed by the Boards of Directors of the Employers. The Bank shall not make any changes in such plans which would adversely affect the Executive’s rights or benefits thereunder, unless such change is applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Executive’s Base Salary.  Notwithstanding the foregoing or anything in this Agreement to the contrary, the Executive understands, acknowledges and agrees that the Employers may from time to time, in their sole discretion, amend, modify, replace, freeze, suspend or terminate any or all of the incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership, perquisite or other plans, benefits and privileges given to employees and executives of the Employers, as well as any other rules, policies or procedures applicable to executives of the Employers, but only so long as any such actions apply to all executive officers of the Bank and do not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank.

c)   During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers.  The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the President of the Bank.

d)   In the event the Executive’s employment is terminated due to Disability, Retirement or death, and provided the Executive is not otherwise receiving substantially similar benefits from another employer, consultant or otherwise, the Employers shall provide, at their cost and for the remaining term of this Agreement, all existing life and medical insurance coverage for the Executive (other than in the case of death) and his spouse at substantially similar levels of coverage and benefits as the Employers provide at such time for their then existing senior executives.

e)   The Executive’s Base Salary, compensation, benefits and expenses shall be paid by and allocated between the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

f)   During the term of this Agreement, the Employers shall provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and

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equipment adequate for the performance of the duties and responsibilities assigned to the Executive hereunder.

g)   During the term of this Agreement, the Employers shall provide to Executive the use of an automobile of Executive’s choice with an average annual lease cost not to exceed $10,000 per year.  The Employers agree to replace the automobile with a new one at Executive’s request no more often than once every two years.  Either of the Employers shall pay all automobile operating expenses incurred by the Executive in the performance of Executive’s duties hereunder.  Either of the Employers shall procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

h)   During the term of this Agreement, the Employers shall provide to the Executive, at the Employer’s cost, all perquisites which all other senior executives of the Bank are generally entitled to receive; provided, however, that the Executive understands and agrees that the Chief Executive Officer of the Bank may receive perquisites that are different from those provided to the Executive or other senior executives of the Bank.

5)   Expenses.  The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, travel expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations and requirements as may be established by the Boards of Directors of the Employers.  If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor.  Any such reimbursement of expenses provided in this Section 5 shall be made no later than December 31 of the year following the year in which the expense was incurred.

6)   Termination.

a)   The Bank shall have the right at any time, upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation termination with or without Cause, upon a Disability or the election of the Bank not to extend the term of this Agreement.  The Executive shall have the right at any time, upon prior Notice of Termination, to terminate his employment hereunder for any reason, including without limitation with or without Good Reason, upon Retirement or the election of the Executive not to extend the term of this Agreement.

b)   In the event that (i) the Executive’s employment hereunder is terminated by the Bank for Cause or upon the election of the Bank not to extend the term of this Agreement or (ii) the Executive terminates his employment hereunder without Good Reason or upon the election of the Executive not to extend the term of this Agreement, the Executive shall in each such case have no right pursuant to this Agreement to any severance payments, compensation or other benefits for any period after the applicable Date of Termination.

c)   In the event that the Executive’s employment hereunder is terminated as a result of a Disability, Retirement or the Executive’s death during the term of this Agreement, the Executive shall have

9

no right pursuant to this Agreement to severance payments, compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 4(d) hereof.

d)   In the event that (i) the Executive’s employment hereunder is terminated by the Bank without Cause or (ii) the Executive’s employment hereunder is terminated by the Executive (y) due to a material breach of this Agreement by the Bank, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (z) for Good Reason, then the Bank shall so long as the Executive does not breach this Agreement following the Date of Termination:

            i) pay to the Executive, a cash severance amount equal to 150% of that portion of the Executive’s Average Annual Compensation paid by the Bank, in twoequal installments, with the first installment to be paid on the first business day of the month following the Executive’s Date of Termination and the second installment to be paid on the first anniversary of the Date of Termination; and

            ii) maintain and provide for a period ending at the earlier of (A) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (B) the date of the Executive’s employment by or affiliation with another employer, consultant or Person (provided that the Executive is entitled under the terms of such employment or affiliation to benefits substantially similar to those described in this subparagraph, at the same or lesser cost to the Executive as under the Bank’s plans, programs and arrangements on the Date of Termination), the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other welfare benefit plans, programs and arrangements offered by the Bank in which the Executive was entitled to participate immediately prior to the Date of Termination (and excluding (x) Base Salary, bonuses and other items of compensation included in Average Annual Compensation, (y) incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans, programs or arrangements of the Bank, and (z) perquisites and any vehicle provided by the Bank), provided that in the event that the Executive’s participation in any such plan, program or arrangement as provided in this subparagraph is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Bank shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

Any severance payment made to the Executive under this Agreement shall be offset against and reduce any severance payment that would otherwise be required to made to the Executive under the Corporation Agreement.

e)   If at the time of the Executive’s Separation from Service, for any reason other than death, the Executive meets the definition of a Specified Employee, payment of all amounts under subsections 6(d)(i) and 6(d)(ii) shall be suspended for six (6) months following the Executive’s Separation from Service.  In such event, the first installment shall

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be paid no later than January 15th of the calendar year following the year in which the first installment was paid.  If the Executive incurs a Separation from Service due to death, regardless of whether the Executive meets the definition of a Specified Employee, payment of his benefit shall not be suspended; provided, however, that the six-month suspension period shall not apply to the provision of any group insurance, life insurance, health and accident insurance or disability insurance under subsection 6(d)(ii).

f)   Upon any termination of the Executive’s employment hereunder, the Executive covenants and agrees (i) to return promptly to the Bank, at the Bank’s headquarters, all confidential information or materials that are still in the Executive’s possession or control on his last day of employment with the Bank or the location of which the Employee knows (including, but not limited to, any confidential information or materials contained on the Executive’s personal data assistant or personal or home computer), and (ii) to return promptly to the Bank, at the Bank’s headquarters, all vehicles, equipment, computers, credit cards, keys, access cards, passwords and other property of the Bank that are still in the Executive’s possession or control on his last day of employment or the location of which the Employee knows, and to cease using any of the foregoing on and after his last day of employment.

7)   Limitation of Benefits under Certain Circumstances.  If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits payable by the Bank pursuant to Section 6 hereof shall be reduced, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 6 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code.  The parties hereto agree that the present value of the payments and benefits payable pursuant to this Agreement to the Executive upon termination shall be limited to three (3) times the Executive’s Average Annual Compensation.  The determination of any reduction in the payments and benefits to be made pursuant to Section 6 shall be based upon the opinion of independent counsel selected by the Bank's independent public accountants and paid by the Bank.  Such counsel shall be reasonably acceptable to the Bank and the Executive; shall promptly prepare the foregoing opinion, but in no event later than sixty (60) days following such counsel’s selection; and may use such actuaries as such counsel deems necessary or advisable for the purpose.  Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment under any circumstances other than as specified in this Section 7, or a reduction in the payments and benefits specified in Section 6 below zero.

8)   Mitigation; Exclusivity of Benefits.

a)   The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise so long as the Executive has not breached this Agreement.  In the event of any breach of this Agreement by the Executive following the Date of Termination, the Executive shall immediately repay to the Bank all severance payments paid to him under

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Section 6 hereof, plus interest at the rate of 10% per annum from the date of such breach until all such severance payments have been repaid in full to the Bank.

b)   The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

9)   Withholding.  All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to taxes and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation.

10)   Assignability.  The Bank may, without the consent of the Executive, assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other Person with or into which the Bank may hereafter merge or consolidate or to which the Bank may transfer all or substantially all of its assets, if in any such case such corporation, bank or other Person shall by operation of law or expressly in writing assume all obligations of the Bank hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11)   Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand; (ii) sent by certified United States Mail, return receipt requested, first class postage pre-paid; (iii) sent by overnight delivery service; or (iv) sent by facsimile transmission if such fax is confirmed immediately thereafter by also mailing a copy of such notice or other communication by regular (not certified or registered) United States Mail, first class postage pre-paid, as follows:

a)   To the Corporation:      CFS Bancorp, Inc.

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

b)   To the Bank:                Citizens Financial Bank

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

c)   To the Executive:          Charles V. Cole

Frankfort, Illinois

or to such other address or facsimile number as either party hereto may have furnished to the other in writing in accordance herewith.  The Executive shall promptly provide any changes to his address, telephone number and facsimile number to the Bank.

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All such notices and other communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail in the manner provided herein, two (2) business days after deposit with the United States Postal Service; (iii) if sent by overnight delivery service, on the next business day after deposit with such service; or (iv) if sent by facsimile transmission, on the date indicated on the fax confirmation page if such fax also is confirmed by regular (not certified or registered) United States mail.

12)   Amendment; Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  The failure or delay of either party at any time to insist upon the strict performance of any provision of this Agreement or to enforce its or his rights or remedies under this Agreement shall not be construed as a waiver or relinquishment of the right to insist upon strict performance of such provision, or to pursue any of its rights or remedies for any breach hereof, at a future time.

13)   Governing Law; Venue.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana.  Any claim, demand or action relating to this Agreement shall be brought only in a state court located in Porter County, Indiana.  In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims, defenses or objections of lack of jurisdiction of or proper or preferred venue by such court.

14)   Nature of Obligations.  Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank.

15)   Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16)   Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect; provided, however, if any provision of Sections 3(b), 3(c) and 3(e) of this Agreement shall be determined by a court of competent jurisdiction to be unenforceable because of the provision’s scope, duration, geographic restriction or other factor, then such provision shall be considered divisible and the court making such determination shall have the power to reduce or limit (but not increase or make greater) such scope, duration, geographic restriction or other factor or to reform (but not increase or make greater) such provision to make it enforceable to the maximum extent permitted by law, and such provision shall then be enforceable against the appropriate party hereto in its reformed, reduced or limited form.

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17)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

18)   Regulatory Actions.  The following provisions shall be applicable to the parties to the extent that they are required to be included in employment agreements between a savings association and its employees pursuant to Section 563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R. §563.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 6 hereof.

a)   If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. §§1818(e)(3) and 1818(g)(1)), the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Bank may, in its discretion (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

b)   If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. §§1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Bank as of the date of termination shall not be affected.

c)   If the Bank is in default, as defined in Section 3(x)(1) of the FDIA (12 U.S.C. §1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but vested rights of the Executive and the Bank as of the date of termination shall not be affected.

d)   All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. §563.39(b)(5) (except to the extent that it is determined that continuation of the Agreement for the continued operation of the Bank is necessary) (i) by the Director of the Office of Thrift Supervision (“OTS”), or his/her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C. §1823(c)), or (ii) by the Director of the OTS, or his/her designee, at the time the Director, or his/her designee, approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition.  Notwithstanding the foregoing, vested rights of the Executive and the Bank as of the date of termination shall not be affected.

19)   Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.  In the event of the Executive’s termination of employment with the Bank for Cause, all employment

14

relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination.  Furthermore, following such termination for Cause, the Executive shall not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

20)   Payment of Costs and Legal Fees and Reinstatement of Benefits.  In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and any other cash compensation, employee benefits and any compensation and benefits due but not paid to the Executive under this Agreement.

21)   Entire Agreement.  This Agreement embodies the entire agreement between the Bank and the Executive with respect to the matters agreed to herein.  All prior agreements between the Bank and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.  Notwithstanding the foregoing, nothing contained in this Agreement shall affect the Corporation Agreement which is being executed contemporaneously herewith.

22)   Construction.  This Agreement shall be deemed to have been drafted by both parties hereto.  This Agreement shall be construed in accordance with the fair meaning of its provisions and its language shall not be strictly construed against, nor shall ambiguities be resolved against, any party.

23)   Recitals.  The recitals or “Whereas” clauses contained on page 1 of this Agreement are expressly incorporated into and made a part of this Agreement.

24)   Non-disparagement.  During the Executive’s employment with the Bank and following any termination of the Executive’s employment with the Bank, the Executive shall not publicly disparage or make or publish any negative statements or comments about the Bank, any of the Bank’s subsidiaries or affiliates or any of their respective products, services, directors, officers or employees.  During the Executive’s employment with the Bank and following any termination of the Executive’s employment with the Bank, and subject to applicable law, no executive officer of the Bank or member of the Bank’s Board of Directors shall publicly disparage or make or publish any negative statements or comments about the Executive.

25)   Cooperation.  For a period of five (5) years following any termination of the Executive’s employment with the Bank and upon the request of the Bank or any of its subsidiaries or affiliates, the Executive shall reasonably cooperate, assist and make himself available (for testimony or otherwise) at appropriate times and places as reasonably determined by the Bank or any of its subsidiaries or affiliates in connection with any claim, demand, action, suit, proceeding, discovery, examination, investigation or litigation by, against or affecting the Bank or any of its subsidiaries or affiliates.  In connection with the foregoing, the Bank shall pay the Executive a fee of $1,000 for each day that the Bank or any subsidiary or affiliate of the Bank requests the Executive to cooperate, assist or make himself available, and shall also reimburse the Executive for his reasonable out-of-pocket travel expenses that are approved in advance by the Chairman of the Bank; provided, however, that the Bank shall not pay such fee or reimburse for such expenses in connection with any claim, demand, action, suit or proceeding relating to this Agreement.

