cfsbancorpincform10q063010.htm

Interest Income. Interest income decreased 8.1% to $11.9 million for the three months ended June 30, 2010 compared to $13.0 million for the comparable 2009 period. For the six months ended June 30, 2010, interest income decreased 8.7% to $23.9 million from $26.2 million for the 2009 period. The decrease was primarily due to lower average balances of investment securities and lower interest rates on loans receivable and investment securities. The yields on loans receivable continue to be negatively impacted by the level of non-performing loans within the portfolio as well as lower loan demand.< /div>

Interest Expense. Interest expense decreased 28.8% to $2.6 million for the three months ended June 30, 2010 compared to $3.6 million for the comparable 2009 period. For the six months ended June 30, 2010, interest expense decreased 32.9% to $5.2 million from $7.7 million for the 2009 period. Interest expense was positively affected by continued lower market interest rates during 2010 and decreases in the average balance of borrowed funds.

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Interest expense on deposits decreased 21.9% and 28.2% to $2.1 million and $4.2 million, respectively, for the three and six months ended June 30, 2010 from $2.7 million and $5.8 million, respectively, for the comparable 2009 periods. The weighted-average cost of deposits decreased 34 and 46 basis points from the 2009 periods, respectively, as a result of disciplined pricing on deposits, the repricing of certificates of deposit at lower interest rates, as well as an increase in the average balance of non-interest bearing deposits, which was partially offset by increases in the average balance of interest-bearing deposits.

Interest expense on borrowed funds decreased 50.3% and 48.0% to $437,000 and $956,000, respectively, for the three and six months ended June 30, 2010 from $880,000 and $1.8 million, respectively, for the 2009 periods. The decrease was primarily due to a reduction in the average balance of borrowed funds of 42.4% and 41.7%, respectively, during the three and six months ended June 30, 2010 compared to the 2009 periods as we continue to strengthen our balance sheet and enhance our liquidity position by replacing this funding source with core deposits. The weighted-average cost of borrowed funds decreased 38 and 27 basis points for the 2010 periods, respectively, as a result of downward repricing due to lower market interes t rates.

Provision for loan losses

The Company’s provision for loan losses was $817,000 for the three months ended June 30, 2010 compared to $713,000 for the 2009 period. The Company’s provision for loan losses was $2.5 million compared to $1.3 million, respectively, for the six months ended June 30, 2010 and 2009. The provision for loan losses for the 2009 periods benefitted from a $1.3 million decrease in the specific valuation reserve on a non-owner occupied commercial real estate loan based on improved cash flow projections. For more information, see “Changes in Financial Condition – Allowance for Loan Losses” below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Non-interest income

The following tables identify the changes in non-interest income for the periods presented:

	Three Months Ended June 30,
	2010		2009			$ Change			% Change
	(Dollars in thousands)
Service charges and other fees	$	1,320	$	1,376		$	(56	)		(4.1	)%
Card-based fees		486		432			54			12.5
Commission income		46		70			(24	)		(34.3	)
Subtotal fee based revenues		1,852		1,878			(26	)		(1.4	)
Income from bank-owned life insurance		262		156			106			67.9
Other income		125		97			28			28.9
Subtotal		2,239		2,131			108			5.1
Net gain (loss) on sale of other assets		11		(6	)		17			NM
Total non-interest income	$	2,250	$	2,125		$	125			5.9	%

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	Six Months Ended June 30,
	2010		2009			$ Change			% Change
	(Dollars in thousands)
Service charges and other fees	$	2,540	$	2,675		$	(135	)		(5.0	)%
Card-based fees		923		820			103			12.6
Commission income		100		141			(41	)		(29.1	)
Subtotal fee based revenues		3,563		3,636			(73	)		(2.0	)
Income from bank-owned life insurance		485		334			151			45.2
Other income		280		392			(112	)		(28.6	)
Subtotal		4,328		4,362			(34	)		(0.8	)
Net gain on sale of investment securities		456		720			(264	)		(36.7	)
Net gain (loss) on sale of other assets		12		(6	)		18			NM
Total non-interest income	$	4,796	$	5,076		$	(280	)		(5.5	)%

Service charges and other fees decreased during the 2010 periods from the comparable 2009 periods from lower volume of non-sufficient funds transactions which is an industry trend that is expected to continue, if not accelerate. Service charges and other fees were also impacted by lower fee income from letters of credit and credit enhancements as we strategically reduce our exposure to these types of credits. Income from bank-owned life insurance increased during the 2010 periods as a result of the repositioning the underlying investment portfolio in the fourth quarter of 2009 into higher yielding assets and the reduction in the face amount of insurance coverag e during the first quarter of 2010. For information related to net gains on sale of investment securities, see “Changes in Financial Condition – Investment Securities” below in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Non-interest expense

The following tables identify changes in our non-interest expense for the periods presented:

	Three Months Ended June 30,
	2010		2009		$ Change			% Change
	(Dollars in thousands)
Compensation and mandatory benefits	$	4,095	$	4,382	$	(287	)		(6.5	)%
Retirement and stock related compensation		194		391		(197	)		(50.4	)
Medical and life benefits		250		290		(40	)		(13.8	)
Other employee benefits		11		15		(4	)		(26.7	)
Subtotal compensation and employee benefits		4,550		5,078		(528	)		(10.4	)
Professional fees		835		604		231			38.2
Net occupancy expense		651		750		(99	)		(13.2	)
FDIC insurance premiums		567		468		99			21.2
Furniture and equipment expense		526		520		6			1.2
Data processing		443		420		23			5.5
Marketing		216		218		(2	)		(0.9	)
OREO related expense		262		212		50			23.6
Loan collection expense		153		230		(77	)		(33.5	)
Severance and early retirement expense		437		―		437			N/A
FDIC special assessment		—		495		(495	)		N/A
Other general and administrative expense		963		948		15			1.6
Total non-interest expense	$	9,603	$	9,943	$	(340	)		(3.4	)%

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	Six Months Ended June 30,
	2010		2009		$ Change			% Change
	(Dollars in thousands)
Compensation and mandatory benefits	$	8,175	$	8,638	$	(463	)		(5.4	)%
Retirement and stock related compensation		389		1,001		(612	)		(61.1	)
Medical and life benefits		625		580		45			7.8
Other employee benefits		30		34		(4	)		(11.8	)
Subtotal compensation and employee benefits		9,219		10,253		(1,034	)		(10.1	)
Professional fees		1,519		954		565			59.2
Net occupancy expense		1,406		1,647		(241	)		(14.6	)
FDIC insurance premiums		1,065		772		293			38.0
Furniture and equipment expense		1,059		1,055		4			0.4
Data processing		873		839		34			4.1
Marketing		330		416		(86	)		(20.7	)
OREO related expense		898		411		487			118.5
Loan collection expense		322		528		(206	)		(39.0	)
Severance and early retirement expense		440		―		440			N/A
FDIC special assessment		—		495		(495	)		N/A
Other general and administrative expense		1,944		2,001		(57	)		(2.8	)
Total non-interest expense	$	19,075	$	19,371	$	(296	)		(1.5	)%

The lower compensation and mandatory benefits expense for the three and six month periods ended June 30, 2010 compared to the 2009 periods was a result of controlling compensation expense through a company-wide salary freeze, lower incentive accruals, and decreasing FTEs from 324 at March 31, 2009 and 318 at June 30, 2009 to 316 at June 30, 2010.

Retirement and stock related compensation was lower for the three and six month 2010 periods compared to the 2009 periods due to reductions of $180,000 and $360,000, respectively, in pension expense due to updated annual funding requirements received in the fourth quarter of 2009. In addition, retirement and stock related compensation expense for the six month 2010 period decreased due to the absence of $235,000 of expense related to our Employee Stock Ownership Plan (ESOP) expense since the ESOP loan was repaid in full during the first quarter of 2009.

Net occupancy expense decreased $99,000 and $241,000 for the three and six month 2010 periods due to the relocation of our operations center from a leased facility to existing facilities coupled with decreases in office and building maintenance expense.

Professional fees increased $231,000 and $565,000 for the three and six month 2010 periods due to the SEC’s new proxy statement disclosures effective in 2010, the Board of Directors’ review of strategic alternatives, and costs associated with the recently completed proxy contest and the annual meeting.

Our FDIC insurance premiums increased $99,000 and $293,000 during the three and six month periods in 2010 due to an increase in the average balance of deposits from the 2009 periods and the adoption of the FDIC’s Restoration Plan during 2009 which resulted in industry-wide rate increases effective April 1, 2009.

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Costs related to other real estate owned properties increased during the three and six month 2010 periods due to increased valuation allowances and required expenses on these properties when compared to the 2009 periods.

Loan collection expense decreased for the three and six month 2010 periods. These expenses will fluctuate depending on the activity and costs related to collecting and protecting our interests in our non-performing loans.

The Company incurred severance and early retirement expense during the second quarter of 2010 primarily due to the separation of the Company’s former chief financial officer.

The efficiency ratio improved for both the three and six months ended June 30, 2010 from the comparable 2009 periods primarily due to a decrease in compensation and employee benefits for the reasons noted above, partially offset by an increase in professional fees.

Income Tax Expense

Income tax expense totaled $178,000 for the second quarter of 2010 compared to $134,000 for the comparable 2009 period. Income tax expense for the six months ended June 30, 2010 was $287,000 compared to $747,000 for the comparable 2009 period. Our effective income tax rates for the three and six month periods ended June 30, 2010 were 15.4% and 16.7%, respectively. Our effective income tax rates for the comparable 2009 periods were 14.6% and 26.0%, respectively. The decrease in the effective tax rate for the six months ended June 30, 2010 compared to the 2009 period was primarily due to an increase in income from tax-advantaged BOLI investments and the larger impact of low-income housing credits in combination with the lower pre-tax income in the 2010 period.

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Changes in Financial Condition

Our total assets at June 30, 2010 increased $13.8 million, or 1.3%, from $1.08 billion at December 31, 2009, primarily in investment securities and cash and cash equivalents as a result of an increase in total deposits.

	June 30, 2010		December 31, 2009		$ Change			% Change
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	31,643	$	24,428	$	7,215			29.5	%
Investment securities available-for-sale		190,893		188,781		2,112			1.1
Investment securities held-to-maturity		12,206		5,000		7,206			144.1
Investment in FHLB stock		23,944		23,944		—			—
Loans receivable, net		738,444		742,925		(4,481	)		(0.6	)
Bank-owned life insurance		35,060		34,575		485			1.4
Other		63,090		61,862		1,228			2.0
Total assets	$	1,095,280	$	1,081,515	$	13,765			1.3	%

Liabilities and Equity:
Deposits	$	899,482	$	849,758	$	49,724			5.9	%
Borrowed funds		73,106		111,808		(38,702	)		(34.6	)
Other liabilities		9,919		9,576		343			3.6
Total liabilities		982,507		971,142		11,365			1.2
Shareholders’ equity		112,773		110,373		2,400			2.2
Total liabilities and equity	$	1,095,280	$	1,081,515	$	13,765			1.3	%

Loans Receivable. The following table provides the balance and the percentage of loans by category at the dates indicated.

	June 30, 2010					December 31, 2009
	Amount		% of Total			Amount		% of Total			% Change
	(Dollars in thousands)
Commercial loans:
Commercial and industrial	$	70,208		9.3	%	$	78,600		10.3	%		(10.7	)%
Commercial real estate – owner occupied		95,989		12.7			99,559		13.1			(3.6	)
Commercial real estate – non-owner occupied		214,452		28.4			218,329		28.6			(1.8	)
Commercial real estate – multifamily		79,382		10.5			63,008		8.3			26.0
Commercial construction and land development		50,951		6.7			55,733		7.3			(8.6	)
Total commercial loans		510,982		67.6			515,229		67.6			(0.8	)

Retail loans:
One-to-four family residential		183,823		24.3			185,293		24.3			(0.8	)
Home equity lines of credit		56,016		7.4			56,911		7.5			(1.6	)
Retail construction and land development		3,513		0.5			3,401		0.4			3.3
Other		1,718		0.2			1,552		0.2			10.7
Total retail loans		245,070		32.4			247,157		32.4			(0.8	)

Total loans receivable, net of unearned fees	$	756,052		100.0	%	$	762,386		100.0	%		(0.8	)%

At June 30, 2010, the net loan portfolio included $165.8 million of variable-rate loans indexed to the prime lending rate as listed in the Wall Street Journal and $239.5 million of variable-rate loans tied to other indices.

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Total loan fundings during 2010 were $31.5 million which were more than offset by loan payoffs and repayments of $29.4 million, gross charge-offs of $4.5 million, and transfers to OREO of $4.0 million. Through the execution of our Strategic Growth and Development Plan, we continue to diversify our loan portfolio and reduce loans not meeting our current defined risk tolerance. The Company has increased its targeted segments of the loan portfolio, including commercial and industrial, commercial real estate – owner occupied, and multifamily, to comprise 48.1% of the commercial loan portfolio at June 30, 2010. During 2010, these targeted segments were impacted by loan payoffs including two commercial and industrial payoffs totaling $5.5 million and a commercial real estate – owner occupied loan payoff totaling $3.2 million. Since December 31, 2009, commercial construction and land development and non-owner occupied commercial real estate loans decreased by $8.7 million, or 3.2%.

Historically we had invested, on a participating basis, in loans originated by other lenders and loan syndications to supplement the direct origination of our commercial and construction loan portfolio. We stopped investing in these types of credits in the second quarter of 2007 due to marginal pricing, increased credit risk, and decreasing collateral values in this segment. We continue to diligently work at reducing our exposure on these types of loans. Participations and syndication loans outstanding at June 30, 2010 totaled $21.4 million in construction and land development loans, $25.1 million in loans secured by commercial real estate, and $246,000 in commercial and industrial loans. Total participations and syndications by state are presented in the table below for the dates indicated.