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26)   Certain Remedies.  The Executive agrees that the Bank will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any actual, threatened or attempted breach by the Executive of any provision of Section 3.  Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3, in addition to all other remedies to which the Bank is entitled at law, in equity or otherwise, the Bank shall be entitled to a temporary restraining order, a permanent injunction and/or a decree of specific performance of any provision of Section 3.  The parties agree that a bond posted by the Bank in the amount of One Thousand Dollars ($1,000) shall be adequate and appropriate in connection with such restraining order or injunction and that actual damages need not be proved by the Bank prior to it being entitled to obtain such restraining order, injunction or specific performance.  The foregoing remedies shall not be deemed to be the exclusive rights or remedies of the Bank for any breach of or noncompliance with this Agreement by the Executive but shall be in addition to all other rights and remedies available to the Bank at law, in equity or otherwise.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

_/s/ Charles V. Cole________________

 Charles V. Cole

Attest:                                                                   CITIZENS FINANCIAL BANK

By: /s/ Monica F. Sullivan                                     By:_/s/ Thomas F. Prisby______________

Thomas F. Prisby

Corporate Secretary                                                  Chairman of the Board

(Name and Title)

KD_IM-1325991_3.DOC

EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated this 1st day of May, 2008 is made and entered into by and between CFS BANCORP, INC. (the “Corporation”), an Indiana corporation, and Charles V. Cole (the “Executive”), a resident of the State of Illinois,

WITNESSETH:

WHEREAS, the Executive is presently employed as an officer of the Corporation and Citizens Financial Bank (the “Bank”) (together, the “Employers”);

WHEREAS, the Employers desire to be ensured of the Executive’s continued active participation in the business and senior management of the Employers, and the Executive desires to continue to actively participate in the business and senior management of the Employers;

WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and

WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify in this Agreement the employment arrangement between the Corporation and the Executive as well as certain restrictions, covenants, agreements and severance payments of the Corporation and/or the Executive.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1)   Definitions.

The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a)   Average Annual Compensation.  The Executive’s “Average Annual Compensation” for purposes of this Agreement shall be deemed to mean the average Base Salary, cash bonuses, vested amounts allocated to the Executive under the ESOP and the Corporation’s vested matching contributions made to the Executive’s account under the Corporation’s 401(k) plan for the three fiscal years preceding the Executive’s Date of Termination.

b)   Base Salary.  “Base Salary” shall have the meaning set forth in Section 4(a) hereof.

c)   Bank Agreement.  “Bank Agreement” means the employment agreement between the Bank and the Executive dated of even date herewith.

d)   Cause. Termination of the Executive’s employment for “Cause” shall mean termination by the Corporation because of any of the following by the Executive:

i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities under this Agreement; or

ii) any dishonesty, fraud, theft or embezzlement by the Executive; or

iii) any willful misconduct or breach of fiduciary duty involving personal profit by the Executive; or

iv) any willful or knowing violation by the Executive of any law, statute, rule, regulation or government requirement (other than traffic violations or similar offenses) or any final cease and desist order; or

v) any material and intentional noncompliance by the Executive with any provision of any employee handbook, code of conduct or ethics, corporate governance guidelines or any rule, policy or procedure of either of the Employers as are currently in effect or as may hereafter be in effect from time to time; or

vi) any material breach by the Executive of any provision of this Agreement; or

vii) any termination of the Executive’s employment with the Bank.

e)   Change in Control.  “Change in Control” means the occurrence of any of the following relating to the Corporation:  (i) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (“1934 Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period and, in such case, each new director so approved will be considered for purposes of this section to have been a director at the beginning of such period.

            i) For purposes of the definition of “Change in Control,” a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the “ESOP”), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

            ii) For purposes of this Agreement (including without limitation the definition of “Change in Control”), the term “Person” means any natural person, proprietorship, partnership,

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corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority.

f)   Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

g)   Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, (ii) if the Executive’s employment is terminated for any other reason (except in the case of death), the date on which a Notice of Termination is given or as specified in such Notice, and (iii) if the Executive dies during his employment hereunder, the date of his death.

h)   Disability.  Termination by the Corporation of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment, incapacity or condition which qualifies the Executive for disability benefits under the applicable long-term disability plan or policy maintained by the Employers or any subsidiary or, if no such plan or policy applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

i)   Good Reason.  Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive within twelve months following a Change in Control of the Corporation based on:

            (i) Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Executive Vice President and Chief Financial Officer of the Employers or a material adverse change made by the Employers in the Executive’s functions, duties or responsibilities as Executive Vice President and Chief Financial Officer of the Employers as such functions, duties or responsibilities exist immediately prior to the effective time of the Change in Control;

            (ii) Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of employee benefits provided to the Executive taken as a whole;

            (iii) The principal executive office of the Bank is relocated more than 50 miles from Munster, Indiana or, without the Executive’s express written consent, either of the Employers require the Executive to be based anywhere other than where the Bank’s principal executive office is located or has been relocated as provided above, except for required travel on business of the Employers;

            (iv) Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (l) below; or

            (v) The failure by the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor.

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The Executive must notify the Corporation in writing within ninety (90) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason.  The Corporation shall then have thirty (30) days following the effectiveness of such notice during which it may cure such circumstances and, if so cured, shall not be required to make any severance payments pursuant to Section 6(d) hereof.

j)   IRS. “IRS” shall mean the Internal Revenue Service.

k)   Key Employee.  “Key Employee” means an employee who is:

i)      An officer of the Corporation having annual compensation greater than $150,000; or

ii)     A beneficial owner of 5% or more of the outstanding securities of the Corporation; or

                iii) A beneficial owner 1% or more of the outstanding securities of the Corporation and has an annual compensation greater than $150,000.

For purposes of determining who is an officer for purposes of Section 1(k)(i), no more than 50 employees (or, if lesser, the greater of three or 10% of the employees) shall be treated as officers, and those categories of employees listed in Code Section 414(q)(5) shall be excluded.  The $150,000 amount in Section 1(k)(i) shall be adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

l)   Notice of Termination.  Any purported termination of the Executive’s employment by the Corporation for any reason, including without limitation with or without Cause or upon the occurrence of a Disability, or by the Executive for any reason, including without limitation with or without Good Reason or upon Retirement, shall be communicated by written “Notice of Termination” to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Corporation’s termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof.

m)   Retirement.  “Retirement” shall mean voluntary termination by the Executive after the Executive attains the age 55, with at least five years of active service.

n)   Separation from Service.  “Separation from Service” means the date of the Executive’s death or Retirement or the date on which the Executive otherwise experiences a Termination of Employment with the Corporation; provided, however, a Separation from Service does not occur if the Executive is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if the leave is for a longer period, so long as the Executive’s right to reemployment with the Corporation is provided either by statute or by contract.  For purposes of this paragraph (n), a leave of absence constitutes a

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bona fide leave of absence only if there is a reasonable expectation that the Executive will return to perform services for the Corporation.  If the period of leave exceeds six (6) months and the Executive’s right to reemployment is not provided either by statute or contract, there shall be a Separation from Service on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months and where such impairment causes the Executive to be unable to render the services or carry out the duties and responsibilities set forth in this Agreement, then a 29-month period of absence may be substituted for such six-month period.  The Executive shall incur a “Termination of Employment” when a termination of employment is incurred under Treasury Regulation 1.409A-1(h)(ii).

o)   Specified Employee.  “Specified Employee” means an employee who is a “Key Employee” if the Corporation’s stock is publicly traded on an established securities market.  An employee shall be a Specified Employee for the twelve-month period beginning on the April 1st following any calendar year in which the employee is a Key Employee.

2)   Term of Employment.

a)   The Corporation hereby employs the Executive as its Executive Vice President and Chief Financial Officer, and the Executive hereby accepts such employment and agrees to render such services to, and carry out such duties and responsibilities for, the Corporation, on the terms and conditions set forth in this Agreement.  The term of this Agreement shall be a period of eighteen months commencing as of the date hereof (the “Commencement Date”), subject to earlier termination as provided herein.  Beginning on the day following the Commencement Date, and on each day thereafter, the term of this Agreement shall be extended for a period of one day in addition to the then-remaining term, provided that the Corporation has not given notice to the Executive in writing at least sixty (60) days prior to such day that the term of this Agreement shall not be extended further.  Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms.  As part of the review by the Board of Directors of the Corporation on at least an annual basis whether to permit extensions of the term of this Agreement, the Board of Directors shall consider all relevant factors, including without limitation the Executive’s performance hereunder and the input of the President of the Corporation, and shall determine whether to provide notice to the Executive that the term of this Agreement shall not be further extended.

b)   During the term of this Agreement, the Executive shall render such executive services and carry out such duties and responsibilities consistent with his titles and as may be assigned to him from time to time by the President of the Corporation.

The Executive further agrees to serve without additional compensation (except as set forth in the Bank Agreement) as an officer and/or director of any of the Corporation’s or the Bank’s subsidiaries and agrees that any amounts received from such subsidiaries may be offset against the amounts due hereunder.  In addition, it is agreed that the Corporation may assign the Executive to one of its subsidiaries for payroll purposes.

3)   Loyalty, Confidentiality and Non-Competition.

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a)   The Executive shall devote his full time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement.  During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution, wherever located.

b)   For a period of eighteen months from the Date of Termination relating to a termination by the Corporation of the Executive’s employment hereunder for Cause or a Disability or a termination by the Executive of his employment hereunder upon Retirement or without Good Reason, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution within a fifty (50) mile radius from any present or future office of either of the Employers or any of their subsidiaries or affiliates.

c)   For purposes of this Agreement, directly or indirectly engaging in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates includes, but is not limited to, serving or acting as an owner, partner, member, agent, beneficiary, employee, officer, director or consultant of any Person engaged in any banking, lending, financial services or other business, operation or activity in which the Corporation or any of its subsidiaries or affiliates is engaged or is actively developing or pursuing on the Date of Termination; except that nothing herein contained shall be deemed to prevent or limit the right of the Executive to invest any of his funds in the capital stock or other securities of any such Person whose stock or securities are publicly owned or are regularly traded on any national exchange so long as the Executive is not the beneficial owner of more than 1% of the outstanding capital stock or securities of such Person, nor shall anything herein contained be deemed to prevent or limit the right of the Executive to invest any of his funds in real estate.

d)   All information relating to business of the Employers or any of their subsidiaries or affiliates including, but not limited to, that business obtained or serviced by the Executive, all customer lists, customer information, contact lists, asset, liability, loan, deposit and investment information, financial records or information, instruments, documents, papers, and other material used in connection with, and all trade secrets, estimates, projections, goals, strategies, techniques relating to, such business, shall be the exclusive property of the Employers or the subsidiary or affiliate.  The Executive shall maintain the confidentiality of all such information and material that is confidential, proprietary or not publicly available (other than through a breach of this Agreement by the Executive or any other impermissible disclosure); none of it shall be copied, reproduced, duplicated or disclosed without the express written permission of the Employers (other than in connection with the performance of the Executive’s services hereunder), and the Executive shall return all such information and materials to the Employers upon their request or upon termination of employment.  The Executive also agrees that he shall not utilize such information or materials, either directly or

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indirectly, for any purposes except rendering his services and carrying out his duties and responsibilities hereunder and in furtherance of the Employers’ business, unless otherwise expressly authorized by the Employers in writing in advance.

e)   The Executive agrees that, during his employment, and for a period of eighteen months following the Date of Termination of the Executive’s employment hereunder for Cause, without Good Reason, upon Retirement or upon the occurrence of a Disability, the Executive:

            i) shall not solicit any of the Employers’ past or current customers or clients for the benefit of anyone other than the Employers or their subsidiaries or affiliates;

            ii) shall not divulge the names of any of the Employers’ past or then current customers to any other Person; and

            iii) shall not, either directly or indirectly, induce or solicit any person to leave the employ of either of the Employers.

f)   The provisions of Sections 3(b), 3(c) and 3(e) hereof shall be construed independent of any other provision of this Agreement and shall survive any termination of this Agreement.  The existence of any claim or cause of action of the Executive against the Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of Sections 3(b), 3(c) and 3(e) hereof.

g)   The restrictions and covenants contained in this Section shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply during the full periods specified herein.  The Corporation and the Executive understand, acknowledge and agree that the restrictions and covenants contained in this Section are reasonable in view of the Executive’s position at the Corporation, the competitive and confidential nature of the information of which the Executive has or will have knowledge and the competitive and the nature of the business in which the Corporation and its subsidiaries and affiliates are or may be engaged.

4)   Compensation and Benefits.

a)   The Employers shall collectively compensate and pay the Executive for his services during the term of this Agreement at an aggregate minimum base salary of $186,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the President of the Corporation.

b)   During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension, retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans made available to employees and executives of the Employers, to the extent commensurate with his position with the Employers, in accordance with the terms of the applicable plans and as fixed by the Boards of Directors of the Employers.

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The Corporation shall not make any changes in such plans which would adversely affect the Executive’s rights or benefits thereunder, unless such change is applicable to all executive officers of the Corporation and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Executive’s Base Salary.  Notwithstanding the foregoing or anything in this Agreement to the contrary, the Executive understands, acknowledges and agrees that the Employers may from time to time, in their sole discretion, amend, modify, replace, freeze, suspend or terminate any or all of the incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership, perquisite or other plans, benefits and privileges given to employees and executives of the Employers, as well as any other rules, policies or procedures applicable to executives of the Employers, but only so long as any such actions apply to all executive officers of the Corporation and do not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation.

c)   During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers.  The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the President of the Corporation.

d)   In the event the Executive’s employment is terminated due to Disability, Retirement or death, and provided the Executive is not otherwise receiving substantially similar benefits from another employer, consultant or otherwise, the Employers shall provide, at their cost and for the remaining term of this Agreement, all existing life and medical insurance coverage for the Executive (other than in the case of death) and his spouse at substantially similar levels of coverage and benefits as the Employers provide at such time for their then existing senior executives.

e)   The Executive’s Base Salary, compensation, benefits and expenses shall be paid by and allocated between the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

f)   During the term of this Agreement, the Employers shall provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the performance of the duties and responsibilities assigned to the Executive hereunder.

g)   During the term of this Agreement, the Employers shall provide to Executive the use of an automobile of Executive’s choice with an average annual lease cost not to exceed $10,000 per year.  The Employers agree to replace the automobile with a new one at Executive’s request no more often than once every two years.  Either of the Employers shall pay all automobile operating expenses incurred by the Executive in the performance of Executive’s duties hereunder.  Either of the Employers shall procure and maintain in force an automobile

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liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

h)   During the term of this Agreement, the Employers shall provide to the Executive, at the Employer’s cost, all perquisites which all other senior executives of the Corporation are generally entitled to receive; provided, however, that the Executive understands and agrees that the Chief Executive Officer of the Corporation may receive perquisites that are different from those provided to the Executive or other senior executives of the Corporation.

5)   Expenses.  The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, travel expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations and requirements as may be established by the Boards of Directors of the Employers.  If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor.  Any such reimbursement of expenses provided in this Section 5 shall be made no later than December 31 of the year following the year in which the expense was incurred.

6)   Termination.

a)   The Corporation shall have the right at any time, upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation termination with or without Cause, upon a Disability or the election of the Corporation not to extend the term of this Agreement.  The Executive shall have the right at any time, upon prior Notice of Termination, to terminate his employment hereunder for any reason, including without limitation with or without Good Reason or upon Retirement.

b)   In the event that (i) the Executive’s employment hereunder is terminated by the Corporation for Cause or upon the election of the Corporation not to extend the term of this Agreement or (ii) the Executive terminates his employment hereunder without Good Reason, the Executive shall in each such case have no right pursuant to this Agreement to any severance payments, compensation or other benefits for any period after the applicable Date of Termination.

c)   In the event that the Executive’s employment hereunder is terminated as a result of a Disability, Retirement or the Executive’s death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to severance payments, compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 4(d) hereof.

d)   In the event that (i) the Executive’s employment hereunder is terminated by the Corporation without Cause or (ii) the Executive’s employment hereunder is terminated by the Executive (y) due to a material breach of this Agreement by the Corporation, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (z) for Good Reason, then the Corporation shall so long as the Executive does not breach this Agreement following the Date of Termination:

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i)   pay to the Executive, a cash severance amount equal to 150% of that portion of the Executive’s Average Annual Compensation paid by the Corporation, in twoequal installments, with the first installment to be paid on the first business day of the month following the Executive’s Date of Termination and the second installment to be paid on the first anniversary of the Date of Termination; and

ii)   maintain and provide for a period ending at the earlier of (A) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (B) the date of the Executive’s employment by or affiliation with another employer, consultant or Person (provided that the Executive is entitled under the terms of such employment or affiliation to benefits substantially similar to those described in this subparagraph, at the same or lesser cost to the Executive as under the Corporation’s plans, programs and arrangements on the Date of Termination), the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other welfare benefit plans, programs and arrangements offered by the Corporation in which the Executive was entitled to participate immediately prior to the Date of Termination (and excluding (x) Base Salary, bonuses and other items of compensation included in Average Annual Compensation, (y) incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans, programs or arrangements of the Corporation, and (z) perquisites and any vehicle provided by the Corporation), provided that in the event that the Executive’s participation in any such plan, program or arrangement as provided in this subparagraph is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Corporation shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

e)   If at the time of the Executive’s Separation from Service, for any reason other than death, the Executive meets the definition of a Specified Employee, payment of all amounts under subsections 6(d)(i), 6(d)(ii) and 7(a) shall be suspended for six (6) months following the Executive’s Separation from Service.  In such event, the first installment shall be paid on the first day following the end of the six-month suspension period.  The second installment shall be paid no later than January 15th of the calendar year following the year in which the first installment was paid.  If the Executive incurs a Separation from Service due to death, regardless of whether the Executive meets the definition of a Specified Employee, payment of his benefit shall not be suspended; provided, however, that the six-month suspension period shall not apply to the provision of any group insurance, life insurance, health and accident insurance or disability insurance under subsection 6(d)(ii).

f)   Upon any termination of the Executive’s employment hereunder, the Executive covenants and agrees (i) to return promptly to the Corporation, at the Corporation’s headquarters, all confidential information or materials that are still in the Executive’s possession or control on his last day of employment with the Corporation or the location of which the Employee knows (including, but not limited to, any confidential information or materials contained on the Executive’s personal data assistant or personal or home computer), and (ii) to return promptly to the Corporation, at the Corporation’s headquarters, all vehicles, equipment, computers, credit cards, keys, access cards, passwords and other property of the Corporation that are still in the Executive’s possession or control on his last day of employment or the

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location of which the Employee knows, and to cease using any of the foregoing on and after his last day of employment.

7)   Payment of Additional Benefits under Certain Circumstances.

a)   If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Employers (including, without limitation, the payments and benefits which the Executive would have the right to receive from the Bank pursuant to Section 6 of the Bank Agreement, before giving effect to any reduction in such amounts pursuant to Section 7 of the Bank Agreement), would constitute a “parachute payment” as defined in Section 280G(b)(2) of the Code (the “Initial Parachute Payment,” which includes the amounts paid pursuant to clause (i) below), then the Corporation shall pay to the Executive, a cash amount in twoequal installments, with the first installment to be paid on the first business day of the month following theDate of Termination and the second installment to be paid on the first anniversary of the Date of Termination.  The cash amount shall be equal to the sum of the following:

            i) the amount by which the payments and benefits that would have otherwise been paid by the Bank to the Executive pursuant to Section 6 of the Bank Agreement are reduced by the provisions of Section 7 of the Bank Agreement;

            ii) twenty percent (or such other percentage equal to the tax rate imposed by Section 4999 of the Code) of the amount by which the Initial Parachute Payment exceeds the Executive’s “base amount” from the Employers, as defined in Section 280G(b)(3) of the Code, with the difference between the Initial Parachute Payment and the Executive’s base amount being hereinafter referred to as the “Initial Excess Parachute Payment”; and

            iii) such additional amount (tax allowance) as may be necessary to compensate the Executive for the payment by the Executive of state and federal income and excise taxes on the payment provided under clause (ii) above and on any payments under this clause (iii).  In computing such tax allowance, the payment to be made under clause (ii) above shall be multiplied by the “gross up percentage” (“GUP”).  The GUP shall be determined as follows:

GUP = Tax Rate / 1 – Tax Rate

iv)   Tax Rate

The Tax Rate for purposes of computing the GUP shall be the highest marginal federal and state income and employment-related tax rate, including any applicable excise tax rate, applicable to the Executive in the year in which the payment under clause (ii) above is made.

v)   Notwithstanding the foregoing, if it shall subsequently be determined in a final judicial determination or a final administrative settlement to which the Executive is a party that the actual excess parachute payment as defined in Section 280G(b)(1) of the Code is different from the Initial Excess Parachute Payment (such different amount being hereafter referred to as the “Determinative Excess Parachute Payment”), then the Corporation’s independent tax counsel or accountants shall determine the amount (the “Adjustment Amount”) which either the Executive must pay to the Corporation or the Corporation must pay to the Executive in

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order to put the Executive (or the Corporation, as the case may be) in the same position the Executive (or the Corporation, as the case may be) would have been if the Initial Excess Parachute Payment had been equal to the Determinative Excess Parachute Payment.  In determining the Adjustment Amount, the independent tax counsel or accountants shall take into account any and all taxes (including any penalties and interest) paid by or for the Executive or refunded to the Executive or for the Executive’s benefit.  As soon as practicable after the Adjustment Amount has been so determined, the Corporation shall pay the Adjustment Amount to the Executive or the Executive shall repay the Adjustment Amount to the Corporation, as the case may be.

b)   In each calendar year that the Executive receives payments of benefits under this Section 7, the Executive shall report on his state and federal income tax returns such information as is consistent with the determination made by the independent tax counsel or accountants of the Corporation as described above.  The Corporation shall indemnify and hold the Executive harmless from any and all losses, costs and expenses (including without limitation, reasonable attorneys’ fees, interest, fines and penalties) which the Executive incurs as a result of so reporting such information.  The Executive shall promptly notify the Corporation in writing whenever the Executive receives notice of the institution of a judicial or administrative proceeding, formal or informal, in which the federal tax treatment under Section 4999 of the Code of any amount paid or payable under this Section 7 is being reviewed or is in dispute.  The Corporation shall assume control, at its expense, over all legal and accounting matters pertaining to such federal tax treatment (except to the extent necessary or appropriate for the Executive to resolve any such proceeding with respect to any matter unrelated to amounts paid or payable pursuant to this Section) and the Executive shall cooperate fully with the Corporation in any such proceeding.  The Executive shall not enter into any compromise or settlement or otherwise prejudice any rights the Corporation may have in connection therewith without the prior consent of the Corporation.

8)   Mitigation; Exclusivity of Benefits.

a)   The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise so long as the Executive has not breached this Agreement.  In the event of any breach of this Agreement by the Executive following the Date of Termination, the Executive shall immediately repay to the Corporation all severance payments paid to him under Section 6 hereof and all amounts paid to him under Section 7 hereof, plus interest at the rate of 10% per annum from the date of such breach until all such severance payments and other amounts have been repaid in full to the Corporation.

b)   The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

9)   Withholding.  All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to taxes and other payroll deductions as the Corporation may reasonably determine should be withheld pursuant to any applicable law or regulation.

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10)   Assignability.  The Corporation may, without the consent of the Executive, assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other Person with or into which the Corporation may hereafter merge or consolidate or to which the Corporation may transfer all or substantially all of its assets, if in any such case such corporation, bank or other Person shall by operation of law or expressly in writing assume all obligations of the Corporation hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11)   Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand; (ii) sent by certified United States Mail, return receipt requested, first class postage pre-paid; (iii) sent by overnight delivery service; or (iv) sent by facsimile transmission if such fax is confirmed immediately thereafter by also mailing a copy of such notice or other communication by regular (not certified or registered) United States Mail, first class postage pre-paid, as follows:

a)   To the Corporation:      CFS Bancorp, Inc.

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

b)   To the Bank:                Citizens Financial Bank

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

c)   To the Executive:          Charles V. Cole

Frankfort, Illinois

or to such other address or facsimile number as either party hereto may have furnished to the other in writing in accordance herewith.  The Executive shall promptly provide any changes to his address, telephone number and facsimile number to the Corporation.

All such notices and other communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail in the manner provided herein, two (2) business days after deposit with the United States Postal Service; (iii) if sent by overnight delivery service, on the next business day after deposit with such service; or (iv) if sent by facsimile transmission, on the date indicated on the fax confirmation page if such fax also is confirmed by regular (not certified or registered) United States mail.

12)   Amendment; Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board

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of Directors of the Corporation to sign on its behalf.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  The failure or delay of either party at any time to insist upon the strict performance of any provision of this Agreement or to enforce its or his rights or remedies under this Agreement shall not be construed as a waiver or relinquishment of the right to insist upon strict performance of such provision, or to pursue any of its rights or remedies for any breach hereof, at a future time.