	June 30, 2010					December 31, 2009
	Amount		% of Total			Amount		% of Total			% Change
	(Dollars in thousands)
Illinois	$	18,751		40.1	%	$	21,964		41.9	%		(14.6	)%
Indiana		13,223		28.3			13,149		25.1			0.6
Ohio		9,049		19.3			9,284		17.7			(2.5	)
Florida		1,897		4.1			3,303		6.4			(42.6	)
Colorado		2,220		4.7			2,514		4.8			(11.7	)
Texas		1,622		3.5			1,660		3.2			(2.3	)
New York		―		―			491		0.9			(100.0	)
Total participations and syndications	$	46,762		100.0	%	$	52,365		100.0	%		(10.7	)%

Investment Securities. We manage our investment 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.

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

	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
At June 30, 2010:
Government sponsored entity (GSE) securities	$	43,800	$	44,536	$	865	$	(3	)	$	45,398
Collateralized mortgage obligations		61,065		59,259		2,058		(535	)		60,782
Commercial mortgage-backed securities		62,759		62,779		1,777		(53	)		64,503
Pooled trust preferred securities		29,903		26,869		―		(6,745	)		20,124
Equity securities		5,837		―		86		―			86
	$	203,364	$	193,443	$	4,786	$	(7,336	)	$	190,893

	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
At December 31, 2009:
Government sponsored entity (GSE) securities	$	40,450	$	40,374	$	1,083	$	―		$	41,457
Mortgage-backed securities		9,527		9,426		409		―			9,835
Collateralized mortgage obligations		67,307		66,413		1,336		(981	)		66,768
Commercial mortgage-backed securities		49,722		49,210		1,347		(35	)		50,522
Pooled trust preferred securities		30,223		27,093		―		(7,081	)		20,012
Equity securities		5,837		―		187		―			187
	$	203,066	$	192,516	$	4,362	$	(8,097	)	$	188,781

The fair value of investment securities available-for-sale totaled $190.9 million at June 30, 2010 compared to $188.8 million at December 31, 2009. During the six months ended June 30, 2010, the Company took advantage of the impending end of the Federal Reserve Bank’s purchase program and record tight spreads on agency mortgage-backed investment securities to reposition part of the investment securities portfolio in an effort to improve interest rate risk.

At June 30, 2010, the Company’s collateralized mortgage obligation portfolio totaled $59.3 million at amortized cost with 91% of the portfolio comprised of AAA-rated investment securities mainly backed by conventional residential mortgages with 15-year, fixed-rate, prime loans originated prior to 2005; low historical delinquencies; weighted-average credit scores in excess of 725; and loan-to-values under 50%. The composition of this portfolio includes $16.7 million backed by either Ginnie Mae, Fannie Mae, or Freddie Mac. The portfolio of non-agency collateralized mortgage obligations has underlying collateral with a weighted-average 90-day delinquency ratio of 1.2% and a weighted-average loan-to-value of 41.2% when using valuations from the original appraisals.

The Company’s commercial mortgage-backed investment securities portfolio consists mainly of short-term, senior tranches of seasoned issues with extensive subordination and limited balloon risk. All bonds are AAA-rated and none are on watch for downgrade. Management stress tests all bonds in this sector on a monthly basis. Of this portfolio, 100% of the bonds can withstand a minimum annual default rate of 50% with recoveries of 50 cents on the dollar and not experience any losses.

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The Company’s investments in pooled trust preferred investment securities are all “Super Senior” and backed by senior securities issued mainly by bank and thrift holding companies. All of the Company’s holdings were AAA-rated when they were purchased at discounts in excess of 10%. In 2009, the market for pooled trust preferred investment securities was severely impacted by the credit crisis leading to increased deferral and defaults. Ratings were negatively affected in 2009 and all of these securities in the Company’s portfolio have at least one rating below investment grade. One tranche with an amortized cost of $7.8 million holds recently updated ratings of both AA and BB. The market for pooled trust preferred securities is currently inactive. As such, the Company may have to hold these securities for an extended period of time, which it has the ability and intent to do. We utilize extensive external and internal analysis on the pooled trust preferred holdings. Stress tests are performed on all underlying issuers in the pools to project probabilities of deferral or default. Management’s internal stress testing utilizes immediate defaults for all deferring collateral. Any collateral that management believes may be at risk for deferring, based upon management’s review of the underlying banks’ and thrift holding companies’ most recent financial and regulatory information, is assumed to default immediately. Internal stress testing also assumes no recoveries on defaulted collateral. All external and internal stress testing currently projects no loss of principal or interest on any of the Company’s holdings. Due to the structure of the invest ment securities, as deferrals and defaults on the underlying collateral increase, cash flows are increasingly diverted from mezzanine and subordinate tranches to pay down principal on the Super Senior tranches. Past defaults on underlying collateral ensure cash flows will continue to be diverted to the Company’s Super Senior tranches to pay down principal for several years.

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

	June 30, 2010					December 31, 2009
	Amount		% of Total			Amount		% of Total			% Change
	(Dollars in thousands)
Core deposits:
Non-interest bearing checking accounts	$	84,136		9.4	%	$	89,261		10.5	%		(5.7	)%
Interest bearing checking accounts		105,107		11.7			106,013		12.5			(0.9	)
Money market accounts		145,533		16.2			136,411		16.0			6.7
Savings accounts		119,030		13.2			113,865		13.4			4.5
Subtotal core deposits		453,806		50.5			445,550		52.4			1.9
Certificates of deposit		392,639		43.6			354,401		41.7			10.8
Non-municipal deposits		846,445		94.1			799,951		94.1			5.8
Municipal core deposits		40,206		4.5			38,993		4.6			3.1
Municipal certificates of deposit		12,831		1.4			10,814		1.3			18.7
Municipal deposits		53,037		5.9			49,807		5.9			6.5
Total deposits	$	899,482		100.0	%	$	849,758		100.0	%		5.9

Our ongoing implementation of high performance sales training; increased community involvement; increased partner calling between our business, cash management, and retail teams; and enhanced brand recognition continues to produce favorable results. Deposits increased $49.7 million to $899.5 million at June 30, 2010 from $849.8 million at December 31, 2009 resulting from increases of $38.2 million in certificates of deposit, $9.1 million in core money market accounts, and $5.2 million in savings accounts. The increase in our core deposits strengthened our balance sheet and enhanced our liquidity by allowing us to reduce higher cost FHLB borrowed funds. 0; As previously mentioned, increased core deposits are reflective of our success in deepening our client relationships, one of our core Strategic Plan objectives.

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While we maintain strong relationships with our municipal clients, and municipal deposits continue to comprise an important funding source, we are planning to reduce our reliance on such funds over time in anticipation that the recession’s impact on municipalities and other government-related entities may result in lower municipal deposit levels.

In addition, we offer 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 investment securities that we own. The swept funds are not recorded as deposits and instead are classified as other short-term borrowed funds which generally provides a lower-cost funding alternative as compared to FHLB advances. At Ju ne 30, 2010, we had $13.7 million in Repo Sweeps compared to $15.7 million at December 31, 2009. The Repo Sweeps are included in the table under “Borrowed Funds” and are treated as financings, and the obligations to repurchase investment securities sold are reflected as short-term borrowed funds. The investment securities underlying these Repo Sweeps continue to be reflected as assets.

Borrowed Funds. Borrowed funds consisted of the following at the dates indicated:

	June 30, 2010					December 31, 2009
	Weighted- Average Contractual Rate			Amount		Weighted- Average Contractual Rate			Amount
	(Dollars in thousands)
Short-term variable-rate borrowed funds:
Repo Sweep accounts		0.50	%	$	13,684		0.50	%	$	15,659
Federal Reserve Bank discount window		―			―		0.50			8,640
Secured borrowed funds from FHLB – Indianapolis:
Maturing in 2010 – variable-rate		―			―		0.47			6,000
Maturing in 2010 – fixed-rate		0.63			19,000		1.56			41,000
Maturing in 2011 – fixed-rate		3.75			15,000		3.75			15,000
Maturing in 2013 – fixed-rate		2.22			15,000		2.22			15,000
Maturing in 2014 – fixed-rate (1)		6.71			1,122		6.71			1,122
Maturing in 2018 – fixed-rate (1)		5.54			2,582		5.54			2,582
Maturing in 2019 – fixed-rate (1)		6.31			6,718		6.30			6,805
Subtotal FHLB – Indianapolis borrowed funds					59,422					87,509
Total borrowed funds				$	73,106				$	111,808
Weighted-average contractual interest rate		2.36	%				2.09	%

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

At June 30, 2010, we also had a $15.0 million secured federal funds line of credit. We did not utilize this line of credit during the three months ended June 30, 2010 or borrow from the Federal Reserve Bank discount window during the second quarter of 2010.

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Shareholders’ Equity. Shareholders’ equity at June 30, 2010 was $112.8 million compared to $110.4 million at December 31, 2009. The increase was primarily due to $1.7 million of net income for the year to date period and a decrease in the unrealized loss on investment securities available-for-sale, net of tax of $772,000, offset by cash dividends declared of $218,000, or $0.02 per share.

Asset Quality and Allowance for Loan Losses

Non-performing Assets. The following table provides information relating to non-performing assets at the dates presented.

	June 30, 2010			March 31, 2010			December 31, 2009
	(Dollars in thousands)
Non-accrual loans:
Commercial loans:
Commercial and industrial	$	883		$	946		$	1,399
Commercial real estate – owner occupied		4,940			3,562			3,627
Commercial real estate – non-owner occupied		19,826			22,103			22,103
Commercial real estate – multifamily		1,477			1,300			623
Commercial construction and land development		25,745			25,259			26,059
Total commercial loans		52,871			53,170			53,811

Retail loans:
One-to-four family residential		2,937			3,908			4,519
Home equity lines of credit		365			433			393
Retail construction and land development		298			298			279
Other		11			7			7
Total retail loans		3,611			4,646			5,198
Total non-accrual loans		56,482			57,816			59,009
Other real estate owned, net		11,825			10,616			9,242
Total non-performing assets		68,307			68,432			68,251
90 days past due and still accruing interest		3,272			1,334			640
Total non-performing assets plus 90 days past due loans still accruing interest	$	71,579		$	69,766		$	68,891
Non-performing assets to total assets		6.24	%		6.27	%		6.31	%
Non-performing loans to total loans		7.47	%		7.57	%		7.74	%

Non-performing assets were stable at $68.3 million at June 30, 2010 and December 31, 2009. During the second quarter of 2010, we transferred one commercial construction and land development purchased participation loan totaling $1.9 million to non-accrual status which was partially offset by the transfer of a $1.5 million purchased participation loan to other real estate owned at its net realizable value.

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Included in the above non-performing loan totals are non-performing syndications and purchased participations as identified by loan category in the following table.

	June 30, 2010			March 31, 2010			December 31, 2009
	(Dollars in thousands)
Commercial real estate – non-owner occupied	$	7,856		$	10,158		$	10,158
Commercial construction and land development		17,059			16,571			16,571
Total non-performing syndications and purchased participations	$	24,915		$	26,729		$	26,729
Percentage of total non-performing loans		44.1	%		46.2	%		45.3	%
Percentage of total syndications and purchased participations		53.3			51.3			51.0

The decrease in commercial real estate – non-owner occupied non-performing participation loans was primarily the result of a $2.3 million charge-off of a previous specific impairment reserve of an impaired loan. As previously discussed, the increase in non-performing commercial construction and land development participation loans during the second quarter of 2010 was a result of the $1.9 million impaired loan being transferred to non-accrual which was partially offset by the transfer of one non-accrual loan totaling $1.5 million to other real estate owned.

The following table provides the detail for non-accrual syndications and purchased participations by state as of the dates indicated.

	June 30, 2010		March 31, 2010		December 31, 2009
	(Dollars in thousands)
Illinois	$	10,251	$	10,659	$	10,659
Indiana		12,767		12,767		12,767
Florida		1,897		3,303		3,303
Total non-performing syndications and purchased participations	$	24,915	$	26,729	$	26,729

The following table identifies our other real estate owned properties based on the loan portfolio they relate to:

	June 30, 2010		March 31, 2010		December 31, 2009
	(Dollars in thousands)
Commercial real estate – non-owner occupied	$	2,781	$	2,403	$	2,819
Commercial construction and land development		8,200		7,659		5,940
One-to-four family residential		844		554		483
Total other real estate owned	$	11,825	$	10,616	$	9,242

Potential Problem Assets. Potential problem assets, defined as loans classified substandard, doubtful, or loss pursuant to our internal loan grading system that do not meet the definition of a non-performing loan, totaled $3.2 million at June 30, 2010 and $5.6 million at December 31, 2009. The decrease from December 31, 2009 was a result of the transfer of one commercial construction and land development loan totaling $2.6 million that was prev iously classified as a potential problem asset into non-accrual status in the second quarter of 2010.

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Allowance for Loan Losses. The following is a summary of changes in allowance for loan losses for the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(Dollars in thousands)
Balance at beginning of period	$	20,402		$	15,472		$	19,461		$	15,558
Loan charge-offs		(3,633	)		(1,331	)		(4,515	)		(2,054	)
Recoveries of loans previously charged-off		22			80			135			93
Net loan charge-offs		(3,611	)		(1,251	)		(4,380	)		(1,961	)
Provision for loan losses		817			713			2,527			1,337
Balance at end of period	$	17,608		$	14,934		$	17,608		$	14,934

	June 30, 2010			December 31, 2009			June 30, 2009
	(Dollars in thousands)
Allowance for loan losses	$	17,608		$	19,461		$	14,934
Total loans receivable, net of unearned fees		756,052			762,386			750,861
Allowance for loan losses to total loans		2.33	%		2.55	%		1.99	%
Allowance for loan losses to non-performing loans		31.17			32.98			28.23

Net charge-offs during the second quarter of 2010 included $2.6 million of non-owner occupied commercial real estate loans primarily due to a $2.3 million partial charge-off that had been previously identified as a specific impairment reserve related to a purchased participation loan. Net charge-offs during the current quarter also included a partial charge-off of $690,000 related to a purchased participation commercial land development loan and $224,000 of one-to-four family residential loans. The provision for loan losses for the second quarter of 2010 reflects the stabilization in the level of non-performing loans and the change in the loan portfolio mix as the higher risk targeted contraction portfolios of commercia l construction and land development and non-owner occupied commercial real estate loans continue to decrease as a percentage of the portfolio. We believe the allowance for loan losses is adequate at June 30, 2010.