13)   Governing Law; Venue.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana.  Any claim, demand or action relating to this Agreement shall be brought only in a state court located in Porter County, Indiana.  In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims, defenses or objections of lack of jurisdiction of or proper or preferred venue by such court.

14)   Nature of Obligations.  Nothing contained herein shall create or require the Corporation to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

15)   Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16)   Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect; provided, however, if any provision of Sections 3(b), 3(c) and 3(e) of this Agreement shall be determined by a court of competent jurisdiction to be unenforceable because of the provision’s scope, duration, geographic restriction or other factor, then such provision shall be considered divisible and the court making such determination shall have the power to reduce or limit (but not increase or make greater) such scope, duration, geographic restriction or other factor or to reform (but not increase or make greater) such provision to make it enforceable to the maximum extent permitted by law, and such provision shall then be enforceable against the appropriate party hereto in its reformed, reduced or limited form.

17)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

18)   Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.  In the event of the Executive’s termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination.  Furthermore, following such termination for Cause, the Executive shall not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

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19)   Payment of Costs and Legal Fees and Reinstatement of Benefits.  In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and any other cash compensation, employee benefits and any compensation and benefits due but not otherwise paid to the Executive under this Agreement.

20)   Indemnification.  The Corporation shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, or in lieu thereof, shall indemnify the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Indiana law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Corporation (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities).  Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements.

21)   Entire Agreement.  This Agreement embodies the entire agreement between the Corporation and the Executive with respect to the matters agreed to herein.  All prior agreements between the Corporation and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.  Notwithstanding the foregoing, nothing contained in this Agreement shall affect the Bank Agreement, which is being executed contemporaneously herewith.

22)   Construction.  This Agreement shall be deemed to have been drafted by both parties hereto.  This Agreement shall be construed in accordance with the fair meaning of its provisions and its language shall not be strictly construed against, nor shall ambiguities be resolved against, any party.

23)   Recitals.  The recitals or “Whereas” clauses contained on page 1 of this Agreement are expressly incorporated into and made a part of this Agreement.

24)   Non-disparagement.  During the Executive’s employment with the Corporation and following any termination of the Executive’s employment with the Corporation, the Executive shall not publicly disparage or make or publish any negative statements or comments about the Corporation, any of the Corporation’s subsidiaries or affiliates or any of their respective products, services, directors, officers or employees.  During the Executive’s employment with the Corporation and following any termination of the Executive’s employment with the Corporation, and subject to applicable law, no executive officer of the Corporation or member of the Corporation’s Board of Directors shall publicly disparage or make or publish any negative statements or comments about the Executive.

25)   Cooperation.  For a period of five (5) years following any termination of the Executive’s employment with the Corporation and upon the request of the Corporation or any of its subsidiaries or affiliates, the Executive shall reasonably cooperate, assist and make himself available (for testimony or otherwise) at appropriate times and places as reasonably determined by the Corporation or any of its subsidiaries or affiliates in connection with any claim, demand, action, suit, proceeding, discovery, examination, investigation or litigation by, against or affecting the Corporation or any of its subsidiaries or affiliates.  In connection with the foregoing,

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the Corporation shall pay the Executive a fee of $1,000 for each day that the Corporation or any subsidiary or affiliate of the Corporation requests the Executive to cooperate, assist or make himself available, and shall also reimburse the Executive for his reasonable out-of-pocket travel expenses that are approved in advance by the Chairman of the Corporation; provided, however, that the Corporation shall not pay such fee or reimburse for such expenses in connection with any claim, demand, action, suit or proceeding relating to this Agreement.

26)   Certain Remedies.  The Executive agrees that the Corporation will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any actual, threatened or attempted breach by the Executive of any provision of Section 3.  Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3, in addition to all other remedies to which the Corporation is entitled at law, in equity or otherwise, the Corporation shall be entitled to a temporary restraining order, a permanent injunction and/or a decree of specific performance of any provision of Section 3.  The parties agree that a bond posted by the Corporation in the amount of One Thousand Dollars ($1,000) shall be adequate and appropriate in connection with such restraining order or injunction and that actual damages need not be proved by the Corporation prior to it being entitled to obtain such restraining order, injunction or specific performance.  The foregoing remedies shall not be deemed to be the exclusive rights or remedies of the Corporation for any breach of or noncompliance with this Agreement by the Executive but shall be in addition to all other rights and remedies available to the Corporation at law, in equity or otherwise.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

_/s/ Charles V. Cole ____________

 Charles V. Cole

Attest:                                                                             CFS BANCORP, INC.

By: /s/ Monica F. Sullivan                                                By:_/s/ Thomas F. Prisby_________

           Thomas F. Prisby

Corporate Secretary                                                             Chairman of the Board

 (Name and Title)

KD_IM-1325990_3.DOC

EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated this 1st day of May, 2008 is made and entered into by and between CITIZENS FINANCIAL BANK (the “Bank”), a federally chartered savings bank, and DARYL D. POMRANKE (the “Executive”), a resident of the State of Indiana,

WITNESSETH:

WHEREAS, the Executive is presently employed as an officer of the Bank and CFS Bancorp, Inc. (the “Corporation”) (together, the “Employers”);

WHEREAS, the Employers desire to be ensured of the Executive’s continued active participation in the business and senior management of the Employers, and the Executive desires to continue to actively participate in the business and senior management of the Employers;

WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and

WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify in this Agreement the employment arrangement between the Bank and the Executive as well as certain restrictions, covenants, agreements and severance payments of the Bank and/or the Executive.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1)   Definitions.

The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a)   Average Annual Compensation.  The Executive’s “Average Annual Compensation” for purposes of this Agreement shall be deemed to mean the average Base Salary, cash bonuses, vested amounts allocated to the Executive under the ESOP and the Corporation’s vested matching contributions made to the Executive’s account under the Corporation’s 401(k) plan for the three fiscal years preceding the Executive’s Date of Termination.

b)   Base Salary.  “Base Salary” shall have the meaning set forth in Section 4(a) hereof.

c)   Corporation Agreement.  “Corporation Agreement” means the employment agreement between the Corporation and the Executive dated of even date herewith.

d)   Cause. Termination of the Executive’s employment for “Cause” shall mean termination by the Bank because of any of the following by the Executive:

i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities under this Agreement; or

ii) any dishonesty, fraud, theft or embezzlement by the Executive; or

iii) any willful misconduct or breach of fiduciary duty involving personal profit by the Executive; or

iv) any willful or knowing violation by the Executive of any law, statute, rule, regulation or government requirement (other than traffic violations or similar offenses) or any final cease and desist order; or

v) any material and intentional noncompliance by the Executive with any provision of any employee handbook, code of conduct or ethics, corporate governance guidelines or any rule, policy or procedure of either of the Employers as are currently in effect or as may hereafter be in effect from time to time; or

vi) any material breach by the Executive of any provision of this Agreement.

e)   Change in Control.  “Change in Control” means the occurrence of any of the following relating to the Corporation:  (i) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (“1934 Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period and, in such case, each new director so approved will be considered for purposes of this section to have been a director at the beginning of such period.

i)   For purposes of the definition of “Change in Control,” a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the “ESOP”), or any other employee benefit plan, subsidiary or affiliate of the Corporation or the Bank, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

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ii)   For purposes of this Agreement (including without limitation the definition of “Change in Control”), the term “Person” means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority.

f)   Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

g)   Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, (ii) if the Executive’s employment is terminated for any other reason (except in the case of death), the date on which a Notice of Termination is given or as specified in such Notice, and (iii) if the Executive dies during his employment hereunder, the date of his death.

h)   Disability.  Termination by the Bank of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment, incapacity or condition which qualifies the Executive for disability benefits under the applicable long-term disability plan or policy maintained by the Employers or any subsidiary or, if no such plan or policy applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

i)   Good Reason.  Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive within two years following a Change in Control of the Corporation based on:

            (i) Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of President and Chief Operating Officer of the Employers or a material adverse change made by the Employers in the Executive’s functions, duties or responsibilities as President and Chief Operating Officer of the Employers as such functions, duties or responsibilities exist immediately prior to the effective time of the Change in Control;

            (ii) Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of employee benefits provided to the Executive taken as a whole;

            (iii) The principal executive office of the Bank is relocated more than 50 miles from Munster, Indiana or, without the Executive’s express written consent, either of the Employers require the Executive to be based anywhere other than where the Bank’s principal executive office is located or has been relocated as provided above, except for required travel on business of the Employers;

            (iv) Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (l) below; or

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            (v) The failure by the Bank to obtain the assumption of and agreement to perform this Agreement by any successor.

The Executive must notify the Bank in writing within ninety (90) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason.  The Bank shall then have thirty (30) days following the effectiveness of such notice during which it may cure such circumstances and, if so cured, shall not be required to make any severance payments pursuant to Section 6(d) hereof.

j)   IRS. “IRS” shall mean the Internal Revenue Service.

k)   Key Employee.  “Key Employee” means an employee who is:

i)    An officer of the Corporation having annual compensation greater than $150,000; or

ii)   A beneficial owner of 5% or more of the outstanding securities of the Corporation; or

                iii) A beneficial owner 1% or more of the outstanding securities of the Corporation and has an annual compensation greater than $150,000.

For purposes of determining who is an officer for purposes of Section 1(k)(i), no more than 50 employees (or, if lesser, the greater of three or 10% of the employees) shall be treated as officers, and those categories of employees listed in Code Section 414(q)(5) shall be excluded.  The $150,000 amount in Section 1(k)(i) shall be adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

l)   Notice of Termination.  Any purported termination of the Executive’s employment by the Bank for any reason, including without limitation with or without Cause or upon the occurrence of a Disability, or by the Executive for any reason, including without limitation with or without Good Reason or upon Retirement, shall be communicated by written “Notice of Termination” to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Bank’s termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof.

m)   Retirement.  “Retirement” shall mean voluntary termination by the Executive after the Executive attains the age 55, with at least five years of active service.

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n)   Separation from Service.  “Separation from Service” means the date of the Executive’s death or Retirement or the date on which the Executive otherwise experiences a Termination of Employment with the Corporation; provided, however, a Separation from Service does not occur if the Executive is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if the leave is for a longer period, so long as the Executive’s right to reemployment with the Corporation is provided either by statute or by contract.  For purposes of this paragraph (n), a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Executive will return to perform services for the Corporation.  If the period of leave exceeds six (6) months and the Executive’s right to reemployment is not provided either by statute or contract, there shall be a Separation from Service on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months and where such impairment causes the Executive to be unable to render the services or carry out the duties and responsibilities set forth in this Agreement, then a 29-month period of absence may be substituted for such six-month period.  The Executive shall incur a “Termination of Employment” when a termination of employment is incurred under Treasury Regulation 1.409A-1(h)(ii).

o)   Specified Employee.  “Specified Employee” means an employee who is a “Key Employee” if the Corporation’s stock is publicly traded on an established securities market.  An employee shall be a Specified Employee for the twelve-month period beginning on the April 1st following any calendar year in which the employee is a Key Employee.

2)   Term of Employment.

a)   The Bank hereby employs the Executive as its President and Chief Operating Officer, and the Executive hereby accepts such employment and agrees to render such services to, and carry out such duties and responsibilities for, the Bank, on the terms and conditions set forth in this Agreement.  Subject to earlier termination as provided herein, the initial term of this Agreement shall be a period of two years commencing on of the date hereof and, following such initial term of this Agreement, the term of this Agreement shall be automatically extended upon the same terms and conditions set forth herein for successive two year terms, provided that neither the Bank nor the Executive has given to the other a Notice of Termination at least six (6) months prior to end of the initial term or any extension that the term of this Agreement shall not be extended further.  Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms.  As part of the review by the Board of Directors of the Bank whether to permit extensions of the term of this Agreement, the Board of Directors shall consider all relevant factors, including without limitation the Executive’s performance hereunder and the input of the Chairman of the Board of the Bank, and shall determine whether to provide notice to the Executive that the term of this Agreement shall not be further extended.

b)   During the term of this Agreement, the Executive shall perform the following services and have the following duties and responsibilities:

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i) those duties and responsibilities set forth in the specific written responsibilities of the President and Chief Operating Officer dated April 2007, as may be revised from time to time by the Chairman of the Board of the Bank; and

ii) such other executive services, duties and responsibilities for the Bank as may be consistent with his titles and from time to time assigned to him by the Bank’s Chairman of the Board.

The Executive further agrees to serve without additional compensation (except as set forth in this Agreement) as an officer and/or director of any of the Corporation’s or the Bank’s subsidiaries and agrees that any amounts received from such subsidiaries may be offset against the amounts due hereunder.  In addition, it is agreed that the Bank may assign the Executive to one of its subsidiaries for payroll purposes.

3)   Loyalty, Confidentiality and Non-Competition.

a)   The Executive shall devote his full time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement.  During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution, wherever located.

b)   For a period of two years from the Date of Termination relating to a termination by the Bank of the Executive’s employment hereunder for Cause or a Disability or a termination by the Executive of his employment hereunder upon Retirement, without Good Reason or his election not to extend the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution within a fifty (50) mile radius from any present or future office of either of the Employers or any of their subsidiaries or affiliates.

c)   For purposes of this Agreement, directly or indirectly engaging in any business or activity in competition with the business, affairs or interests of the Bank or any of its subsidiaries or affiliates includes, but is not limited to, serving or acting as an owner, partner, member, agent, beneficiary, employee, officer, director or consultant of any Person engaged in any banking, lending, financial services or other business, operation or activity in which the Bank or any of its subsidiaries or affiliates is engaged or is actively developing or pursuing on the Date of Termination; except that nothing herein contained shall be deemed to prevent or limit the right of the Executive to invest any of his funds in the capital stock or other securities of any such Person whose stock or securities are publicly owned or are regularly traded on any national exchange so long as the Executive is not the beneficial owner of more than 1% of

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the outstanding capital stock or securities of such Person, nor shall anything herein contained be deemed to prevent or limit the right of the Executive to invest any of his funds in real estate.

d)   All information relating to business of the Employers or any of their subsidiaries or affiliates including, but not limited to, that business obtained or serviced by the Executive, all customer lists, customer information, contact lists, asset, liability, loan, deposit and investment information, financial records or information, instruments, documents, papers and other material used in connection with, and all trade secrets, estimates, projections, goals, strategies and techniques relating to, such business, shall be the exclusive property of the Employers or the subsidiary or affiliate.  The Executive shall maintain the confidentiality of all such information and material that is confidential, proprietary or not publicly available (other than through a breach of this Agreement by the Executive or any other impermissible disclosure); none of it shall be copied, reproduced, duplicated or disclosed without the express written permission of the Employers (other than in connection with the performance of the Executive’s services hereunder), and the Executive shall return all such information and materials to the Employers upon their request or upon termination of employment.  The Executive also agrees that he shall not utilize such information or materials, either directly or indirectly, for any purposes except rendering his services and carrying out his duties and responsibilities hereunder and in furtherance of the Employers’ business, unless otherwise expressly authorized by the Employers in writing in advance.

e)   The Executive agrees that, during his employment, and for a period of two years following the Date of Termination of the Executive’s employment hereunder for Cause, without Good Reason, upon Retirement, upon the occurrence of a Disability or the election of the Executive not to extend the term of this Agreement, the Executive:

            i) shall not solicit any of the Employers’ past or current customers or clients for the benefit of anyone other than the Employers or their subsidiaries or affiliates;

            ii) shall not divulge the names of any of the Employers’ past or then current customers to any other Person; and

            iii) shall not, either directly or indirectly, induce or solicit any person to leave the employ of either of the Employers.

f)   The provisions of Sections 3(b), 3(c) and 3(e) hereof shall be construed independent of any other provision of this Agreement and shall survive any termination of this Agreement.  The existence of any claim or cause of action of the Executive against the Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Bank of Sections 3(b), 3(c) and 3(e) hereof.

g)   The restrictions and covenants contained in this Section shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply during the full periods specified herein.  The Bank and the Executive understand, acknowledge and agree that the restrictions and covenants contained in this

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Section are reasonable in view of the Executive’s position at the Bank, the competitive and confidential nature of the information of which the Executive has or will have knowledge and the competitive and the nature of the business in which the Bank and its subsidiaries and affiliates are or may be engaged.

4)   Compensation and Benefits.

a)   The Employers shall collectively compensate and pay the Executive for his services during the term of this Agreement at an aggregate minimum base salary of $220,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Chairman of the Board of the Bank.

b)   During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension, retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans made available to employees and executives of the Employers, to the extent commensurate with his position with the Employers, in accordance with the terms of the applicable plans and as fixed by the Boards of Directors of the Employers. The Bank shall not make any changes in such plans which would adversely affect the Executive’s rights or benefits thereunder, unless such change is applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Executive’s Base Salary.  Notwithstanding the foregoing or anything in this Agreement to the contrary, the Executive understands, acknowledges and agrees that the Employers may from time to time, in their sole discretion, amend, modify, replace, freeze, suspend or terminate any or all of the incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership, perquisite or other plans, benefits and privileges given to employees and executives of the Employers, as well as any other rules, policies or procedures applicable to executives of the Employers, but only so long as any such actions apply to all executive officers of the Bank and do not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Bank.

c)   During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers.  The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Chairman of the Board of the Employers.

d)   In the event the Executive’s employment is terminated due to Disability, Retirement or death, and provided the Executive is not otherwise receiving substantially similar benefits from another employer, consultant or otherwise, the Employers shall provide, at their cost and for

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the remaining term of this Agreement, all existing life and medical insurance coverage for the Executive (other than in the case of death) and his spouse at substantially similar levels of coverage and benefits as the Employers provide at such time for their then existing senior executives.

e)   The Executive’s Base Salary, compensation, benefits and expenses shall be paid by and allocated between the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

f)   During the term of this Agreement, the Employers shall provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the performance of the duties and responsibilities assigned to the Executive hereunder.

g)   During the term of this Agreement, the Employers shall provide to Executive the use of an automobile of Executive’s choice with an average annual lease cost not to exceed $12,000 per year.  The Employers agree to replace the automobile with a new one at Executive’s request no more often than once every two years.  Either of the Employers shall pay all automobile operating expenses incurred by the Executive in the performance of Executive’s duties hereunder.  Either of the Employers shall procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

h)   During the term of this Agreement, the Employers shall provide to the Executive, at the Employer’s cost, all perquisites which all other senior executives of the Bank are generally entitled to receive; provided, however, that the Executive understands and agrees that the Chief Executive Officer of the Bank may receive perquisites that are different from those provided to the Executive or other senior executives of the Bank.

5)   Expenses.  The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, travel expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations and requirements as may be established by the Boards of Directors of the Employers.  If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor.  Any such reimbursement of expenses provided in this Section 5 shall be made no later than December 31 of the year following the year in which the expense was incurred.

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6)   Termination.

a)   The Bank shall have the right at any time, upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation termination with or without Cause, upon a Disability or the election of the Bank not to extend the term of this Agreement.  The Executive shall have the right at any time, upon prior Notice of Termination, to terminate his employment hereunder for any reason, including without limitation with or without Good Reason, upon Retirement or the election of the Executive not to extend the term of this Agreement.

b)   In the event that (i) the Executive’s employment hereunder is terminated by the Bank for Cause or upon the election of the Bank not to extend the term of this Agreement or (ii) the Executive terminates his employment hereunder without Good Reason or upon the election of the Executive not to extend the term of this Agreement, the Executive shall in each such case have no right pursuant to this Agreement to any severance payments, compensation or other benefits for any period after the applicable Date of Termination.

c)   In the event that the Executive’s employment hereunder is terminated as a result of a Disability, Retirement or the Executive’s death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to severance payments, compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 4(d) hereof.

d)   In the event that (i) the Executive’s employment hereunder is terminated by the Bank without Cause or (ii) the Executive’s employment hereunder is terminated by the Executive (y) due to a material breach of this Agreement by the Bank, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (z) for Good Reason, then the Bank shall so long as the Executive does not breach this Agreement following the Date of Termination:

i)   pay to the Executive, a cash severance amount equal to two times that portion of the Executive’s Average Annual Compensation paid by the Bank, in twoequal installments, with the first installment to be paid on the first business day of the month following the Executive’s Date of Termination and the second installment to be paid on the first anniversary of the Date of Termination; and

ii)   maintain and provide for a period ending at the earlier of (A) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (B) the date of the Executive’s employment by or affiliation with another employer, consultant or Person (provided that the Executive is entitled under the terms of such employment or affiliation to benefits substantially similar to those described in this subparagraph, at the same or lesser cost to the Executive as under the Bank’s plans, programs and arrangements on the Date of Termination), the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other welfare benefit plans, programs and arrangements offered by the Bank in which the Executive was entitled to participate immediately prior to the Date of Termination (and excluding (x) Base Salary, bonuses and

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other items of compensation included in Average Annual Compensation, (y) incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans, programs or arrangements of the Bank, and (z) perquisites and any vehicle provided by the Bank), provided that in the event that the Executive’s participation in any such plan, program or arrangement as provided in this subparagraph is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Bank shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

Any severance payment made to the Executive under this Agreement shall be offset against and reduce any severance payment that would otherwise be required to made to the Executive under the Corporation Agreement.

e)   If at the time of the Executive’s Separation from Service, for any reason other than death, the Executive meets the definition of a Specified Employee, payment of all amounts under subsections 6(d)(i) and 6(d)(ii) shall be suspended for six (6) months following the Executive’s Separation from Service.  In such event, the first installment shall be paid on the first day following the end of the six-month suspension period.  The second installment shall be paid no later than January 15th of the calendar year following the year in which the first installment was paid.  If the Executive incurs a Separation from Service due to death, regardless of whether the Executive meets the definition of a Specified Employee, payment of his benefit shall not be suspended; provided, however, that the six-month suspension period shall not apply to the provision of any group insurance, life insurance, health and accident insurance or disability insurance under subsection 6(d)(ii).

f)   Upon any termination of the Executive’s employment hereunder, the Executive covenants and agrees (i) to return promptly to the Bank, at the Bank’s headquarters, all confidential information or materials that are still in the Executive’s possession or control on his last day of employment with the Bank or the location of which the Employee knows (including, but not limited to, any confidential information or materials contained on the Executive’s personal data assistant or personal or home computer), and (ii) to return promptly to the Bank, at the Bank’s headquarters, all vehicles, equipment, computers, credit cards, keys, access cards, passwords and other property of the Bank that are still in the Executive’s possession or control on his last day of employment or the location of which the Employee knows, and to cease using any of the foregoing on and after his last day of employment.

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7)   Limitation of Benefits under Certain Circumstances.  If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Bank, would constitute a “parachute payment” under Section 280G of the Code, the payments and benefits payable by the Bank pursuant to Section 6 hereof shall be reduced, in the manner determined by the Executive, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 6 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code.  The parties hereto agree that the present value of the payments and benefits payable pursuant to this Agreement to the Executive upon termination shall be limited to three (3) times the Executive’s Average Annual Compensation.  The determination of any reduction in the payments and benefits to be made pursuant to Section 6 shall be based upon the opinion of independent counsel selected by the Bank's independent public accountants and paid by the Bank.  Such counsel shall be reasonably acceptable to the Bank and the Executive; shall promptly prepare the foregoing opinion, but in no event later than sixty (60) days following such counsel’s selection; and may use such actuaries as such counsel deems necessary or advisable for the purpose.  Nothing contained herein shall result in a reduction of any payments or benefits to which the Executive may be entitled upon termination of employment under any circumstances other than as specified in this Section 7, or a reduction in the payments and benefits specified in Section 6 below zero.

8)   Mitigation; Exclusivity of Benefits.

a)   The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise so long as the Executive has not breached this Agreement.  In the event of any breach of this Agreement by the Executive following the Date of Termination, the Executive shall immediately repay to the Bank all severance payments paid to him under Section 6 hereof, plus interest at the rate of 10% per annum from the date of such breach until all such severance payments have been repaid in full to the Bank.

b)   The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

9)   Withholding.  All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to taxes and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation.

10)   Assignability.  The Bank may, without the consent of the Executive, assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other Person with or into which the Bank may hereafter merge or consolidate or to which the Bank may transfer all or substantially all of its assets, if in any such case such corporation, bank or other Person shall by operation of law or expressly in writing assume all obligations of the Bank hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights

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and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11)   Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand; (ii) sent by certified United States Mail, return receipt requested, first class postage pre-paid; (iii) sent by overnight delivery service; or (iv) sent by facsimile transmission if such fax is confirmed immediately thereafter by also mailing a copy of such notice or other communication by regular (not certified or registered) United States Mail, first class postage pre-paid, as follows:

a)   To the Corporation:      CFS Bancorp, Inc.

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

b)   To the Bank:                Citizens Financial Bank

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

c)   To the Executive:          Daryl D. Pomranke

            Michigan City, Indiana

or to such other address or facsimile number as either party hereto may have furnished to the other in writing in accordance herewith.  The Executive shall promptly provide any changes to his address, telephone number and facsimile number to the Bank.

All such notices and other communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail in the manner provided herein, two (2) business days after deposit with the United States Postal Service; (iii) if sent by overnight delivery service, on the next business day after deposit with such service; or (iv) if sent by facsimile transmission, on the date indicated on the fax confirmation page if such fax also is confirmed by regular (not certified or registered) United States mail.

12)   Amendment; Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  The failure or delay of either party at any time to insist upon the strict performance of any provision of this Agreement

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or to enforce its or his rights or remedies under this Agreement shall not be construed as a waiver or relinquishment of the right to insist upon strict performance of such provision, or to pursue any of its rights or remedies for any breach hereof, at a future time.