When we evaluate a non-performing collateral dependent loan and identify a collateral shortfall, we will charge-off the collateral shortfall. As a result, we are not required to maintain an allowance for loan losses on these loans since the loan balance has already been written down to its net realizable value (fair value less estimated costs to sell the collateral). As such, the ratio of the allowance for loan losses to total loans and the ratio of the allowance for loan losses to non-performing loans have been affected by partial charge-offs of $12.1 million on $24.7 million of collateral dependent non-performing loans through June 30, 2010 and impairment reserves totaling $7.5 million on other non-performing loans at June 30, 2010.

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The following table identifies impaired loans as of the dates presented.

	June 30, 2010		December 31, 2009
	(Dollars in thousands)
Impaired loans:
With a valuation reserve	$	12,928	$	17,200
With no valuation reserve required*		46,234		42,021
Total impaired loans	$	59,162	$	59,221
Valuation reserve relating to impaired loans	$	7,539	$	9,181
Average outstanding impaired loans		59,163		48,547

*Net of partial charge-offs on impaired loans with no valuation reserve	$	12,090	$	9,412

At June 30, 2010, we had $9.6 million of loan modifications meeting the definition of a troubled debt restructuring (TDR) that were performing in accordance with their agreements and accruing interest that are included above in our impaired loans with no valuation reserve required. The modified loans include one commercial and industrial relationship totaling $4.9 million, one non-owner occupied commercial real estate relationship totaling $3.0 million, and 13 one-to-four family residential loans totaling $1.7 million. The loan modifications included short-term extensio ns of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations.

Liquidity and Capital Resources

Liquidity, represented by cash and cash equivalents, is a product of operating, investing, and financing activities. Our primary sources of funds have been:

•

deposits and Repo Sweeps;

•

scheduled payments of amortizing loans and mortgage-backed investment securities;

•

prepayments and maturities of outstanding loans and mortgage-backed investment securities;

•

maturities of investment securities and other short-term investments;

•

funds provided from operations;

•

federal funds line of credit; and

•

borrowed funds from the FHLB and Federal Reserve Bank.

The Asset Liability Committee is responsible for measuring and monitoring our liquidity profile. We manage our liquidity to ensure stable, reliable, and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals, and investment opportunities. Our general approach to managing liquidity involves preparing a monthly “funding gap” report which forecasts cash inflows and cash outflows over various time horizons and rate scenarios to identify potential cash imbalances. We supplement our funding gap report with the monitoring of several liquidity ratios to assist in identifying any trends that may have an effect on available liquidity in future periods.

We maintain a contingency funding plan that outlines the process for addressing a liquidity crisis. The plan assigns specific roles and responsibilities for effectively managing liquidity through a problem period.

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Scheduled payments from the amortization of loans, 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 June 30, 2010, we had cash and cash equivalents of $31.6 million, an increase from $24.4 million at December 31, 2009. The increase was mainly the result of:

•

increases in deposit accounts totaling $49.7 million;

•

proceeds from sales, maturities, and paydowns of investment

securities aggregating $55.6 million; and

•

proceeds from FHLB advances totaling $18.0 million.

The above cash inflows were partially offset by:

•

purchases of investment securities totaling $63.1 million;

•

repayment of short-term borrowed funds totaling $10.6 million; and

•

repayment of FHLB advances totaling $46.1 million.

We use our sources of funds primarily to meet our ongoing commitments, fund loan commitments, fund maturing certificates of deposit and savings withdrawals, and maintain an investment securities portfolio. We anticipate that we will continue to have sufficient funds to meet our current commitments.

Our liquidity needs consist primarily of operating expenses and dividend payments to shareholders. The primary sources of liquidity are cash and cash equivalents and dividends from the Bank. We are prohibited from repurchasing shares and incurring any debt at the parent company without the prior approval of the OTS under our informal regulatory agreement with them.

We are currently prohibited from paying dividends without the prior approval of the OTS pursuant to our informal regulatory agreement with them. Absent such restriction, 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. During the second quarter of 2010, the Bank did not pay dividends to the parent company. At June 30, 2010, the parent company had $3.6 million in cash and cash equivalents. We do not anticipate that these restrictions will have a material adverse impact on our liquidity in the short-term.

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Contractual Obligations. The following table presents our contractual obligations at June 30, 2010 by contractual maturity:

	Payments Due By Period
	Less Than 1 Year		1 To 3 Years		3 To 5 Years		Over 5 Years		Total
	(Dollars in thousands)
Certificates of deposit	$	314,753	$	68,614	$	21,142	$	961	$	405,470
FHLB borrowed funds (1)		34,317		702		16,777		7,626		59,422
Short-term borrowed funds (2)		13,684		―		―		―		13,684
Service bureau contract		1,548		3,096		3,096		―		7,740
Operating leases		407		559		271		2,064		3,301
Dividends payable on common stock		109		―		―		―		109
	$	364,818	$	72,971	$	41,286	$	10,651	$	489,726

(1)	Does not include interest expense at the weighted-average contractual rate of 2.79% for the periods presented.

(2)	Does not include interest expense at the weighted-average contractual rate of 0.50% for the periods presented.

Off-Balance Sheet Obligations. We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our clients. These financial instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the statement of condition. Our exposure to credit loss in the event of non-performance by the third-party to the financial instrument for commi tments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

The following table details the amounts and expected maturities of significant commitments at June 30, 2010:

	Less Than		1 To 3		3 To 5		Over 5
	1 Year		Years		Years		Years		Total
	(Dollars in thousands)
Commitments to extend credit:
Commercial and industrial	$	10,731	$	49	$	―	$	256	$	11,036
Commercial real estate – owner occupied		5,347		―		135		50		5,532
Commercial real estate – non-owner occupied		2,659		―		―		―		2,659
Commercial real estate – multifamily		5,846		―		―		―		5,846
Commercial construction and land development		4,318		159		―		―		4,777
Retail		4,195		―		―		―		4,195
Commitments to fund unused construction loans		4,204		382		―		357		4,943
Commitments to fund unused line of credit		43,826		3,458		171		42,838		90,293
Letters of credit		4,967		186		―		―		5,153
Credit enhancements		14,396		―		―		14,034		28,430
	$	100,489	$	4,234	$	306	$	57,535	$	162,564

The commitments listed above do not necessarily represent future cash requirements, in that many of these commitments often expire without being drawn upon. Letters of credit expire at various dates through 2012 and credit enhancements expire at various dates through 2018.

We also have 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

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under the Community Reinvestment Act. These commitments include $625,000 to be funded over four 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 AAA 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 our account. Since we, in accordance with the terms and conditions of a Reimbursement Agreement between the FHLB and us, would be required to reimburse the FHLB for draws against the IDPLOC, these facilities are an alyzed, appraised, secured by real estate mortgages, and monitored as if we had funded the project initially. Our current lending strategy does not include originating new or additional credit enhancements.

Regulatory Capital

The Bank is subject to regulatory capital requirements under the rules of the Office of Thrift Supervision, or OTS. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators, which could have a material impact on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must maintain capital amounts in excess of specified minimum ratios based on quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Quantitative measures established by the OTS to ensure capital adequacy require us to maintain minimum amounts and ratios (as set forth in the table below) of three capital requirements: tangible capital (as defined in the regulations) as a percentage of adjusted total assets, core capital (as defined) as a percentage of adjusted total assets, and risk-based capital (as defined) as a percentage of total risk-weighted assets. At June 30, 2010, the Bank exceeded all minimum regulatory capital ratios to be considered well capitalized.

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Our actual capital amounts and ratios, as well as minimum amounts and ratios required for capital adequacy and prompt corrective action provisions are presented in the following table:

	Actual				For Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio	Amount		Ratio
	(Dollars in thousands)
As of June 30, 2010:
Total capital to risk-weighted assets	$	108,257	12.81	%	$	67,615	>8.00 %	$	84,518	>10.00 %
Tier 1 (core) capital to risk-weighted assets		98,213	11.62			33,807	>4.00		50,711	>6.00
Tier 1 (core) capital to adjusted total assets		98,213	9.05			43,406	>4.00		54,257	>5.00
Tangible capital to adjusted total assets		98,213	9.05			16,277	>1.50		21,703	>2.00

As of December 31, 2009:
Total capital to risk-weighted assets	$	105,323	12.35	%	$	68,200	>8.00 %	$	85,250	>10.00 %
Tier 1 (core) capital to risk-weighted assets		95,078	11.15			34,100	>4.00		51,150	>6.00
Tier 1 (core) capital to adjusted total assets		95,078	8.88			42,838	>4.00		53,548	>5.00
Tangible capital to adjusted total assets		95,078	8.88			16,064	>1.50		21,419	>2.00

The following table reflects the adjustments required to reconcile the Bank’s shareholder’s equity to the Bank’s regulatory capital at June 30, 2010:

	Tangible			Core			Risk-Based
	(Dollars in thousands)
Shareholder’s equity of the Bank	$	110,206		$	110,206		$	110,206
Disallowed deferred tax asset		(13,025	)		(13,025	)		(13,025	)
Adjustment for available-for-sale securities		1,861			1,861			1,861
Other		(829	)		(829	)		(829	)
General allowance for loan losses		—			—			10,044
Regulatory capital of the Bank	$	98,213		$	98,213		$	108,257

At June 30, 2010, the Bank was deemed to be well capitalized and in excess of regulatory requirements set by the OTS. The increase in the Bank’s capital ratios from December 31, 2009 is primarily a result of the Bank’s net income for the year to date period. Determining the amount of deferred tax assets included or excluded in periodic regulatory capital calculations requires significant judgment when assessing a number of factors. In assessing the amount of the disallowed deferred tax asset, we consider a number of relevant factors including the amount of deferred tax assets dependent on future taxable income, the amount of taxes that could be recovered through loss carrybacks, the reversal of te mporary book tax differences, projected future taxable income within one year, tax planning strategies, and OTS limitations. Using all information available to us at each statement of condition date, these factors are reviewed and vary from period to period.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We, like other financial institutions, are 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 our assets, liabilities, and off-balance sheet contracts. IRR is primarily the result of imbalances between the price sensitivity of our assets and 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.

We maintain 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 Board of Directors which in turn assigns its formulation, revision, and administration to the Asset/Liability Committee (ALCO). ALCO meets monthly and consists of certain senior officers and one outside director. The results of the monthly meetings are reported to the Board of Directors. The primary duties of ALCO are to develop reports and establish pro cedures 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 our capital position, review the current and prospective liquidity positions, and monitor alternative funding sources. The policy requires management to measure overall IRR exposure using NPV analysis and earnings-at-risk analysis.

NPV is defined as the net present value of existing assets, liabilities, and off-balance sheet contracts. NPV analysis measures the sensitivity of 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 June 30, 2010 and December 31, 2009, an analysis of 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.

		Net Portfolio Value
		At June 30, 2010								At December 31, 2009
		$ Amount		$ Change			% Change			$ Amount		$ Change			% Change
		(Dollars in thousands)
Assumed Change in Interest Rates (Basis Points)
	+300	$	132,176	$	6,734			5.4	%	$	130,797	$	2,065			1.6	%
	+200		130,856		5,413			4.3			131,109		2,377			1.8
	+100		131,826		6,384			5.1			130,917		2,185			1.7
	0		125,443		―			―			128,732		―			―
	-100		113,533		(11,909	)		(9.5	)		117,387		(11,345	)		(8.8	)
	-200		103,135		(22,308	)		(17.8	)		105,417		(23,315	)		(18.1	)

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As illustrated in the table, NPV in the base case (zero basis point change) decreased $3.3 million from $128.7 million at December 31, 2009 to $125.4 million at June 30, 2010. The primary cause for this decrease was an increase in the balance of interest-bearing liabilities.

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 earnings.

A key assumption we control for use in our earnings-at-risk analysis is the assumed repricing sensitivity of our non-maturing core deposit accounts. The following assumptions were used for the repricing of non-maturity core deposit accounts.

	Percentage of Deposits Maturing In First Year
	June 30, 2010			December 31, 2009
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 projected changes in net interest income over a twelve month period for the various interest rate change (rate shocks) scenarios at June 30, 2010 and December 31, 2009, respectively.

		Percentage Change in Net Interest Income Over a Twelve Month Time Period
		June 30, 2010			December 31, 2009
Assumed Change in Interest Rates (Basis Points):
	+300		1.2	%		0.1	%
	+200		1.0			0.2
	+100		0.1			0.0
	-100		2.6			3.3
	-200		1.1			1.5

The table above indicates that if interest rates were to move up 300 basis points, net interest income would be expected to rise 1.2% in year one; and if interest rates were to move down 100 basis points, net interest income would be expected to increase 2.6% in year one. Interest income projections for rates falling 100 basis points are greater than for rates falling 200 basis points as rates on short-term liabilities have limited room to reprice lower while rates on certain assets are at contractual or absolute floors. Interest income projections for rates rising 200 basis points are greater than for rates rising 100 basis points as short-term liabilities may reprice higher while certain assets have interest rate floors that are currently well below their spreads to their respective indexes. The primary causes for the changes in

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net interest income over the twelve month period were a result of the changes in the composition of assets and liabilities along with changes in interest rates.

We manage our IRR position by holding assets with various desired IRR characteristics, implementing certain pricing strategies for loans and deposits, and implementing various investment securities portfolio strategies. On a quarterly basis, the ALCO reviews the calculations of all IRR measures for compliance with the Board approved tolerance limits. At June 30, 2010, we were in compliance with all of our tolerance limits with the exception of the NPV tolerance limit for a movement in rates down 200 basis points. Given the current low level of interest rates, we do not believe this exception is material.