13)   Governing Law; Venue.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana.  Any claim, demand or action relating to this Agreement shall be brought only in a state court located in Porter County, Indiana.  In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims, defenses or objections of lack of jurisdiction of or proper or preferred venue by such court.

14)   Nature of Obligations.  Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank.

15)   Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16)   Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect; provided, however, if any provision of Sections 3(b), 3(c) and 3(e) of this Agreement shall be determined by a court of competent jurisdiction to be unenforceable because of the provision’s scope, duration, geographic restriction or other factor, then such provision shall be considered divisible and the court making such determination shall have the power to reduce or limit (but not increase or make greater) such scope, duration, geographic restriction or other factor or to reform (but not increase or make greater) such provision to make it enforceable to the maximum extent permitted by law, and such provision shall then be enforceable against the appropriate party hereto in its reformed, reduced or limited form.

17)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

18)   Regulatory Actions.  The following provisions shall be applicable to the parties to the extent that they are required to be included in employment agreements between a savings association and its employees pursuant to Section 563.39(b) of the Regulations Applicable to All Savings Associations, 12 C.F.R. §563.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 6 hereof.

a)   If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. §§1818(e)(3) and 1818(g)(1)), the Bank’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed,

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the Bank may, in its discretion (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

b)   If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. §§1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Bank as of the date of termination shall not be affected.

c)   If the Bank is in default, as defined in Section 3(x)(1) of the FDIA (12 U.S.C. §1813(x)(1)), all obligations under this Agreement shall terminate as of the date of default, but vested rights of the Executive and the Bank as of the date of termination shall not be affected.

d)   All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. §563.39(b)(5) (except to the extent that it is determined that continuation of the Agreement for the continued operation of the Bank is necessary) (i) by the Director of the Office of Thrift Supervision (“OTS”), or his/her designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA (12 U.S.C. §1823(c)), or (ii) by the Director of the OTS, or his/her designee, at the time the Director, or his/her designee, approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition.  Notwithstanding the foregoing, vested rights of the Executive and the Bank as of the date of termination shall not be affected.

19)   Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.  In the event of the Executive’s termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination.  Furthermore, following such termination for Cause, the Executive shall not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

20)   Payment of Costs and Legal Fees and Reinstatement of Benefits.  In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and any other cash compensation, employee benefits and any compensation and benefits due but not paid to the Executive under this Agreement.

21)   Entire Agreement.  This Agreement embodies the entire agreement between the Bank and the Executive with respect to the matters agreed to herein.  All prior agreements between the Bank and

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the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.  Notwithstanding the foregoing, nothing contained in this Agreement shall affect the Corporation Agreement which is being executed contemporaneously herewith.

22)   Construction.  This Agreement shall be deemed to have been drafted by both parties hereto.  This Agreement shall be construed in accordance with the fair meaning of its provisions and its language shall not be strictly construed against, nor shall ambiguities be resolved against, any party.

23)   Recitals.  The recitals or “Whereas” clauses contained on page 1 of this Agreement are expressly incorporated into and made a part of this Agreement.

24)   Non-disparagement.  During the Executive’s employment with the Bank and following any termination of the Executive’s employment with the Bank, the Executive shall not publicly disparage or make or publish any negative statements or comments about the Bank, any of the Bank’s subsidiaries or affiliates or any of their respective products, services, directors, officers or employees.  During the Executive’s employment with the Bank and following any termination of the Executive’s employment with the Bank, and subject to applicable law, no executive officer of the Bank or member of the Bank’s Board of Directors shall publicly disparage or make or publish any negative statements or comments about the Executive.

25)   Cooperation.  For a period of five (5) years following any termination of the Executive’s employment with the Bank and upon the request of the Bank or any of its subsidiaries or affiliates, the Executive shall reasonably cooperate, assist and make himself available (for testimony or otherwise) at appropriate times and places as reasonably determined by the Bank or any of its subsidiaries or affiliates in connection with any claim, demand, action, suit, proceeding, discovery, examination, investigation or litigation by, against or affecting the Bank or any of its subsidiaries or affiliates.  In connection with the foregoing, the Bank shall pay the Executive a fee of $1,000 for each day that the Bank or any subsidiary or affiliate of the Bank requests the Executive to cooperate, assist or make himself available, and shall also reimburse the Executive for his reasonable out-of-pocket travel expenses that are approved in advance by the Chairman of the Bank; provided, however, that the Bank shall not pay such fee or reimburse for such expenses in connection with any claim, demand, action, suit or proceeding relating to this Agreement.

26)   Certain Remedies.  The Executive agrees that the Bank will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any actual, threatened or attempted breach by the Executive of any provision of Section 3.  Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3, in addition to all other remedies to which the Bank is entitled at law, in equity or otherwise, the Bank shall be entitled to a temporary restraining order, a permanent injunction and/or a decree of specific performance of any provision of Section 3.  The parties agree that a bond posted by the Bank in the amount of One Thousand Dollars ($1,000) shall be adequate and appropriate in connection with such restraining order or injunction and that actual damages need not be proved by the Bank prior to it being entitled to obtain such restraining order, injunction or specific performance.  The foregoing remedies shall not be deemed to be the exclusive rights or remedies

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of the Bank for any breach of or noncompliance with this Agreement by the Executive but shall be in addition to all other rights and remedies available to the Bank at law, in equity or otherwise.

IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

_/s/ Daryl D. Pomranke __________

 Daryl D. Pomranke

Attest:                                                                              CITIZENS FINANCIAL BANK

By:  /s/ Monica F. Sullivan                                                By:_/s/ Thomas F. Prisby_________

            Thomas F. Prisby

  Corporate Secretary                                                            Chairman of the Board

 (Name and Title)

KD_IM-1325991_3.DOC

EX-10.14

Exhibit 10.14

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) dated this 1st day of May, 2008 is made and entered into by and between CFS BANCORP, INC. (the “Corporation”), an Indiana corporation, and DARYL D. POMRANKE (the “Executive”), a resident of the State of Indiana,

WITNESSETH:

WHEREAS, the Executive is presently employed as an officer of the Corporation and Citizens Financial Bank (the “Bank”) (together, the “Employers”);

WHEREAS, the Employers desire to be ensured of the Executive’s continued active participation in the business and senior management of the Employers, and the Executive desires to continue to actively participate in the business and senior management of the Employers;

WHEREAS, the Corporation and the Bank desire to enter into separate agreements with the Executive with respect to his employment by each of the Employers; and

WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify in this Agreement the employment arrangement between the Corporation and the Executive as well as certain restrictions, covenants, agreements and severance payments of the Corporation and/or the Executive.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1)   Definitions.

The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

a)   Average Annual Compensation.  The Executive’s “Average Annual Compensation” for purposes of this Agreement shall be deemed to mean the average Base Salary, cash bonuses, vested amounts allocated to the Executive under the ESOP and the Corporation’s vested matching contributions made to the Executive’s account under the Corporation’s 401(k) plan for the three fiscal years preceding the Executive’s Date of Termination.

b)   Base Salary.  “Base Salary” shall have the meaning set forth in Section 4(a) hereof.

c)   Bank Agreement.  “Bank Agreement” means the employment agreement between the Bank and the Executive dated of even date herewith.

d)   Cause. Termination of the Executive’s employment for “Cause” shall mean termination by the Corporation because of any of the following by the Executive:

i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities under this Agreement; or

ii) any dishonesty, fraud, theft or embezzlement by the Executive; or

iii) any willful misconduct or breach of fiduciary duty involving personal profit by the Executive; or

iv) any willful or knowing violation by the Executive of any law, statute, rule, regulation or government requirement (other than traffic violations or similar offenses) or any final cease and desist order; or

v) any material and intentional noncompliance by the Executive with any provision of any employee handbook, code of conduct or ethics, corporate governance guidelines or any rule, policy or procedure of either of the Employers as are currently in effect or as may hereafter be in effect from time to time; or

vi) any material breach by the Executive of any provision of this Agreement; or

vii) any termination of the Executive’s employment with the Bank.

e)   Change in Control.  “Change in Control” means the occurrence of any of the following relating to the Corporation:  (i) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities and Exchange Act of 1934 Act, as amended (“1934 Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the 1934 Act; (ii) any “person” is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iii) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period and, in such case, each new director so approved will be considered for purposes of this section to have been a director at the beginning of such period.

            i) For purposes of the definition of “Change in Control,” a Person or group of Persons does not include the CFS Bancorp, Inc. Employee Stock Ownership Plan Trust which forms a part of the CFS Bancorp, Inc. Employee Stock Ownership Plan (the “ESOP”), or any other employee benefit plan, subsidiary or affiliate of the Corporation, and the outstanding shares of common stock of the Corporation, on a fully diluted basis, include all shares owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

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            ii) For purposes of this Agreement (including without limitation the definition of “Change in Control”), the term “Person” means any natural person, proprietorship, partnership, corporation, limited liability company, organization, firm, business, joint venture, association, trust or other entity and any government agency, body or authority.

f)   Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

g)   Date of Termination.  “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause or for Disability, the date specified in the Notice of Termination, (ii) if the Executive’s employment is terminated for any other reason (except in the case of death), the date on which a Notice of Termination is given or as specified in such Notice, and (iii) if the Executive dies during his employment hereunder, the date of his death.

h)   Disability.  Termination by the Corporation of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment, incapacity or condition which qualifies the Executive for disability benefits under the applicable long-term disability plan or policy maintained by the Employers or any subsidiary or, if no such plan or policy applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

i)   Good Reason.  Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive within two years following a Change in Control of the Corporation based on:

            (i) Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of President and Chief Operating Officer of the Employers or a material adverse change made by the Employers in the Executive’s functions, duties or responsibilities as President and Chief Operating Officer of the Employers as such functions, duties or responsibilities exist immediately prior to the effective time of the Change in Control;

            (ii) Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 4(b) hereof, a reduction in the package of employee benefits provided to the Executive taken as a whole;

            (iii) The principal executive office of the Bank is relocated more than 50 miles from Munster, Indiana or, without the Executive’s express written consent, either of the Employers require the Executive to be based anywhere other than where the Bank’s principal executive office is located or has been relocated as provided above, except for required travel on business of the Employers;

            (iv) Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (l) below; or

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            (v) The failure by the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor.

The Executive must notify the Corporation in writing within ninety (90) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason.  The Corporation shall then have thirty (30) days following the effectiveness of such notice during which it may cure such circumstances and, if so cured, shall not be required to make any severance payments pursuant to Section 6(d) hereof.

j)   IRS. “IRS” shall mean the Internal Revenue Service.

k)   Key Employee.  “Key Employee” means an employee who is:

i)    An officer of the Corporation having annual compensation greater than $150,000; or

ii)   A beneficial owner of 5% or more of the outstanding securities of the Corporation; or

                iii) A beneficial owner 1% or more of the outstanding securities of the Corporation and has an annual compensation greater than $150,000.

For purposes of determining who is an officer for purposes of Section 1(k)(i), no more than 50 employees (or, if lesser, the greater of three or 10% of the employees) shall be treated as officers, and those categories of employees listed in Code Section 414(q)(5) shall be excluded.  The $150,000 amount in Section 1(k)(i) shall be adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.

l)   Notice of Termination.  Any purported termination of the Executive’s employment by the Corporation for any reason, including without limitation with or without Cause or upon the occurrence of a Disability, or by the Executive for any reason, including without limitation with or without Good Reason or upon Retirement, shall be communicated by written “Notice of Termination” to the other party hereto.  For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Corporation’s termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 11 hereof.

m)   Retirement.  “Retirement” shall mean voluntary termination by the Executive after the Executive attains the age 55, with at least five years of active service.

n)   Separation from Service.  “Separation from Service” means the date of the Executive’s death or Retirement or the date on which the Executive otherwise experiences a Termination of Employment with the Corporation; provided, however, a Separation from Service does not

4

occur if the Executive is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months or, if the leave is for a longer period, so long as the Executive’s right to reemployment with the Corporation is provided either by statute or by contract.  For purposes of this paragraph (n), a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Executive will return to perform services for the Corporation.  If the period of leave exceeds six (6) months and the Executive’s right to reemployment is not provided either by statute or contract, there shall be a Separation from Service on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months and where such impairment causes the Executive to be unable to render the services or carry out the duties and responsibilities set forth in this Agreement, then a 29-month period of absence may be substituted for such six-month period.  The Executive shall incur a “Termination of Employment” when a termination of employment is incurred under Treasury Regulation 1.409A-1(h)(ii).

o)   Specified Employee.  “Specified Employee” means an employee who is a “Key Employee” if the Corporation’s stock is publicly traded on an established securities market.  An employee shall be a Specified Employee for the twelve-month period beginning on the April 1st following any calendar year in which the employee is a Key Employee.