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 June 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s 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 in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and repo rted within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner as of such date.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition, or future results. Other than as set forth below, there have been no material changes from the risk factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.

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We operate in a highly regulated industry and may be affected adversely by increased regulatory supervision and scrutiny and changes in laws, rules, and regulations affecting financial institutions.

We are, like other federally-charted savings banks, currently subject to extensive regulation, supervision, and examination by the OTS and by the FDIC, the insurer of its deposits. CFS Bancorp, like other thrift holding companies, is currently subject to regulation and supervision by the OTS. This regulation and supervision governs the activities in which we may engage and are intended primarily for the protection of the deposit insurance fund administered by the FDIC and our clients and depositors rather than our shareholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets, determination of the level of our allowance for loan losses, and maintenance of adequat e capital levels. These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law, and given the recent financial crisis in the United States, the trend has been toward increased and more active oversight by regulators. Recently, pursuant to an agreement among various federal financial institution regulators, the FDIC’s authority to investigate banks was significantly expanded. Under the terms of this new agreement, the FDIC will have unlimited authority to make a special examination of any insured depository institution as necessary to determine the condition of such depository institution for insurance purposes. Accordingly, we expect an active supervisory and regulatory environment to continue.

In addition, as a result of ongoing challenges facing the United States economy, new laws and regulations regarding lending and funding practices and liquidity standards have been and may continue to be promulgated, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, including the issuance of formal or informal enforcement actions or orders. Accordingly, the regulations applicable to the banking industry continue to change and we cannot predict the effects of these changes on our business and profitability.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act), a sweeping financial reform bill, was signed into law and will result in a number of new regulations that could significantly impact regulatory compliance costs and the operations of community banks. The Act includes, among other things, provisions establishing a Bureau of Consumer Financial Protection, which will have broad authority to develop and implement rules regarding most consumer financial products; provisions affecting corporate governance and executive compensation at all publicly-traded companies; provisions that would broaden the base for FDIC insurance assessments and permanently increase FDIC deposit insurance to $250 ,000; and new restrictions on how mortgage brokers and loan originators may be compensated. The Act also eliminates the OTS, and transfers supervisory authority for all previous OTS-regulated savings banks, like the Bank, to the Office of the Comptroller of the Currency, and for all thrift holding companies, such as CFS Bancorp, to the Federal Reserve. These provisions, or any other aspects of current proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities or change certain of our business practices, including our ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to our operations in order to comply , and could therefore also materially adversely affect our business, financial condition, and results of operations.

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

(a)	Not applicable.

(b)	Not applicable.

(c)	We did not repurchase any shares of our common stock during the quarter ended June 30, 2010 or through July 26, 2010. Under our repurchase plan publicly announced on March 20, 2008 for 530,000 shares, we have 448,612 shares that may yet be purchased. We are currently prohibited from repurchasing our common stock without prior OTS approval pursuant to an informal regulatory agreement with the OTS.

Item 3. Defaults Upon Senior Securities

(a)	None.

(b)	Not applicable.

Item 4. (Removed and Reserved)

Item 5. Other Information

On June 3, 2010, the Company announced the appointment of Jerry A. Weberling as Executive Vice President and Chief Financial Officer of the Company and Citizens Financial Bank. The terms of Mr. Weberling’s employment included a base salary of $220,000; participation in the Company’s 2010 Performance-based Cash Incentive Plan with a targeted incentive of 19% of base salary earned during 2010 weighted 60% to achievement of Company diluted EPS goals and 40% based on individual goals; and an award of 1,370 restricted performance-based shares and 5,913 restricted service-based shares under the Company’s 2008 Omnibus Equity Incentive Plan. Mr. Weberling also entered into a change in control agreement (a copy of which is filed as an exhibit to this Form 10-Q). Additional information relating to the Company’s 2010 Performance-based Cash Incentive Plan, the restricted performance-based share and restricted service-based share awards, and the change in control agreement may be found in the Company’s proxy statement dated March 17, 2010, Quarterly Report on Form 10-Q for the first quarter of 2010, and the Company’s Current Report on Form 8-K filed June 3, 2010.

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Item 6. Exhibits

	(a)		List of exhibits (filed herewith unless otherwise noted).
	3.1		Articles 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)
	10.22		Separation Agreement between CFS Bancorp, Inc., Citizens Financial Bank, and Charles V. Cole
	10.23		Change in Control Agreement between CFS Bancorp, Inc., Citizens Financial Bank, and Jerry A. Weberling
	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 herein by Reference to the Company’s Definitive Proxy Statement from the Annual Meeting of Shareholders filed with the SEC on March 25, 2005 (File No. 000-24611).

(2)	Incorporated herein by Reference to the Company’s Form 8-K filed with the SEC on July 31, 2009.

(3)	Incorporated herein by Reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 15, 2007.

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SIGNATURES

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

CFS BANCORP, INC.

Date: July 28, 2010	By:	/s/ Thomas F. Prisby
		Thomas F. Prisby, Chairman of the Board and
		Chief Executive Officer

Date: July 28, 2010	By:	/s/ Jerry A. Weberling
		Jerry A. Weberling, Executive Vice President and
		Chief Financial Officer

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EXHIBIT INDEX

10.22 Separation Agreement between CFS Bancorp, Inc., Citizens Financial Bank, and Charles V. Cole

10.23 Change in Control Agreement between CFS Bancorp, Inc., Citizens Financial Bank, and Jerry A. Weberling

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 Certification

EX-10.22 2 exhibit10_22.htm EXHIBIT 10.22 exhibit10_22.htm

Exhibit 10.22

SEPARATION AGREEMENT

THIS SEPARATION AGREEMENT (“Agreement”) is made and entered into as of this 27th day of May, 2010, by and among CFS BANCORP, INC. (“Company”), an Indiana corporation, CITIZENS FINANCIAL BANK (“Bank”), a federally-chartered stock savings association, and CHARLES V. COLE (“Employee”), a resident of the State of Illinois,

W I T N E S S E T H:

WHEREAS, the Employee is serving as the Executive Vice President and Chief Financial Officer of the Company and the Bank; and

WHEREAS, the Company, the Bank and the Employee desire to enter into this Agreement to memorialize their mutual understanding and agreement with respect to the Employee’s resignation from employment with the Company, the Bank and all subsidiaries and affiliates of the Company and the Bank, the payment of severance to the Employee and certain other matters as provided herein.

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual agreements and obligations contained herein, the payments contemplated hereby and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:

Section 1. Resignation. The Employee hereby resigns from his employment as an officer, employee and Executive Vice President and Chief Financial Officer of the Company and the Bank, and from all other positions at, the Company, the Bank and all subsidiaries and affiliates of the Company and the Bank, effective as of 5:00 p.m. (Central Time) on May 27, 2010 (“Effective Time”), thereby ending any employer-employee relationship between the Company, the Bank and all subsidiaries and affiliates of the Company and the Bank, on the one hand, and the Employee, on the other hand. The Employee’s resignation shall be irrevocable, and the Company and the Bank hereby accept the Employee’s resignation.

Section 2. Employment Agreement. The Company, the Bank and the Employee understand that they are parties to an Employment Agreement dated December 23, 2009 (the “Employment Agreement”), which shall continue in full force and effect following the Effective Time as set forth in the Employment Agreement, other than Sections 2, 4 and 5 thereof which provisions shall terminate as of the Effective Time. The Employee’s resignation contemplated by this Agreement shall be a termin ation by the Employee of his employment under the Employment Agreement without Good Reason, and the date of this Agreement shall be the Date of Termination under the Employment Agreement. The Company, the Bank and the Employee hereby waive all requirements for a Notice of Termination and any other notices under the Employment Agreement and agree that the Date of Termination for purposes of the Employment Agreement shall be the Effective Time. The Employee represents and agrees that neither the Company nor the Bank has ever breached the Employment Agreement, nor does the execution of this Agreement or the transactions, actions and payments contemplated hereby constitute a breach of the Employment Agreement by either the Company or the Bank.

Section 3. Severance Payment. Subject to the remaining provisions of this Section, the Company shall pay a severance payment to the Employee in the aggregate amount of Three Hundred Thirty-Six Thousand Four Hundred and Eighty-Eight Dollars ($336,488), without interest (“Severance Payment”), which shall be paid in accordance with this Section. The payment of the Severance Payment shall be suspended for a six-month perio d following the Effective Time as required by Section 409A of the Internal Revenue Code of 1986, as amended, because the Employee is a Specified Employee as defined in Treasury Regulation §1.409A-1(h). The Severance Payment shall be paid in two (2) equal

installments of One Hundred Sixty-Eight Thousand Two Hundred and Forty-Four Dollars ($168,244) each. The first installment shall be paid to the Employee on the first regular payroll date of the Company in December, 2010 and the second installment shall be paid to the Employee on the second payroll date of the Company in January, 2011, which is on January 28, 2011. The Company shall deduct all required taxes and other amounts required to be withheld from each of such payments.

The Severance Payment payable under this Agreement constitutes full satisfaction and discharge of the Company’s and the Bank’s respective obligations under the Employment Agreement, including, but not limited to, any severance payments; provided, however, that the foregoing shall not affect the Company’s and the Bank’s obligations under Section 25 of the Employment Agreement if the Company or the Bank requests the Employee’s cooperation under such section. The Employee agrees that the Severance Payment payable under this Agreement and the waiver of the Employee’s non-competition covenants set forth below constitute adequate consideration for his waivers, covenants and agreements set forth in this Agreement, the Release of Claims attached hereto as Exhibit A and the covenants, agreements and provisions of the Employment Agreement that survive the termination of the Employee’s employment and continue in effect following the Effective Time, including, but not limited to, Section 3(d) (confidential information), Section 3(e) (non-solicitation) and Section 6(f) (return of property and confidential information), Section 24 (non-disparagement) and Section 25 (cooperation), which covenants, agreements and provisions the Employee hereby ratifies and confirms and agrees are binding upon and applicable to him in accordance with the terms thereof as set forth in the Employment Agreement. The Company and the Bank hereby waive compliance by the Employee with Sections 3(b) and 3(c) (non-competition) of the Employment Agreement and agree that such sections shall not be binding upon or enforceable against the Employee, but only so long as Employee has executed and not subseque ntly revoked the Release of Claims attached hereto as Exhibit A and does not breach any of the covenants, agreements or provisions of this Agreement or of the Employment Agreement that survive the termination of the Employee’s employment with the Company and the Bank.

The Severance Payment payable under this Agreement is in lieu of any severance payments or benefits that may otherwise be payable to the Employee under the Employment Agreement, any other agreement or any severance pay policies or practices of the Company or the Bank. The Employee hereby forever releases, waives and relinquishes any and all payments, benefits, rights, claims and interests in and under, and shall not be entitled to, any payments or benefits under the Employment Agreement, any other agreement and any severance pay policies or practices of the Company or the Bank.

Notwithstanding the foregoing provisions of this Section, (a) the Severance Payment shall not be paid to the Employee if the Employee breaches any of the provisions of this Agreement, the Release of Claims attached hereto as Exhibit A or any of the covenants, agreements or provisions of the Employment Agreement that survive the termination of the Employee’s employment and that continue in effect following the Effective Time, and (b) in the event that the Company or the Bank is not obligated to pay the Severance Payment to the Employee because of a breach by the Employee contemplated by (a) above, the Employee shall nevertheless continue to be bound by and subject to this Agreement, the Release of Claims and the covenants, agreements and provisions in the Employment Agreement that survive the termination of his employment.

Section 4. Salary; Vacation; Expenses; Other.

(a) Salary. The Employee agrees that (i) the Company and/or the Bank have paid in full to the Employee all salary and all other compensation (other than accrued but unused vacation) to which he is entitled in connection with all of his services as an officer and employee of the Company, the Bank and all subsidiaries and affiliates of the Company and the Bank, whether pursuant to the Employment Agreement or otherwise, through and including the Company’s last payroll date immediately preceding the date of this Agreement, and (ii) he shall not be entitled to any additional salar y, compensation or other

amounts from the Company, the Bank and/or any subsidiaries or affiliates following the date of this Agreement, other than (A) his normal salary from such last payroll date through the Effective Time, which shall be paid in accordance with the Company’s usual and customary payroll practices (including, but not limited to, withholding for taxes and deductions for certain costs of employee benefits), and (B) the benefits and amounts contemplated by this Agreement.

(b) Vacation. The Employee agrees that he is entitled to be paid for eight (8) days of accrued but unused vacation relating to all periods of employment ending on or before the Effective Time and hereby waives any right to payment for all other accrued but unused vacation, if any. The Company shall pay the Employee for such eight (8) days of accrued but unused days of vacation on the first regular payroll date following the Effective Time in accordance with the Company’s usual and customary payroll practices (including, but not limited to, withholding for taxes and dedu ctions for certain costs of employee benefits).

(c) Expenses. The Employee agrees that he has submitted to the Company and the Bank all expense reports and other requests for expense reimbursement to which he is entitled for all periods ending on or before the Effective Time and that all such reports and requests have related to bona fide and reasonable expenses incurred by the Employee in furtherance of his duties on behalf of the Company or the Bank. The Company and the Bank have reimbursed the Employee for all of such expense reports and requests for reimbursement, and the Employee shall not be entitled to any additiona l reimbursement for expenses incurred for or on behalf of the Company or the Bank following the Effective Time.

(d) Other. The Employee understands and agrees that he is not entitled to any compensation, payments or other amounts from the Company, the Bank or any subsidiary or affiliate of the Company or the Bank except pursuant to this Agreement, the ESOP and the 401(k) Plan.

Section 5. Employee Benefit Plans.

(a) General. The Employee’s participation and eligibility to participate in, and all benefits, payments and rights under, any and all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) and any and all other plans, programs, arrangements and policies sponsored, maintained or offered by the Company and/or the Bank shall terminate and cease as of the Effective Time, except as provided in this subsection. Such plans, programs, arrangements and policies shall include, but not be limited to, the CFS Bancorp, Inc. 2010 Performance-based Cash Incentive Plan (“2010 Cash Plan”); CFS Bancorp, Inc. 2009 Service Retention Program (“2009 Retention Program”); CFS Bancorp, Inc. 2008 Omnibus Equity Incentive Plan (“2008 Incentive Plan”); CFS Bancorp, Inc. 2003 Stock Option Plan (“2003 Stock Option Plan”); CFS Bancorp, Inc. Employee Stock Ownership Plan (“ESOP”); Citizens Financial Bank 401(k) Retirement Plan (“401(k) Plan”); the Bank’s group health, dental, vision, life and disability insurance plans or policies; and all other retirement, profit sharing, deferred compensation, retention, incentive compensation, bonus, health, medical, hospitalization, dental, vision, life, accidental death, disability and similar plans, programs, arrangements and policies sponsored, maintained or offered by the Company and/or the Bank; provided, however, that (i) all benefits of the Employee that are fully vested under the ESOP and the 401(k) Plan shall be paid t o the Employee in accordance with the terms of such plans, (ii) the Employee shall be entitled to exercise the outstanding stock options granted to him under 2003 Stock Option Plan in accordance with the terms of such plan, and (iii) notwithstanding that the Employee has terminated his employment under the Employment Agreement without Good Reason, the Company and the Bank hereby agree, subject to the next two paragraphs of this Subsection 5(a), that (A) the Employee (and his spouse or legal dependents) shall be eligible for continued participation in all group health, dental and vision insurance plans of the Company or the Bank and in which the Employee (and his spouse or legal dependents) participated immediately prior to the Effective Time, and (B) the Employee (and his spouse and legal dependents) shall not be eligible for continued participation in any group life and disability

insurance plans or policies of the Company or the Bank in which the Employee participated immediately prior to the Effective Time, but instead only the Employee shall be permitted to convert his coverage existing at the Effective Time to individual life and disability policies.

With respect to the continuation coverage available to the Employee (and his spouse or legal dependents) under all group health, dental and vision insurance plans of the Company or the Bank, (I) such coverage shall be in accordance with the requirements of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), (II) in order to receive coverage, the Employee shall make a proper and timely COBRA election pursuant to the terms of such plans, and (III) the Company or the Bank shall pay the cost for only the employee (and not for his spouse or any legal dependents) for the continuation coverage under such plans elected by the Employee pursuant to COBRA for a period of time ending on the earlier of June 23, 2011 or the date on which the Employee becomes eligible to participate in a health, dental or vision insurance plan of another employer, consultant or party (provided that the Employee is entitled to health, dental and vision benefits from such other employer, consultant or party that are substantially similar to those provided under the applicable health, dental and vision plans of the Company or the Bank in which the Employee participated immediately prior to, and at the same or lesser cost to the Employee as under such plans of the Company or the Bank at, the Effective Time). As of the date of this Agreement, the total premium for employee only coverage under the health, dental and vision plans of the Company is $491.97, and such amount is subject to adjustment as determined under the plans.

With respect to any life or disability coverage that the Employee converts to individual policies, the Company or the Bank shall pay for only the Employee’s premiums (and not any premiums for his spouse or legal dependents) under such policies for a period of time ending on the earlier of June 23, 2011 or the date on which the Employee becomes eligible to participate in a life or disability insurance plan or policy of another employer, consultant or party (provided that the Employee is entitled to life or disability benefits from such other employer, consultant or party that are substantially similar to those provided under the applicable life and disability plans or policies of the Company or the Bank in which the Employee partic ipated immediately prior to, and at the same or lesser cost to the Employee as under such plans or policies of the Company or the Bank at, the Effective Time).

(b) Outstanding Cash Bonus, Stock Option, Restricted Stock and Other Award Opportunities. All award opportunities granted to the Employee relating to cash bonuses, stock options, restricted stock and other cash, stock or equity-based awards which have not vested or been earned, or have not become exercisable, on or prior to the Effective Time under the 2010 Cash Plan, 2009 Retention Plan, the 2008 Incentive Plan and all other plans, programs, arrangements or policies of the Company or the Bank are hereby terminated and forfeited as of the Effective Time, and the Employee hereby forever releases, waives and relinquishes any and all rights, claims and interests in and to such awards. All stock options granted to the Employee under the 2003 Stock Option Plan that have not been exercised on or prior to the Effective Time shall terminate thirty (30) days following the Effective Time. All stock option, restricted stock and other award agreements between the Company and the Employee under all plans, programs, arrangements or policies of the Company or the Bank are hereby terminated as of the Effective Time, other than the stock option agreements relating to unexercised stock options under the 2003 Stock Option Plan, which shall remain in effect only until the stock options covered thereby shall have terminated as provided above or been exercised.

The Employee further understands and agrees that he has not accrued and is not entitled to any benefits or payments (and has never received, and is not entitled to receive, any award opportunities relating to cash bonuses, stock options, restricted stock or other cash, stock or equity-based awards or other awards or amounts) under the Company’s defined benefit pension plan that was frozen effective March 1, 2003; CFS Bancorp, Inc. 2005 Supplemental ESOP Benefit Plan; Citizens Financial Services, FSB Deferred Compensation Plan for Key Employees; Amended and Restated Supplemental ESOP

Benefit Plan of CFS Bancorp, Inc. and Citizens Financial Services, FSB; CFS Bancorp, Inc. Amended and Restated 1998 Stock Option Plan; or CFS Bancorp, Inc. 1998 Recognition and Retention Plan.

(c) Retirement Status. The Employee has not satisfied the requirements for retirement or early retirement under any of the plans, programs, arrangements or policies referenced in Section 5(a) above.

(d) Release. The continuation coverage pursuant to COBRA under the Bank’s group health, dental and vision plans and the conversion election available under the Bank’s group life and disability plans or policies specified in Section 5(a) are in lieu of any benefits that may otherwise be provided to the Employee under the Employment Agreement, any other agreement or any plan, policy or practice of the Company or the Bank. The Employee hereby forever releases, waives and relinquishes any and all benefits, payments, rights, claims and interests in and under all p lans, programs, arrangements and policies sponsored, maintained or offered by the Company, the Bank and all subsidiaries and affiliates of the Company and the Bank, other than as specified in Section 5(a).

Section 6. Certain Other Matters.

(a) Compliance with Law. The Employee understands and agrees that he has ongoing responsibilities under and shall comply with the federal securities laws and other applicable laws and legal requirements, including but not limited to Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder.

(b) Club Memberships. All memberships (including, but not limited to, memberships in any country clubs or health clubs) that are in the name of the Company or the Bank shall be retained by the Company or the Bank and shall not be used by the Employee subsequent to the Effective Time. The Company’s or the Bank’s obligation to pay any dues or other amounts with respect to such corporate memberships shall cease as of the Effective Time. Any memberships that are personal to and in the name of the Employee may continue to be held as private memberships in th e Employee’s name and at his sole expense.

(c) No Admission. This Agreement does not constitute an admission or evidence of any (i) violation by the Company, the Bank or the Employee of any statute, law, rule or regulation, or (ii) liability or wrongdoing on the part of the Company, the Bank or the Employee.

(d) No Assignment. The Employee represents and agrees that he has not made and shall not make any assignment or other transfer of any interest in any claim, right, demand or action which he had, has or may have against the Company, the Bank or any of their subsidiaries or affiliates or against any of their respective directors, officers, employees, managers, fiduciaries, administrators, representatives or agents.

(e) Unemployment Compensation Claim. In the event that the Employee files or otherwise makes a claim for unemployment compensation resulting from his resignation of employment contemplated by this Agreement, neither the Company nor the Bank will contest such claim.

Section 7. Miscellaneous.

(a) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, executors, representatives and heirs; provided, however, that none of the parties may assign this Agreement, or their respective rights and obligations hereunder, without the prior written consent of each of the other parties, except that the Company and the Bank may, without the prior consent of the Employee, each assign this Agreement to

any subsidiary, affiliate or successor of the Company or the Bank (whether in connection with any merger, consolidation, share exchange, combination, change in control, sale of stock, assets or business or other similar transaction or otherwise). In the event of the Employee’s death, any unpaid balance of the Severance Payment shall be paid to the Employee’s spouse (or, if his spouse does not survive him, to the Employee’s estate) in accordance with the same payment schedule specified in this Agreement.

(b) Waiver; Amendment. Any party hereto may, by a writing signed by the waiving party, waive the performance by another party of any of the covenants or agreements to be performed by such other party under this Agreement. The waiver by any party hereto of a breach of or noncompliance with any provision of this Agreement shall not operate or be construed as a continuing waiver or a waiver of any other or subsequent breach or noncompliance hereunder. The failure or delay of any party at any time to insist upon the strict performance of any provision of this Agreement or to enforce its rights or remedies under this Agreement shall not be construed as a waiver o r 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.

Except with respect to an assignment by the Company or the Bank contemplated by Section 7(a), this Agreement may be amended, modified or supplemented only by a written agreement executed by all of the parties hereto.

(c) Headings. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation, construction, or enforcement of this Agreement.

(d) Severability. All provisions of this Agreement are severable from one another. In case any one or more of the provisions (or any portion thereof) contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions (or portion thereof) had never been contained herein.

(e) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same agreement.

(f) Governing Law; Jurisdiction; Venue; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to any choice of law provisions, principles or rules thereof (whether of the State of Indiana or any other jurisdiction) that would cause the application of any laws of any jurisdiction other than the State of Indiana. The parties hereto hereby agree that all demands, claims, actions, causes of action, suits, proceedings and litigation between or among the parties relating to this Agreement, shall be filed, tried and litigated only in a federal or state court located in the State of Indian a. In connection with the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and expressly waive any claims or defenses of lack of jurisdiction of or proper venue by such court. THE COMPANY, THE BANK AND THE EMPLOYEE HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY DEMAND, CLAIM, ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT.

(g) Entire Agreement. This Agreement (including the Release of Claims attached hereto), the Employment Agreement, the ESOP, the 401(k) Plan and the 2003 Stock Option Plan constitute the entire understanding and agreement between and among the parties hereto relating to the subject matter hereof and thereof and supersede all other understandings, commitments, representations, negotiations,

contracts, agreements, plans, programs, arrangements or policies, whether oral or written, between or among the parties hereto relating to the matters contemplated hereby or thereby. In the event of any conflict between this Agreement and the Employment Agreement, the provisions of this Agreement shall control. The Non-Solicitation & Confidentiality Agreement dated October 16, 2003 between the Bank and the Employee is hereby terminated.

(h) 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.

(i) Taxes. All federal, state, local and other taxes (including, but not limited to, interest, fines and penalties) resulting from, imposed upon by virtue of or relating to the transactions or the payments or benefits to the Employee contemplated by this Agreement or the Employment Agreement shall be paid by the Employee, other than payment by the Company of its portion of any FICA or other employment taxes relating to the Severance Payment.

(j) Review and Consultation. The Employee hereby acknowledges and agrees that he (i) has read this Agreement in its entirety prior to executing it, (ii) understands the provisions and effects of this Agreement, (iii) has consulted with such of his own attorneys, accountants and financial and other advisors as he has deemed appropriate in connection with his execution of this Agreement, and (iv) has executed this Agreement voluntarily. THE EMPLOYEE HEREBY UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT HE HAS NOT RECEIVED ANY ADVICE, COUNSEL OR RECOMMENDATION WITH RESPECT TO THIS A GREEMENT FROM THE COMPANY, THE BANK, ANY DIRECTOR, OFFICER OR EMPLOYEE OF THE COMPANY OR THE BANK, OR ANY ATTORNEY, ACCOUNTANT OR ADVISOR FOR THE COMPANY OR THE BANK.

(k) Notices. All notices and other communications under this Agreement shall be in writing and given by hand delivery, certified mail, overnight delivery or facsimile transmission and shall be deemed to have been duly given (i) upon delivery by hand (in the Company’s and the Bank’s case, to its Chief Executive Officer or its Chief Operating Officer); (ii) on the day of receipt if the notice or communication is sent by certified United States Mail, return receipt requested; (iii) on the next business day after deposit with a nationally recognized overnight delivery service; o r (iv) on the date indicated on the fax confirmation page of the sender. All notices and other communications shall be addressed as follows: if to the Company or the Bank, c/o its Chief Executive Officer or Chief Operating Officer at its corporate headquarters; and if to the Employee, to his last known address reflected on the records of the Company or the Bank; or to such other address as any party hereto may have furnished to the others in writing in accordance herewith.

(l) Capitalized Terms. All capitalized terms not otherwise defined in this Agreement shall have the same meanings ascribed to them in the Employment Agreement.

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

(n) Electronic Signatures. This Agreement may be executed and delivered by facsimile or electronic transmission. Any facsimile or electronic signature shall be considered as an original signature and the document transmitted shall be considered to have the same binding effect as an original signature on an original document.

[Signature Page Follows This Page]

IN WITNESS WHEREOF, the Company, the Bank and the Employee have made, entered into, executed and delivered this Agreement as of the day and year first above written.

/s/ Charles V. Cole

Charles V. Cole

CFS BANCORP, INC.