2)   Term of Employment.

a)   The Corporation hereby employs the Executive as its President and Chief Operating Officer, and the Executive hereby accepts such employment and agrees to render such services to, and carry out such duties and responsibilities for, the Corporation, on the terms and conditions set forth in this Agreement.  The term of this Agreement shall be a period of two years commencing as of the date hereof (the “Commencement Date”), subject to earlier termination as provided herein.  Beginning on the day following the Commencement Date, and on each day thereafter, the term of this Agreement shall be extended for a period of one day in addition to the then-remaining term, provided that the Corporation has not given notice to the Executive in writing at least sixty (60) days prior to such day that the term of this Agreement shall not be extended further.  Reference herein to the term of this Agreement shall refer to both such initial term and any extended terms.  As part of the review by the Board of Directors of the Corporation on at least an annual basis whether to permit extensions of the term of this Agreement, the Board of Directors shall consider all relevant factors, including without limitation the Executive’s performance hereunder and the input of the Chairman of the Board of the Corporation, and shall determine whether to provide notice to the Executive that the term of this Agreement shall not be further extended.

b)   During the term of this Agreement, the Executive shall render such executive services and carry out such duties and responsibilities consistent with his titles and as may be assigned to him from time to time by the Chairman of the Board of the Corporation.

The Executive further agrees to serve without additional compensation (except as set forth in the Bank Agreement) as an officer and/or director of any of the Corporation’s or the Bank’s

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subsidiaries and agrees that any amounts received from such subsidiaries may be offset against the amounts due hereunder.  In addition, it is agreed that the Corporation may assign the Executive to one of its subsidiaries for payroll purposes.

3)   Loyalty, Confidentiality and Non-Competition.

a)   The Executive shall devote his full time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement.  During the term of this Agreement, the Executive shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution, wherever located.

b)   For a period of two years from the Date of Termination relating to a termination by the Corporation of the Executive’s employment hereunder for Cause or a Disability or a termination by the Executive of his employment hereunder upon Retirement or without Good Reason, the Executive shall not, at any time or place, either directly or indirectly engage in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates or be a director, officer, employee or consultant to any bank holding company, savings and loan holding company, bank, savings and loan association, credit union, thrift, savings bank, financial services provider or similar institution within a fifty (50) mile radius from any present or future office of either of the Employers or any of their subsidiaries or affiliates.

c)   For purposes of this Agreement, directly or indirectly engaging in any business or activity in competition with the business, affairs or interests of the Corporation or any of its subsidiaries or affiliates includes, but is not limited to, serving or acting as an owner, partner, member, agent, beneficiary, employee, officer, director or consultant of any Person engaged in any banking, lending, financial services or other business, operation or activity in which the Corporation or any of its subsidiaries or affiliates is engaged or is actively developing or pursuing on the Date of Termination; except that nothing herein contained shall be deemed to prevent or limit the right of the Executive to invest any of his funds in the capital stock or other securities of any such Person whose stock or securities are publicly owned or are regularly traded on any national exchange so long as the Executive is not the beneficial owner of more than 1% of the outstanding capital stock or securities of such Person, nor shall anything herein contained be deemed to prevent or limit the right of the Executive to invest any of his funds in real estate.

d)   All information relating to business of the Employers or any of their subsidiaries or affiliates including, but not limited to, that business obtained or serviced by the Executive, all customer lists, customer information, contact lists, asset, liability, loan, deposit and investment information, financial records or information, instruments, documents, papers, and other material used in connection with, and all trade secrets, estimates, projections, goals, strategies, techniques relating to, such business, shall be the exclusive property of the Employers or the subsidiary or affiliate.  The Executive shall maintain the confidentiality of all such information and material that is confidential, proprietary or not publicly available

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(other than through a breach of this Agreement by the Executive or any other impermissible disclosure); none of it shall be copied, reproduced, duplicated or disclosed without the express written permission of the Employers (other than in connection with the performance of the Executive’s services hereunder), and the Executive shall return all such information and materials to the Employers upon their request or upon termination of employment.  The Executive also agrees that he shall not utilize such information or materials, either directly or indirectly, for any purposes except rendering his services and carrying out his duties and responsibilities hereunder and in furtherance of the Employers’ business, unless otherwise expressly authorized by the Employers in writing in advance.

e)   The Executive agrees that, during his employment, and for a period of two years following the Date of Termination of the Executive’s employment hereunder for Cause, without Good Reason, upon Retirement or upon the occurrence of a Disability, the Executive:

            i) shall not solicit any of the Employers’ past or current customers or clients for the benefit of anyone other than the Employers or their subsidiaries or affiliates;

            ii) shall not divulge the names of any of the Employers’ past or then current customers to any other Person; and

            iii) shall not, either directly or indirectly, induce or solicit any person to leave the employ of either of the Employers.

f)   The provisions of Sections 3(b), 3(c) and 3(e) hereof shall be construed independent of any other provision of this Agreement and shall survive any termination of this Agreement.  The existence of any claim or cause of action of the Executive against the Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of Sections 3(b), 3(c) and 3(e) hereof.

g)   The restrictions and covenants contained in this Section shall be deemed not to run during all periods of noncompliance, the intention of the parties hereto being to have such restrictions and covenants apply during the full periods specified herein.  The Corporation and the Executive understand, acknowledge and agree that the restrictions and covenants contained in this Section are reasonable in view of the Executive’s position at the Corporation, the competitive and confidential nature of the information of which the Executive has or will have knowledge and the competitive and the nature of the business in which the Corporation and its subsidiaries and affiliates are or may be engaged.

4)   Compensation and Benefits.

a)   The Employers shall collectively compensate and pay the Executive for his services during the term of this Agreement at an aggregate minimum base salary of $220,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the term of this Agreement such bonus payments as may be determined by the Chairman of the Board of the Corporation.

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b)   During the term of this Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension, retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans made available to employees and executives of the Employers, to the extent commensurate with his position with the Employers, in accordance with the terms of the applicable plans and as fixed by the Boards of Directors of the Employers. The Corporation shall not make any changes in such plans which would adversely affect the Executive’s rights or benefits thereunder, unless such change is applicable to all executive officers of the Corporation and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the Executive’s Base Salary.  Notwithstanding the foregoing or anything in this Agreement to the contrary, the Executive understands, acknowledges and agrees that the Employers may from time to time, in their sole discretion, amend, modify, replace, freeze, suspend or terminate any or all of the incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership, perquisite or other plans, benefits and privileges given to employees and executives of the Employers, as well as any other rules, policies or procedures applicable to executives of the Employers, but only so long as any such actions apply to all executive officers of the Corporation and do not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Corporation.

c)   During the term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers.  The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Chairman of the Board of the Employers.

d)   In the event the Executive’s employment is terminated due to Disability, Retirement or death, and provided the Executive is not otherwise receiving substantially similar benefits from another employer, consultant or otherwise, the Employers shall provide, at their cost and for the remaining term of this Agreement, all existing life and medical insurance coverage for the Executive (other than in the case of death) and his spouse at substantially similar levels of coverage and benefits as the Employers provide at such time for their then existing senior executives.

e)   The Executive’s Base Salary, compensation, benefits and expenses shall be paid by and allocated between the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

f)   During the term of this Agreement, the Employers shall provide suitable office space, desk, chairs, filing cabinets, telephones and other usual and customary office furniture, fixtures and equipment adequate for the performance of the duties and responsibilities assigned to the Executive hereunder.

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g)   During the term of this Agreement, the Employers shall provide to Executive the use of an automobile of Executive’s choice with an average annual lease cost not to exceed $12,000 per year.  The Employers agree to replace the automobile with a new one at Executive’s request no more often than once every two years.  Either of the Employers shall pay all automobile operating expenses incurred by the Executive in the performance of Executive’s duties hereunder.  Either of the Employers shall procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

h)   During the term of this Agreement, the Employers shall provide to the Executive, at the Employer’s cost, all perquisites which all other senior executives of the Corporation are generally entitled to receive; provided, however, that the Executive understands and agrees that the Chief Executive Officer of the Corporation may receive perquisites that are different from those provided to the Executive or other senior executives of the Corporation.

5)   Expenses.  The Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, travel expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations and requirements as may be established by the Boards of Directors of the Employers.  If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefor.  Any such reimbursement of expenses provided in this Section 5 shall be made no later than December 31 of the year following the year in which the expense was incurred.

6)   Termination.

a)   The Corporation shall have the right at any time, upon prior Notice of Termination, to terminate the Executive’s employment hereunder for any reason, including without limitation termination with or without Cause, upon a Disability or the election of the Corporation not to extend the term of this Agreement.  The Executive shall have the right at any time, upon prior Notice of Termination, to terminate his employment hereunder for any reason, including without limitation with or without Good Reason or upon Retirement.

b)   In the event that (i) the Executive’s employment hereunder is terminated by the Corporation for Cause or upon the election of the Corporation not to extend the term of this Agreement or (ii) the Executive terminates his employment hereunder without Good Reason, the Executive shall in each such case have no right pursuant to this Agreement to any severance payments, compensation or other benefits for any period after the applicable Date of Termination.

c)   In the event that the Executive’s employment hereunder is terminated as a result of a Disability, Retirement or the Executive’s death during the term of this Agreement, the Executive shall have no right pursuant to this Agreement to severance payments, compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 4(d) hereof.

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d)   In the event that (i) the Executive’s employment hereunder is terminated by the Corporation without Cause or (ii) the Executive’s employment hereunder is terminated by the Executive (y) due to a material breach of this Agreement by the Corporation, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers, or (z) for Good Reason, then the Corporation shall so long as the Executive does not breach this Agreement following the Date of Termination:

i)   pay to the Executive, a cash severance amount equal to two times that portion of the Executive’s Average Annual Compensation paid by the Corporation, in twoequal installments, with the first installment to be paid on the first business day of the month following the Executive’s Date of Termination and the second installment to be paid on the first anniversary of the Date of Termination; and

ii)   maintain and provide for a period ending at the earlier of (A) the expiration of the remaining term of employment pursuant hereto prior to the Notice of Termination or (B) the date of the Executive’s employment by or affiliation with another employer, consultant or Person (provided that the Executive is entitled under the terms of such employment or affiliation to benefits substantially similar to those described in this subparagraph, at the same or lesser cost to the Executive as under the Corporation’s plans, programs and arrangements on the Date of Termination), the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other welfare benefit plans, programs and arrangements offered by the Corporation in which the Executive was entitled to participate immediately prior to the Date of Termination (and excluding (x) Base Salary, bonuses and other items of compensation included in Average Annual Compensation, (y) incentive compensation, pension or other retirement, profit sharing, equity based compensation, employee stock ownership or other similar plans, programs or arrangements of the Corporation, and (z) perquisites and any vehicle provided by the Corporation), provided that in the event that the Executive’s participation in any such plan, program or arrangement as provided in this subparagraph is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Corporation shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

e)   If at the time of the Executive’s Separation from Service, for any reason other than death, the Executive meets the definition of a Specified Employee, payment of all amounts under subsections 6(d)(i), 6(d)(ii) and 7(a) shall be suspended for six (6) months following the Executive’s Separation from Service.  In such event, the first installment shall be paid on the first day following the end of the six-month suspension period.  The second installment shall be paid no later than January 15th of the calendar year following the year in which the first installment was paid.  If the Executive incurs a Separation from Service due to death, regardless of whether the Executive meets the definition of a Specified Employee, payment of his benefit shall not be suspended; provided, however, that the six-month suspension period shall not apply to the provision of any group insurance, life insurance, health and accident insurance or disability insurance under subsection 6(d)(ii).

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f)   Upon any termination of the Executive’s employment hereunder, the Executive covenants and agrees (i) to return promptly to the Corporation, at the Corporation’s headquarters, all confidential information or materials that are still in the Executive’s possession or control on his last day of employment with the Corporation or the location of which the Employee knows (including, but not limited to, any confidential information or materials contained on the Executive’s personal data assistant or personal or home computer), and (ii) to return promptly to the Corporation, at the Corporation’s headquarters, all vehicles, equipment, computers, credit cards, keys, access cards, passwords and other property of the Corporation that are still in the Executive’s possession or control on his last day of employment or the location of which the Employee knows, and to cease using any of the foregoing on and after his last day of employment.