By: /s/ Daryl D. Pomranke

Daryl D. Pomranke, President

and Chief Operating Officer

CITIZENS FINANCIAL BANK

By: /s/ Daryl D. Pomranke ;

Daryl D. Pomranke, President

and Chief Operating Officer

EXHIBIT A

Release of Claims

1. In consideration of the execution by CFS Bancorp, Inc. (the “Company”) and Citizens Financial Bank (the “Bank”) of that certain Employment Agreement (the “Employment Agreement”) dated December 23, 2009 and that certain Separation Agreement (the “Agreement”) dated May 27, 2010, both by and among the Company, the Bank and the undersigned, Charles V. Cole (the “Employee”), and for other good and valuable consideration, the Employee hereby irrevocably, unconditionally, and forever releases, waives, discharges and covenants not to sue or make any claim against the Company, the Bank, each of their subsidiar ies and affiliates, the Company’s and the Bank’s respective predecessors and successors, their respective former, present and/or future shareholders, members, owners, directors, officers, employees, managers, fiduciaries, administrators, insurers, attorneys, representatives and agents, and all persons acting by, through, under or in concert with any of them (collectively, the “Released Parties”) for or from any and all complaints, claims, demands, liabilities, obligations, actions, rights of actions and proceedings of any nature whatsoever (including, but not limited to, claims for damages, attorneys fees, interest and costs), whether administrative or judicial, known or unknown, suspected or unsuspected, matured or unmatured, or otherwise, that exist as of (or existed prior to) the date that the Employee signs this Release. Without limiting the generality of the foregoing, the Employee understands and agrees that this Release includes and constitutes a complete waiver and release by the Employee in all capacities (including, but not limited to, as a shareholder, officer, employee, participant, individual or otherwise), and by his heirs, executors, administrators, representatives, and assigns, of any and all possible claims against each of the Released Parties based upon, arising out of or in any manner related to any salary, commission, bonuses (discretionary or otherwise) and other compensation from the Company, the Bank or any of their subsidiaries or affiliates; any plan, policy, program or promise of compensation from any of the Released Parties; any award of stock options, restricted stock or other stock-based or incentive compensation from the Company or the Bank; the Employee’s employment with or termination of employment by the Company and/or the Bank; wrongful termination or discharge; breach of contract; breach of good faith or fair dealing; infliction of emotional distress; and discrimination based on age, race, sex, religion, national origin, disability, vet erans status, sexual orientation, gender identity, or any other claim of employment discrimination, including, but not limited to, claims arising under the following laws and amendments thereto, if any: the Civil Rights Act of 1866 (42 U.S.C. § 1981), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, the Federal Rehabilitation Act of 1973, the Family and Medical Leave Act, the Fair Labor Standards Act, the Older Workers Benefit Protection Act, the Employee Retirement Income Security Act of 1974; any other federal or state employment law; any federal or state wage and hour laws, and all other similar federal, state or local laws, statutes, rules or regulations; and, in addition, all other tort or contract claims and other theories of recovery, to the extent permitted by law. Notwithstanding the foregoing, this Release does not affect, release or waive any of the Employee’s claims (a) under the Agre ement, (b) under Section 25 under the Employment Agreement if the Company or the Bank requests the Employee’s cooperation under such section, or (c) for vested benefits or payments under the ESOP and the 401(k) Plan (as defined in the Agreement).

2. This Release shall be construed as broadly and comprehensively as applicable law permits; provided, however, that this Release shall not be construed as releasing or waiving any right that, as a matter of law, cannot be released or waived, including but not limited to any right to file a charge or participate in an investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission. Notwithstanding the foregoing, the Employee waives any right to recover monetary remedies in his own behalf in any such investigation or proceeding.

A-1

3. The Employee acknowledges that the Company and the Bank have advised him to consult with an attorney of the Employee’s own choice prior to signing this Release and that he has had ample time and adequate opportunity to discuss thoroughly all aspects of this Release with his attorney.

4. In the event the Employee is forty (40) years of age or older, the Employee acknowledges that the Company and the Bank have advised him that he has a period of twenty-one (21) days to review and consider this Release. The Employee understands that he may use as much or all of the twenty-one (21) day period as the Employee desires prior to signing this Release. Upon execution of this Release, the Employee waives any remaining portion of the twenty-one (21) day review period.

5. In the event the Employee is forty (40) years of age or older, the Employee acknowledges that the Company and the Bank have advised him that he may revoke this Release within seven (7) days after signing it. If the Employee signs this Release and does not revoke it after such seven (7) day period has expired, he may not thereafter revoke this Release.

ANY SUCH REVOCATION MUST BE IN WRITING AND RECEIVED BY THE COMPANY AND THE BANK AT THE FOLLOWING ADDRESS NOT LATER THAN 5:00 P.M. (MUNSTER, INDIANA TIME) ON THE SEVENTH (7TH) DAY FOLLOWING THE DATE OF EXECUTION OF THIS RELEASE:

CFS Bancorp, Inc. and Citizens Financial Bank

Attn: Daryl D. Pomranke, President and Chief Operating Officer

707 Ridge Road

Munster, Indiana 46321

6. All provisions of this Release are severable from one another. In case any one or more of the provisions (or any portion thereof) contained in this Release shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Release, but this Release shall be construed as if such invalid, illegal, or unenforceable provision or provisions (or portion thereof) had never been contained herein. This Release shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to any choice of law provisions, pr inciples, or rules thereof (whether of the State of Indiana or any other jurisdiction) that would cause the application of any laws of any jurisdiction other than the State of Indiana. This Release may not be assigned, terminated or amended without the prior written consent of the Company and the Bank (by their respective Chief Executive Officers or Chief Operating Officers). This Release may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same document.

IN WITNESS WHEREOF, the undersigned has executed this Release of Claims as of the date indicated below.

/s/ Charles V. Cole

Charles V. Cole

&# 160; 6/2/10

(Date)

A-2

EX-10.23 3 exhibit10_23.htm EXHIBIT 10.23 exhibit10_23.htm

Exhibit 10.23

CHANGE IN CONTROL AGREEMENT

This CHANGE IN CONTROL AGREEMENT (the “Agreement”) is made and entered into as of the 3rd day of June, 2010 by and between CFS BANCORP, Inc. (“Company”) an Indiana corporation, CITIZENS FINANCIAL BANK (“Bank”), a federally chartered savings bank, and Jerry A. Weberling (the “Executive”), who is currently a resident of the State of Illinois.

R E C I T A L S:

WHEREAS, the Executive is presently employed as a senior executive officer of the Company and the Bank (together the “Employers”); and

WHEREAS, in the event Employers, desire to consider, or are confronted with, the possibility of a transaction that could result in a change in control of either the Company or the Bank, the Boards of Directors of the Employers believe that such a transaction could be a distraction to the Executive and could cause the Executive to consider alternative employment opportunities; and

WHEREAS, the Employers also believe that, in the event of a possible change in control transaction, continuity and input of the Employers management will be essential to the ability of the respective Boards of Directors of the Company and the Bank to evaluate such a transaction in the best interests of their respective shareholders; and

WHEREAS, the Boards of Directors of the Employers have determined that it is in the best interest of the Employers to assure that the Employers will have the continued dedication, objectivity and service of the Executive in the event of the possibility, threat or occurrence of such a change in control transaction; and

WHEREAS, the Boards of Directors of the Employers further believe that it is in the best interest of the Employers to provide the Executive with change in control payments under certain circumstances following a change in control transaction and to have the Employers receive and have the benefit of certain covenants from the Executive relating to, among other matters, non-disclosure of confidential information, non-competition and non-solicitation.

NOW, THEREFORE, in consideration of the foregoing recitals, the respective covenants, agreements and obligations contained herein, and the continued employment of the Executive by the Employers, the Employers and the Executive hereby agree as follows:

Section 1. Defined Terms. The following terms shall have the meanings set forth below for purposes of this Agreement:

(a) Average Base Salary. The Executive’s “Average Base Salary” shall mean the average of the Executive’s annual base salary (excluding bonuses, incentive compensation and any other compensation or amounts) paid in the three (3) complete fiscal years preceding the Executive’s last day of employment with the Bank, or in the event that the Executive has been employed by the Bank for less than three (3) complete fiscal years, then the Average Base Salary shall be calculated using the Executive’s average monthly base salary based upon the number of months that the Executive has been employed by the Bank and multiplied by twelve.

(b) Cause. Termination of the Executive’s employment for “Cause” means the termination of the Executive’s employment by the Employers because of any of the following:

(i) any incompetence or intentional failure by the Executive in performing his services or carrying out his duties and responsibilities for or on behalf of the Employers; or

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

(iii) any breach of fiduciary duty or willful misconduct 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 involving the Executive; 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 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.

(c) Change in Control. “Change in Control” means the occurrence subsequent to the date of this Agreement of any of the following relating to the Company or the Bank: (i) an acquisition of control of the Company or the Bank within the meaning of the Home Owners’ Loan Act of 1933 and 12 C.F. R. 574, as amended; (ii) 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 statute, whether or not any class of securities of the Company is registered under the 1934 Act; (iii) any Person or gro up of Persons is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of either the Company or the Bank representing 25% or more of the combined voting power of the Company’s or the Bank’s then outstanding securities; or (iv) during any period of thirty-six consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Company or the Bank cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election, 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 such 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.

For purposes of the definition of “Change in Control,” (A) 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”), any other employee benefit plan of the Company or the Bank, or any subsidiary or affiliate of the Company or the Bank, and (B) the outstanding securities of the Company shall include all shares of common stock owned by the ESOP, whether allocated or unallocated to the accounts of participants thereunder.

(d) Disability. “Disability” means the termination of the Executive’s employment with the Employers because of any physical or mental impairment, incapacity or condition of the Executive such that the Executive is substantially limited, with or without accommodation, in being able to perform the essential functions of his duties and responsibilities for or on behalf of the Employers (as reasonably determined by the Employers) for at least sixty (60) days (whether consecutive or non-consecutive days) during any twelve (12) month period. A Disability may, but is not r equired to, be evidenced by a signed, written opinion of an independent, qualified medical doctor selected by the Board of Directors or the

Chief Executive Officer of the Employers and paid for by the Employers. The Executive hereby agrees to make himself promptly available for examination by such medical doctor upon reasonable request by the Board of Directors or the Chief Executive Officer of the Employers and consents to provide promptly the results of such examination and any diagnosis to the Employers. Nothing in this Section is intended to be in violation of the Americans with Disabilities Act.

(e) Executive Officers. “Executive Officers” shall mean those employees of the Employers who hold the title of Senior Vice President or above.

(f) Good Reason. “Good Reason” means the occurrence of any of the following events:

(i) a material reduction by the Company or the Bank, without the Executive’s written consent, in the Executive’s duties, responsibilities or authority concurrently with, or during the two (2) year period immediately following, a Change in Control as compared to that in effect on the day immediately preceding the Change in Control; provided, however, that a temporary reduction in the Executive’s duties, responsibilities or authority during any period that the Executive is on vacation, using paid time off or on leave of absence in accordance with the policies and procedures of the Employers shall not constitute a diminution of his duties, responsibilities and au thority; and provided further, however, that layoffs or terminations following a Change in Control of employees who directly report to the Executive shall not constitute a diminution of his duties, responsibilities and authority; or

(ii) a material diminution by the Company or the Bank, without the Executive’s written consent, in the Executive’s job title(s) concurrently with, or during the two (2) year period immediately following, a Change in Control as compared to the Executive’s job title(s) held on the day immediately preceding the Change in Control; or

(iii) a material reduction by the Employers, without the Executive’s written consent, of his annual base salary concurrently with, or during the two (2) year period immediately following, a Change in Control as compared to his annual base salary in effect on the day immediately preceding the Change in Control; provided, however, that any reduction by the Employers in the Executive’s annual base salary concurrently with or following a Change in Control shall not constitute Good Reason so long as a majority of all Executive Officers shall also receive a reduction in their respective annual base salaries as part of across-the-board sa lary reductions at the Employers and, further, so long as the percentage reduction in the Executive’s annual base salary shall not be greater than the average of the percentage reductions in the annual base salaries of all other Executive Officers as a group; or

(iv) a requirement by the Company or the Bank, without the Executive’s written consent, that the Executive perform his principal job duties and responsibilities concurrently with, or during the two (2) year period immediately following, a Change in Control at a location that is more than thirty (30) miles from the location at which the Executive performs his principal job duties and responsibilities on the day immediately preceding the Change in Control; or

(v) any failure by the Employers to obtain the express written assumption of this Agreement, and the obligations hereunder, by the successor to the Bank concurrently with a Change in Control.

The Executive must notify the Employers in writing within sixty (60) days of the initial existence of the circumstances giving rise to a termination of the Executive’s employment hereunder for Good Reason. The Employers 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 change in control payments hereunder.

(g) Person. “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.

Section 2. Term; Employment Status; Compensation.

(a) Term of Agreement. The initial term of this Agreement shall be for a period of one (1) year commencing as of the date hereof. Within sixty (60) days prior to the first anniversary of the date of this Agreement and within sixty (60) days prior to each subsequent one (1) year anniversary thereafter, the Boards of Directors of the Employers shall review this Agreement and determine whether the term of this Agreement shall be extended for a period of one (1) year in addition to the then-remaining term. The Boards of Directors shall promptly notify the Executiv e in writing as to whether it has determined to extend further the term of this Agreement. If the Boards of Directors determine not to extend further the term of this Agreement, then this Agreement shall terminate and be of no further force or effect, except as expressly set forth herein, at the end of the then-existing term, and the Executive’s employment with the Employers shall continue to be on an employee-at-will basis. 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 Boards of Directors of the Employers on at least an annual basis whether to permit extensions of the term of this Agreement, the Boards shall consider all factors that they deem relevant, including without limitation the Employers’ continued need for this Agreement and the covenants of the Executive herein.

If the Boards of Directors of the Employers provide written notice to the Executive that the term of this Agreement shall not be further extended, such event shall not, in and of itself, constitute Good Reason or a termination of the Executive’s employment by the Employers. In the event of a termination of the Executive’s employment by the Employers or the Executive prior to the occurrence of a Change in Control or in the event that the term of this Agreement shall have expired after the Employers have provided notice that the term shall not be extended, then no change in control payments shall be payable to the Executive hereunder, but Sections 3(c)(iv), 4, 5(a), 5(b), 5(d), 5(e), 5(f), 5(g), 6, 7 and 8 hereof sh all survive such termination of employment or expiration of the term of this Agreement, as the case may be, and shall continue in full force and effect and be binding upon the Executive.

(b) Employment Status. This Agreement is not and shall not be construed to be an employment agreement or a guarantee or commitment for continued employment of the Executive by the Employers. The Executive is and shall at all times be an employee-at-will of the Employers and shall be considered an “exempt employee” for purposes of the Fair Labor Standards Act. Neither this Agreement nor anything contained herein shall be construed as affecting or limiting the right of the Employers or the Executive to terminate the Executive’s employment with the E mployers at any time for any reason or for no reason. The Executive understands and agrees that the change in control payments provided in this Agreement are in lieu of any change in control benefits that may otherwise be payable to the Executive under any severance pay policies or practices of the Company or the Bank, and the Executive hereby waives, and shall not be entitled to, any payments or benefits under any such severance pay policies or practices.

(c) Compensation. All matters relating to the employment of the Executive by the Employers (including, but not limited to, base salary; bonuses; equity or other incentive compensation;

employee benefits; retirement; profit sharing; health, life, disability and other insurance; expense reimbursement; and vacation, sick and other paid time off, and including the cost and eligibility requirements thereof; and the termination of the Executive’s employment) shall be subject to the plans, programs, employee handbooks, rules, policies and procedures of the Employers as are currently in effect or as may hereafter be established, amended or in effect from time to time.

Section 3. Termination of Employment and Payments Following a Change in Control.

(a) Termination of Employment Following a Change in Control. Upon the occurrence of either of the following events during the term of this Agreement, the Executive shall receive the amounts specified in Section 3(b) below:

(i) the Executive has terminated his employment with the Employers for Good Reason concurrently with, or during the two (2) year period immediately following, a Change in Control; or

(ii) the Employers have terminated the employment of the Executive concurrently with, or during the two (2) year period immediately following, a Change in Control for any reason other than for Cause or a Disability of the Executive.

(b) Payments to the Executive Following a Change in Control. Subject to Sections 3(c) and 3(d), either of the Employers shall pay to the Executive the amounts set forth below if either of the events described above in Section 3(a) have occurred:

(i) Change in Control Payments. Change in control payments equal to the Executive’s Average Base Salary (calculated as a monthly amount) for a period of twelve (12) months following the Executive’s last day of employment with the Employers. Each payment shall be treated as a separate payment for purposes of Section 409A of the Internal Revenue Code of 1986, as amended. The foregoing monthly change in control payments shall be paid beginning on the last day of the month following the month in which the Executive’s last day of employment with the E mployers occurs and on the last day of each subsequent month thereafter until all change in control payments have been paid.

(ii) Retirement Plans. All amounts that are fully earned and vested and properly payable on or before the Executive’s last day of employment under all retirement plans sponsored by the Company or the Bank in accordance with the provisions of such plans.

(iii) Other Amounts. All other amounts that are properly payable to the Executive by the Employers that have not been paid to him on or before his last day of employment. Such amounts shall be paid to the Executive in accordance with the policies, procedures and/or practices of the Employers.

(iv) COBRA Coverage. If the Executive is participating in the Company’s or the Bank’s group health insurance plan at the time that his employment with the Employers is terminated and if the Executive has made an appropriate election to continue such coverage for himself and/or his spouse and legal dependents under the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA”), the Executive shall pay the premiums associated with such continuation group health coverage and either of the Employers shall reimburse the Executive only for the premiums actually paid by him associated with such continuation coverage until the earlier of (A) the expiration of the period of time that the Executive has elected to receive continuation coverage under the Company’s or the Bank’s group health insurance plan pursuant to COBRA (but, in any event, not to exceed twelve (12) months

following his last day of employment with the Employers), or (B) the date on which the Executive becomes eligible to receive health insurance benefits from a new employer or another Person. The foregoing reimbursement of premiums shall not be paid to the Executive if his employment with the Employers is terminated by the Employers for Cause.

(i) The Executive (and his spouse and heirs) shall not be entitled to any change in control payments under this Agreement from the Employers in the event of his death.

(ii) All outstanding awards of cash bonuses, stock options, restricted stock and other incentive compensation (whether cash or equity based) from the Company or the Bank shall vest or be earned and be paid or distributed to, or be exercisable by, as the case may be, the Executive in accordance with the applicable plan or award agreement governing such awards.

(iii) Upon any termination of the Executive’s employment, the Executive shall execute (and not subsequently rescind or revoke) a release substantially similar to the release attached to this Agreement as Exhibit A as a condition to the Executive receiving any of the amounts set forth in this Section 3.

(iv) At all times while employed by the Employers and at all times following any termination of his employment, the Executive shall not make or publish any negative or disparaging statements or comments of any kind or character whatsoever about the Company, the Bank, any of their directors, officers, employees or customers or the business, operations, affairs, profitability, strategies or policies of the Company or the Bank.

(v) If the Executive breaches any provision of this Agreement, whether before or after any termination of his employment with the Employers, or refuses to execute (or rescinds or revokes) the release attached to this Agreement as Exhibit A (or a release substantially similar to the release attached to this Agreement as Exhibit A), then the Employers obligation to make any change in control payments or to make any reimbursement for the premiums associated with the COBRA continuation coverage to the Executive under this Sect ion 3 shall terminate immediately without reinstatement of any obligation of the Employers to pay or reimburse, or to resume paying or reimbursing following any cure of a breach, the Executive hereunder. Notwithstanding any such termination of the Employers obligation to pay or reimburse, (A) the covenants and agreements set forth in Sections 3(c)(iv), 4, 5, 6, 7 and 8 hereof shall continue in full force and effect and be binding upon the Executive, (B) the Employers shall be entitled to the remedies specified in Section 7 hereof, among others, and (C) the existence of any claim or cause of action of the Executive against the Employers, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Employers of the covenants contained in Sections 3(c)(iv), 4, 5 or 6.

(d) Delay of Payment under Certain Circumstances. Notwithstanding the foregoing provisions of this Section, all amounts under this Agreement that (i) are payable to the Executive due to the Executive’s Separation from Service, as described in Treasury Regulation §1.409A-1(h), for a reason other than the Executive’s death, (ii) are payable at a time when the Executive is a “Specified Employee” as defined in Treasury Regulation §1.409A-1(i), and (iii) provide for a “deferral of compensation” as defined in Treasury Regulation §1.409A-1(b) under Sections 6(b) and 6(e), shall be suspended for six (6) months following such Separation from Service. The Executive shall receive a lump sum payment of the

amounts so suspended on the first day following the six-month suspension period, with such lump sum payment being subject to termination as set forth in Section 3(c) above.

Section 4. Non-Disclosure; Return of Confidential Information and Other Property.

(a) Confidential Information; Non-Disclosure. At all times while the Executive is employed by the Employers and at all times following any termination of his employment, the Executive shall not (i) directly or indirectly disclose, provide or discuss any Confidential Information with or to any party other than those directors, officers, employees, representatives and agents of the Company, the Bank or any of their subsidiaries or affiliates who need to know such Confidential Information for a proper corporate purpose, and/or (ii) directly or indirectly use any Confidential Information (A) to compete against the Company, the Bank or any of their subsidiaries or affiliates, (B) to t he detriment of the Company, the Bank or any of their subsidiaries or affiliates, or (C) for the Executive’s own benefit or for the benefit of any Person other than the Company, the Bank or any of their subsidiaries or affiliates. The Executive agrees that all Confidential Information is and at all times shall remain the property of the Company, the Bank or any of their subsidiaries or affiliates, as applicable.

For purposes of this Agreement, the term “Confidential Information” means any and all of the following, whether disclosed to or known by the Executive on, before or after the date of this Agreement:

(i) any and all materials, records, data, documents, lists, information and trade secrets (whether in writing, printed, verbal, electronic, computerized, imaged, on disk, CD, DVD or otherwise) (A) relating or referring in any manner to the business, operations, affairs, financial condition, results of operation, assets, liabilities, revenues, income, deposits, loans, products, estimates, projections, budgets, policies, strategies, techniques, methods, vendors, relationships, customers and/or clients of the Company, the Bank or any of their subsidiaries or affiliates that are confidential, proprietary or not otherwise publicly available (other than by or through the Executive or any other impermissible disclosure), or (B) that the Company or the Bank, or any of their subsidiaries or affiliates has deemed confidential, proprietary or nonpublic; and

(ii) any and all trade secrets of the Company, the Bank or any of their subsidiaries or affiliates; and

(iii) any and all copies, summaries, analyses, extracts, documents or information (whether prepared by the Company, the Bank or any of their subsidiaries or affiliates, the Executive or otherwise) which relate or refer to or reflect any of the items set forth in this Section 4(a).

Notwithstanding the foregoing, the restrictions on the use or disclosure of Confidential Information shall not apply to any information:

(A) after it has become generally available to the public without breach of this Agreement by the Executive, or

(B) which, at the time of disclosure by the Executive, was already known to a third party to whom the disclosure was made without breach of this Agreement by the Executive.

In the event the Executive receives a request to disclose all or any part of the Confidential Information under the terms of a valid and effective subpoena or order issued by a court of competent jurisdiction, the Executive agrees to

(A) immediately notify the Employers of the existence, terms and circumstances surrounding such a request so that the Employers may consider seeking a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement,

(B) consult with the Employers on the advisability of taking legally available steps to resist or narrow such request, and

(C) if disclosure of such information is required, exercise his best efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such portion of the information which the Employers so designates.

(b) Return of Confidential Information and Other Property. The Executive covenants and agrees (i) to return to the Employers on his last day of employment, at the Employers headquarters, all Confidential Information that is still in the Executive’s possession or control on his last day of employment with the Employers or the location of which the Executive knows (including, but not limited to, any Confidential Information contained on the Executive’s personal digital assistant, BlackBerry, mobile telephone and personal or home computer), and (ii) to return to the Employers on his last day of employment, at the Employers headquarters, all vehicles, equipment, computers , personal digital assistants, BlackBerrys, mobile telephones, credit cards, keys, access cards, passwords and other property owned or provided by the Company or the Bank that are still in the Executive’s possession or control on his last day of employment or the location of which the Executive knows, and to cease using any of the foregoing on and after his last day of employment.

Section 5. Non-Competition and Non-Solicitation.

(a) The Executive hereby understands, acknowledges and agrees that, by virtue of his position at the Bank, he has or will have advantageous and competitive familiarity and personal contacts with the customers and clients (wherever located), products, services, strategies and employees of the Company, the Bank and their subsidiaries and affiliates and has and will have advantageous and competitive familiarity with the Confidential Information. As such, and in view of the highly competitive nature of the business in which the Employers are or may be engaged, the Executive agrees that the covenants set forth in Sections 4, 5 and 6 are reasonable and necessary for the protection of the Employers business and the Confidential Information.

(b) At all times while the Executive is employed by the Employers, he shall not engage in or compete with, or assist another party in engaging in or competing with (or finance, operate, or control) any banking, financial services or other business, operation, or activity which is conducted or proposed to be conducted by the Company, the Bank or any of their subsidiaries or affiliates (or which is in the same or a similar line of business as, or competes with, the Company, the Bank or any of their subsidiaries or affiliates), nor shall he shall solicit in any manner, seek to obtain, service or accept any business for or on behalf of a party other than the Company, the Bank or th eir subsidiaries or affiliates relating to the products or services offered or sold by any of them.

(c) For a period of one (1) year following his last day of employment with the Employers, the Executive shall not, within a thirty (30) mile radius of any office of the Employers, directly or indirectly, or individually or together with any other Person (as owner, shareholder, investor, member, partner, proprietor, principal, director, officer, employee, manager, agent, representative, independent contractor, consultant, advisor or otherwise), engage in any banking, financial services or other business, operation or activity which is conducted by the Company, the Bank or any of their subsidiaries or affiliates during such one (1) year period (or which is in the same or a similar line of business as, or

competes with, the Company, the Bank or any of their subsidiaries or affiliates) or which was conducted, or proposed to be conducted, or actively being developed or pursued by the Company, the Bank or any their subsidiaries or affiliates at any time during the one (1) year period preceding his last day of employment, nor shall the Executive assist another party in engaging in or competing with (or finance, operate or control) any banking, financial services or other business, operation, activity or similar line of business which is conducted, or proposed to be conducted, or actively being developed or pursued by the Company, the Bank or any of their subsidiaries or affiliates on the Executive’s last day of employment with the Bank, or which was conducted, or proposed to be conducted, or actively being developed or pursued by the Company, the Bank or any their subsidiaries or affiliates at any time during the one (1) year peri od preceding his last day of employment.

(d) For a period of one (1) year following his last day of employment with the Employers, the Executive shall not, directly or indirectly, or individually or together with any other Person, as owner, shareholder, investor, member, partner, proprietor, principal, director, officer, employee, manager, agent, representative, independent contractor, consultant, advisor or otherwise:

(i) solicit in any manner, seek to obtain, service or accept any business of any Person who is a customer or client of the Company, the Bank or any of their subsidiaries or affiliates relating to products or services offered, or actively being developed, by any of them on the Executive’s last day of employment with the Employers or who was an existing or prospective customer or client of the Company, the Bank or any of their subsidiaries or affiliates at any time during the one (1) year period preceding the Executive’s last day of employment; or

(ii) contact, or conduct, authorize or approve any advertisement or communication to, any customer or client of the Company, the Bank or any of their subsidiaries or affiliates (A) for purposes of announcing his employment or affiliation with another Person, or (B) in connection with directly or indirectly engaging in any banking, financial services or other business or activity in competition with the business, affairs or interests of (or which is in the same or a similar line of business as) the Company, the Bank or any of their subsidiaries or affiliates; or

(iii) offer or provide employment, hire or engage (whether on a full-time, part-time, or consulting basis or otherwise) any individual who is an employee of the Company, the Bank or any of their subsidiaries or affiliates on the last day of the Executive’s employment with the Employers or who was such an employee at any time during the one (1) year period preceding the Executive’s last day of employment, nor shall the Executive request or attempt to influence any person who is employed by the Company, the Bank or any of their subsidiaries or affiliates on the Executive’s last day of employment to terminate such employee’s employment with the Company, the Bank or any of their subsidiaries or affiliates; or

(iv) request, encourage or advise any Person who is a customer, client, vendor or otherwise doing business or having a relationship with the Company, the Bank or any of their subsidiaries or affiliates on the Executive’s last day of employment to terminate, reduce, limit or change their business or relationship with the Company, the Bank or any of their subsidiaries or affiliates.