7)   Payment of Additional Benefits under Certain Circumstances.

a)   If the payments and benefits pursuant to Section 6 hereof, either alone or together with other payments and benefits which the Executive has the right to receive from the Employers (including, without limitation, the payments and benefits which the Executive would have the right to receive from the Bank pursuant to Section 6 of the Bank Agreement, before giving effect to any reduction in such amounts pursuant to Section 7 of the Bank Agreement), would constitute a “parachute payment” as defined in Section 280G(b)(2) of the Code (the “Initial Parachute Payment,” which includes the amounts paid pursuant to clause (i) below), then the Corporation shall pay to the Executive, a cash amount in twoequal installments, with the first installment to be paid on the first business day of the month following theDate of Termination and the second installment to be paid on the first anniversary of the Date of Termination.  The cash amount shall be equal to the sum of the following:

i)   the amount by which the payments and benefits that would have otherwise been paid by the Bank to the Executive pursuant to Section 6 of the Bank Agreement are reduced by the provisions of Section 7 of the Bank Agreement;

ii)   twenty percent (or such other percentage equal to the tax rate imposed by Section 4999 of the Code) of the amount by which the Initial Parachute Payment exceeds the Executive’s “base amount” from the Employers, as defined in Section 280G(b)(3) of the Code, with the difference between the Initial Parachute Payment and the Executive’s base amount being hereinafter referred to as the “Initial Excess Parachute Payment”; and

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iii)   such additional amount (tax allowance) as may be necessary to compensate the Executive for the payment by the Executive of state and federal income and excise taxes on the payment provided under clause (ii) above and on any payments under this clause (iii).  In computing such tax allowance, the payment to be made under clause (ii) above shall be multiplied by the “gross up percentage” (“GUP”).  The GUP shall be determined as follows:

GUP = Tax Rate / 1 – Tax Rate

iv)   Tax Rate

The Tax Rate for purposes of computing the GUP shall be the highest marginal federal and state income and employment-related tax rate, including any applicable excise tax rate, applicable to the Executive in the year in which the payment under clause (ii) above is made.

v)   Notwithstanding the foregoing, if it shall subsequently be determined in a final judicial determination or a final administrative settlement to which the Executive is a party that the actual excess parachute payment as defined in Section 280G(b)(1) of the Code is different from the Initial Excess Parachute Payment (such different amount being hereafter referred to as the “Determinative Excess Parachute Payment”), then the Corporation’s independent tax counsel or accountants shall determine the amount (the “Adjustment Amount”) which either the Executive must pay to the Corporation or the Corporation must pay to the Executive in order to put the Executive (or the Corporation, as the case may be) in the same position the Executive (or the Corporation, as the case may be) would have been if the Initial Excess Parachute Payment had been equal to the Determinative Excess Parachute Payment.  In determining the Adjustment Amount, the independent tax counsel or accountants shall take into account any and all taxes (including any penalties and interest) paid by or for the Executive or refunded to the Executive or for the Executive’s benefit.  As soon as practicable after the Adjustment Amount has been so determined, the Corporation shall pay the Adjustment Amount to the Executive or the Executive shall repay the Adjustment Amount to the Corporation, as the case may be.

b)   In each calendar year that the Executive receives payments of benefits under this Section 7, the Executive shall report on his state and federal income tax returns such information as is consistent with the determination made by the independent tax counsel or accountants of the Corporation as described above.  The Corporation shall indemnify and hold the Executive harmless from any and all losses, costs and expenses (including without limitation, reasonable attorneys’ fees, interest, fines and penalties) which the Executive incurs as a result of so reporting such information.  The Executive shall promptly notify the Corporation in writing whenever the Executive receives notice of the institution of a judicial or administrative proceeding, formal or informal, in which the federal tax treatment under Section 4999 of the Code of any amount paid or payable under this Section 7 is being reviewed or is in dispute.  The Corporation shall assume control, at its expense, over all legal and accounting matters pertaining to such federal tax treatment (except to the extent necessary or appropriate for the Executive to resolve any such proceeding with respect to any matter unrelated to amounts paid or payable pursuant to this Section) and the Executive shall cooperate fully with the Corporation in any such proceeding.  The Executive shall not enter into any compromise or settlement or otherwise prejudice any rights the Corporation may have in connection therewith without the prior consent of the Corporation.

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8)   Mitigation; Exclusivity of Benefits.

a)   The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise so long as the Executive has not breached this Agreement.  In the event of any breach of this Agreement by the Executive following the Date of Termination, the Executive shall immediately repay to the Corporation all severance payments paid to him under Section 6 hereof and all amounts paid to him under Section 7 hereof, plus interest at the rate of 10% per annum from the date of such breach until all such severance payments and other amounts have been repaid in full to the Corporation.

b)   The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

9)   Withholding.  All payments required to be made by the Corporation hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to taxes and other payroll deductions as the Corporation may reasonably determine should be withheld pursuant to any applicable law or regulation.

10)   Assignability.  The Corporation may, without the consent of the Executive, assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other Person with or into which the Corporation may hereafter merge or consolidate or to which the Corporation may transfer all or substantially all of its assets, if in any such case such corporation, bank or other Person shall by operation of law or expressly in writing assume all obligations of the Corporation hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11)   Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand; (ii) sent by certified United States Mail, return receipt requested, first class postage pre-paid; (iii) sent by overnight delivery service; or (iv) sent by facsimile transmission if such fax is confirmed immediately thereafter by also mailing a copy of such notice or other communication by regular (not certified or registered) United States Mail, first class postage pre-paid, as follows:

a)   To the Corporation:      CFS Bancorp, Inc.

      Attention: Chairman of the Board

707 Ridge Road

Munster, Indiana  46321

Facsimile: (219) 836-2950

b)   To the Bank:                Citizens Financial Bank

      Attention: Chairman of the Board

707 Ridge Road

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Munster, Indiana  46321

Facsimile: (219) 836-2950

c)   To the Executive:          Daryl D. Pomranke

Michigan City, Indiana 

or to such other address or facsimile number as either party hereto may have furnished to the other in writing in accordance herewith.  The Executive shall promptly provide any changes to his address, telephone number and facsimile number to the Corporation.

All such notices and other communications shall be effective (i) if delivered by hand, when delivered; (ii) if sent by mail in the manner provided herein, two (2) business days after deposit with the United States Postal Service; (iii) if sent by overnight delivery service, on the next business day after deposit with such service; or (iv) if sent by facsimile transmission, on the date indicated on the fax confirmation page if such fax also is confirmed by regular (not certified or registered) United States mail.

12)   Amendment; Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Corporation to sign on its behalf.  No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.  The failure or delay of either party at any time to insist upon the strict performance of any provision of this Agreement or to enforce its or his rights or remedies under this Agreement shall not be construed as a waiver or relinquishment of the right to insist upon strict performance of such provision, or to pursue any of its rights or remedies for any breach hereof, at a future time.

13)   Governing Law; Venue.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Indiana.  Any claim, demand or action relating to this Agreement shall be brought only in a state court located in Porter County, Indiana.  In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims, defenses or objections of lack of jurisdiction of or proper or preferred venue by such court.

14)   Nature of Obligations.  Nothing contained herein shall create or require the Corporation to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Corporation hereunder, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

15)   Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

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16)   Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect; provided, however, if any provision of Sections 3(b), 3(c) and 3(e) of this Agreement shall be determined by a court of competent jurisdiction to be unenforceable because of the provision’s scope, duration, geographic restriction or other factor, then such provision shall be considered divisible and the court making such determination shall have the power to reduce or limit (but not increase or make greater) such scope, duration, geographic restriction or other factor or to reform (but not increase or make greater) such provision to make it enforceable to the maximum extent permitted by law, and such provision shall then be enforceable against the appropriate party hereto in its reformed, reduced or limited form.

17)   Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same agreement.

18)   Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.  In the event of the Executive’s termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination.  Furthermore, following such termination for Cause, the Executive shall not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

19)   Payment of Costs and Legal Fees and Reinstatement of Benefits.  In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of (a) all legal fees incurred by the Executive in resolving such dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and any other cash compensation, employee benefits and any compensation and benefits due but not otherwise paid to the Executive under this Agreement.

20)   Indemnification.  The Corporation shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, or in lieu thereof, shall indemnify the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Indiana law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Corporation (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities).  Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements.

21)   Entire Agreement.  This Agreement embodies the entire agreement between the Corporation and the Executive with respect to the matters agreed to herein.  All prior agreements between the Corporation and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.  Notwithstanding the foregoing, nothing contained in this Agreement shall affect the Bank Agreement, which is being executed contemporaneously herewith.

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22)   Construction.  This Agreement shall be deemed to have been drafted by both parties hereto.  This Agreement shall be construed in accordance with the fair meaning of its provisions and its language shall not be strictly construed against, nor shall ambiguities be resolved against, any party.

23)   Recitals.  The recitals or “Whereas” clauses contained on page 1 of this Agreement are expressly incorporated into and made a part of this Agreement.

24)   Non-disparagement.  During the Executive’s employment with the Corporation and following any termination of the Executive’s employment with the Corporation, the Executive shall not publicly disparage or make or publish any negative statements or comments about the Corporation, any of the Corporation’s subsidiaries or affiliates or any of their respective products, services, directors, officers or employees.  During the Executive’s employment with the Corporation and following any termination of the Executive’s employment with the Corporation, and subject to applicable law, no executive officer of the Corporation or member of the Corporation’s Board of Directors shall publicly disparage or make or publish any negative statements or comments about the Executive.

25)   Cooperation.  For a period of five (5) years following any termination of the Executive’s employment with the Corporation and upon the request of the Corporation or any of its subsidiaries or affiliates, the Executive shall reasonably cooperate, assist and make himself available (for testimony or otherwise) at appropriate times and places as reasonably determined by the Corporation or any of its subsidiaries or affiliates in connection with any claim, demand, action, suit, proceeding, discovery, examination, investigation or litigation by, against or affecting the Corporation or any of its subsidiaries or affiliates.  In connection with the foregoing, the Corporation shall pay the Executive a fee of $1,000 for each day that the Corporation or any subsidiary or affiliate of the Corporation requests the Executive to cooperate, assist or make himself available, and shall also reimburse the Executive for his reasonable out-of-pocket travel expenses that are approved in advance by the Chairman of the Corporation; provided, however, that the Corporation shall not pay such fee or reimburse for such expenses in connection with any claim, demand, action, suit or proceeding relating to this Agreement.

26)   Certain Remedies.  The Executive agrees that the Corporation will suffer irreparable damage and injury and will not have an adequate remedy at law in the event of any actual, threatened or attempted breach by the Executive of any provision of Section 3.  Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3, in addition to all other remedies to which the Corporation is entitled at law, in equity or otherwise, the Corporation shall be entitled to a temporary restraining order, a permanent injunction and/or a decree of specific performance of any provision of Section 3.  The parties agree that a bond posted by the Corporation in the amount of One Thousand Dollars ($1,000) shall be adequate and appropriate in connection with such restraining order or injunction and that actual damages need not be proved by the Corporation prior to it being entitled to obtain such restraining order, injunction or specific performance.  The foregoing remedies shall not be deemed to be the exclusive rights or remedies of the Corporation for any breach of or noncompliance with this Agreement by the Executive but shall be in addition to all other rights and remedies available to the Corporation at law, in equity or otherwise.

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IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

                    _/s/ Daryl D. Pomranke_____________

                      Daryl D. Pomranke

Attest:                                                                                        CFS BANCORP, INC.

By:  /s/ Monica F. Sullivan                                                          By:_/s/ Thomas F. Prisby___________

                       Thomas F. Prisby

Corporate Secretary                                                                         Chairman of the Board

 (Name and Title)

KD_IM-1325990_3.DOC

EX-10.15

Exhibit 10.15

CFS Bancorp, Inc. 2008 Cash Incentive Compensation Program

On April 29, 2008, the Compensation Committee of the Board of Directors approved a Cash Incentive Compensation Program (Cash Incentive Program) for officers and key employees.  The Cash Incentive Program provides for an opportunity of a cash bonus based on the actual performance of the Company or the individual relative to established performance objectives.  These objectives are position specific and include a mix of corporate, individual and, where relevant, business unit measures.

Bonuses under the Cash Incentive Program are expected to be paid in February 2009.  If the performance targets are achieved, a person will be entitled to receive a bonus only if he or she is employed by the Company or one of its affiliates on the bonus payment date.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Thomas F. Prisby, Chairman of the Board and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc. (Registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 5, 2008	/s/ Thomas F. Prisby
	Thomas F. Prisby
	Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Charles V. Cole, Executive Vice President and Chief Financial Officer certify that:

1. I have reviewed this quarterly report on Form 10-Q of CFS Bancorp, Inc. (Registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: May 5, 2008	/s/ Charles V. Cole
	Charles V. Cole
	Executive Vice President and Chief Financial Officer

EX-32.0

Exhibit 32.0

SECTION 1350 CERTIFICATIONS

I, Thomas F. Prisby, Chairman of the Board and Chief Executive Officer, and Charles V. Cole, Executive Vice President and Chief Financial Officer, of CFS Bancorp, Inc. (Company), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) The Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2008 (Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m(a) or 78o(d), and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 5, 2008	By:	/s/ Thomas F. Prisby
			Thomas F. Prisby
			Chairman of the Board and Chief Executive Officer
Date:	May 5, 2008	By:	/s/ Charles V. Cole
			Charles V. Cole
			Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to CFS Bancorp, Inc. and will be retained by CFS Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.