(e) The Executive acknowledges the geographic scope of the business of the Company, the Bank and their subsidiaries or affiliates. Nevertheless, in the event that any provision of Section 5(c) or Section 5(d) is found by a court of competent jurisdiction to exceed the geographic, time or other restrictions permitted by applicable law, then the court shall have the power to reduce, limit or reform (but not to 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 Executive in its reduced, limited or reformed manner.

(f) The Employers and the Executive agree that the provisions of this Section 5 shall be severable in accordance with Section 8(e) hereof.

(g) The restrictions and covenants contained in this Section 5 shall be deemed not to run during all periods of noncompliance, with the intention of the parties being to have such restrictions and covenants apply during the full periods specified in this Section.

Section 6. Intellectual Property. The Executive understands, acknowledges, and agrees that each and every invention, idea, concept, discovery, improvement, device, design, drawing, sketch, specification, prototype, sample, practice, process, method, technique or product (whether in written or electronic format and whether or not patentable, copyrightable or registerable for trademark protection) made, created, developed, perfected, devised, conceived, worked on or first reduced to practice by the Executiv e, either solely or in collaboration with others, during the period of the Executive’s employment with the Employers (whether or not during regular working hours) relating, directly or indirectly, to the business, operations, affairs, products, practices, techniques or methods of the Company, the Bank or any their subsidiaries or affiliates (the “Intellectual Property”) is and shall be the exclusive property of the Company, the Bank or any of their subsidiaries or affiliates, as applicable. The Executive hereby forever, unconditionally and irrevocably releases and relinquishes any and all right, title and interest that he may have in and to the Intellectual Property worldwide and hereby forever, unconditionally and irrevocably assigns to the Company, the Bank or any of their subsidiaries or affiliates any and all of the Executive’s right, title and interest in and to the Intellectual Property worldwide. At the request and expense of the Company, the Bank or any o f their subsidiaries or affiliates, the Executive shall (a) execute any and all assignments, documents and other writings that the Company, the Bank or any of their subsidiaries or affiliates determines are necessary to evidence ownership of the Intellectual Property in the Company, the Bank or any of their subsidiaries or affiliates, (b) execute any and all applications and registrations of the Company, the Bank or any of their subsidiaries or affiliates for patents, trademarks and/or copyrights relating to the Intellectual Property, and (c) assist the Company, the Bank or any of their subsidiaries or affiliates in obtaining any and all patents, trademarks and copyrights that it desires relating to the Intellectual Property.

Section 7. Certain Remedies. The Executive understands and agrees that the Company or 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(c)(iv), 4, 5 or 6. Accordingly, in the event of a breach or a threatened or attempted breach by the Executive of any provision of Section 3(c)(iv), 4, 5 or 6, in addition to all other remedies to which the Compa ny or the Bank is entitled at law, in equity or otherwise, the Company or the Bank shall be entitled to seek a temporary restraining order, a permanent or temporary injunction and/or a decree of specific performance of any provision of Section 3(c)(iv), 4, 5 or 6. In addition, in the event of any breach by the Executive of any provision of Section 3(c)(iv), 4, 5 or 6, the Executive shall immediately repay to the Employers all change in control payments already paid to him under Section 3 hereof following his last day of employment, plus interest thereon at 8% per annum until repaid in full and the Employers’ cost of collection and reasonable attorneys fees. The parties agree that a bond posted by the Employers 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 Employers prior to it being entitled to obtain such restraining order, injunction or spe cific performance. The foregoing remedies shall not be deemed to be the exclusive rights or remedies of the Employers 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 Employers at law, in equity, or otherwise.

Section 8. Miscellaneous.

(a) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Employers and the Executive and their respective heirs, executors, representatives, successors and assigns; provided, however that the Executive may not assign this Agreement, and his rights and obligations hereunder, without the prior written consent of the Employers. The Employers may, without the consent of the Executive, assign this Agreement, and its rights and obligations hereunder, to (i) any successor of the Company or the Bank or any other third party in connection with any recapitalization, reorganization or Change in Control. In the event of any su ch permitted assignment of this Agreement, all references to the “Company” or the “Bank” shall thereafter mean and refer to the assignee of the Company or the Bank.

(b) Waiver. A waiver by any party must be in writing signed by the party entitled to grant such a waiver. The waiver by a party of a breach of or noncompliance with any provision of this Agreement shall not operate or be construed as a continuing waiver or a waiver of any other or subsequent breach or noncompliance hereunder. 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 o r remedies for any breach hereof, at a future time.

(d) Headings. The headings in this Agreement have been inserted solely for ease of reference and shall not be considered in the interpretation or construction of this Agreement.

(e) Severability. In case any one or more of the provisions (or any portion thereof) contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision or provisions (or portion thereof) had never been contained herein; provided, however, if any provision of Section 5 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 fact or, 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.

(f) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same agreement.

(g) Voluntary Execution; Construction. The Executive agrees that he has executed this Agreement voluntarily and not as a condition to continued employment with the Employers. This Agreement shall be deemed to have been drafted by all of the 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. THE EXECUTIVE HEREBY UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT HE HAS NOT RECEIVED ANY ADVICE, COUNSEL OR RECOMMENDATION WITH RESPECT TO THIS AGREEMENT FROM THE EMPLOYERS, ANY DIRECTOR, OFFICER OR EMPLOYEE OF THE EMPLOYERS OR ANY ATTORNEY, ACCOUNTANT OR ADVISOR FOR THE EMPLOYERS.

(h) Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties hereto (and supersedes all other prior understandings, commitments, representations, negotiations, and agreements) relating to the subject matter hereof.

(i) Governing Law; Venue; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to any choice of law provisions, principles, or rules thereof (whether of the State of Indiana or any other jurisdiction) that would cause the application of any laws of any jurisdiction other than the State of Indiana. Any claim, demand, or action relating to this Agreement shall be brought only in a federal or state court of competent jurisdiction in Lake 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 or defenses of lack of jurisdiction of or proper venue by such court. THE EMPLOYERS AND THE EXECUTIVE HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY DEMAND, CLAIM, ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT.

(j) Notices. All notices and other communications under this Agreement shall be in writing and given by hand delivery, mail, overnight delivery or facsimile transmission and shall be deemed to have been duly given (i) upon delivery by hand (in the Employers’ case, to its Chief Executive Officer); (ii) two (2) business days after deposit in regular United States Mail, first class postage pre-paid (not certified or registered mail); (iii) on the next business day after deposit with a nationally recognized overnight delivery service; or (iv) on the date indicated on the fax confirmat ion page. All notices and other communications shall be addressed as follows: if to the Employers’, c/o its Chief Executive Officer at its corporate headquarters; and if to the Executive, to his address reflected on the employment records of the Employers; or to such other address as any party hereto may have furnished to the others in writing in accordance herewith.

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

(l) Taxes. All taxes (other than the Employers’ portion of any FICA or other employment taxes, if applicable) on the change in control payments and all other amounts under this Agreement shall be the responsibility of and paid by the Executive. The Employers shall be entitled to withhold from such change in control payments and other amounts (i) applicable income, FICA, employment and other taxes, and (ii) other appropriate and customary amounts in accordance with the Employers’ established practices in effect from time to time.

(m) Payment of Attorneys Fees. In the event any dispute, claim or litigation arising under or in connection with this Agreement is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of all reasonable attorneys’ fees incurred by him in resolving such dispute, claim or litigation.

(n) Regulatory Matters. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall be applicable to the Bank and the Executive only if and to the extent that they are required to be included in agreements relating to compensation arrangements between a savings association and its employees pursuant to applicable law or regulation, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 3 hereof:

(i) 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;

(ii) 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 (A) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended, and (B) reinstate (in whole or in part) any of its obligations which were suspended;

(iii) 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;

(iv) 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 Employers as of the date of termination shall not be affected; and

(v) 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) (A) 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 (B) 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.

[SIGNATURE PAGE FOLLOWS THIS PAGE]

IN WITNESS WHEREOF, the Employers and the Executive have entered into, executed and delivered this Agreement as of the day and year first above written.

& #160; /s/ Jerry A. Weberling

&# 160; Jerry A. Weberling

&# 160; CFS BANCORP, INC.

By: /s/ Daryl D. Pomranke &# 160;

Printed: Daryl D. Pomranke

Its: President & Chief Operating Officer

CITIZENS FINANCIAL BANK

By: /s/ Daryl D. Pomranke &# 160;

Printed: Daryl D. Pomranke

Its: President & Chief Operating Officer

EXHIBIT A

RELEASE OF CLAIMS

1. In consideration of the execution by CFS Bancorp, Inc. (“Company”) an Indiana corporation and, Citizens Financial Bank (the “Bank”) of that certain Change in Control Agreement (the “Agreement”) dated June ___________, 2010 by and between the Company and the Bank and the undersigned, Jerry A. Weberling (the “Executive”), and for other good and valuable consideration, the Executive hereby irrevocably, unconditionally, and forever releases, waives, discharges and covenants not to sue or make any claim against CFS Bancorp, Inc. (the “Company”), the Bank, each of their subsidiaries and affiliates, the Company’s and the Bank’s respective predecessors and successors, their respective former, present and/or future shareholders, members, owners, directors, officers, employees, managers, fiduciaries, administrators, insurers, attorneys, representatives and agents, and all persons acting by, through, under or in concert with any of them (collectively, the “Released Parties”) for or from any and all complaints, claims, demands, liabilities, obligations, actions, rights of actions and proceedings of any nature whatsoever (including, but not limited to, claims for damages, attorneys fees, interest and costs), whether administrative or judicial, known or unknown, suspected or unsuspected, matured or unmatured, or otherwise, that exist as of (or existed prior to) the date that the Executive signs this Release. Without limiting the generality of the foregoing, the Executive understands and agrees that this Release includes and constitutes a complete waiver and release by the Executive in all capacitie s (including, but not limited to, as a shareholder, officer, employee, individual or otherwise), and by his heirs, executors, administrators, representatives, and assigns, of any and all possible claims against each of the Released Parties based upon, arising out of or in any manner related to any salary, commission, bonuses (discretionary or otherwise) and other compensation from the Company, the Bank or any of their subsidiaries or affiliates; any plan, policy, program or promise of compensation from any of the Released Parties; any award of stock options, restricted stock or other equity-based or incentive compensation from the Company or the Bank; the Executive’s employment with or termination of employment by the Company or the Bank; wrongful termination or discharge; breach of contract; breach of good faith or fair dealing; infliction of emotional distress; and discrimination based on age, race, sex, religion, national origin, disability, veterans status, sexual orientation, gender identity, or a ny other claim of employment discrimination, including, but not limited to, claims arising under the following laws and amendments thereto, if any: the Civil Rights Act of 1866 (42 U.S.C. § 1981), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, the Federal Rehabilitation Act of 1973, the Family and Medical Leave Act, the Fair Labor Standards Act, the Older Workers Benefit Protection Act, the Employee Retirement Income Security Act of 1974; any other federal or state employment law; any federal or state wage and hour laws, and all other similar federal, state or local laws, statutes, rules or regulations; and, in addition, all other tort or contract claims and other theories of recovery. Notwithstanding the foregoing, this Release does not affect, release or waive any of the Executive’s claims for change in control payments under the Agreement or claims for benefits or payments under any employee benefit plan of the Company or the Bank in accordance with the provisions of any such plan.

2. This Release shall be construed as broadly and comprehensively as applicable law permits; provided, however, that this Release shall not be construed as releasing or waiving any right that, as a matter of law, cannot be released or waived, including but not limited to any right to file a charge or participate in an investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission. Notwithstanding the foregoing, the Executive waives any right to recover monetary remedies in his own behalf in any such investigation or proceeding.

3. The Executive acknowledges that the Company and the Bank have advised him to consult with an attorney of the Executive’s own choice prior to signing this Release and that he has had ample time and adequate opportunity to discuss thoroughly all aspects of this Release with his attorney.

A-1

4. In the event the Executive is forty (40) years of age or older, the Executive acknowledges that the Company and the Bank have advised him that he has a period of twenty-one (21) days to review and consider this Release. The Executive understands that he may use as much or all of the twenty-one (21) day period as the Executive desires prior to signing this Release. Upon execution of this Release, the Executive waives any remaining portion of the twenty-one (21) day review period.

5. In the event the Executive is forty (40) years of age or older, the Executive acknowledges that the Company and the Bank have advised him that he may revoke this Release within seven (7) days after signing it.

Attn: Chief Executive Officer

CFS Bancorp, Inc. and Citizens Financial Bank

707 Ridge Road

Munster, Indiana 46321

6. All provisions of this Release are severable from one another. In case any one or more of the provisions (or any portion thereof) contained in this Release shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Release, but this Release shall be construed as if such invalid, illegal, or unenforceable provision or provisions (or portion thereof) had never been contained herein. This Release shall be governed by and construed in accordance with the laws of the State of Indiana, without reference to any choice of law provisions, pr inciples, or rules thereof (whether of the State of Indiana or any other jurisdiction) that would cause the application of any laws of any jurisdiction other than the State of Indiana. This Release may not be assigned, terminated or amended without the prior written consent of the Company and the Bank (by their Chief Executive Officers ). This Release may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same document.

IN WITNESS WHEREOF, the undersigned has executed this Release of Claims as of the date indicated below.

____________________________________

Jerry A. Weberling

____________________________________

(Date)

A-2

EX-31.1 4 exhibit31_1.htm EXHIBIT 31.1 exhibit31_1.htm

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;

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: July 28, 2010	/s/ Thomas F. Prisby
	Thomas F. Prisby
	Chairman of the Board and Chief Executive Officer

EX-31.2 5 exhibit31_2.htm EXHIBIT 31.2 exhibit31_2.htm

Exhibit 31.2

CERTIFICATION

I, Jerry A. Weberling, 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;

(a)

(b)

(c)

(d)

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)

(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: July 28, 2010	/s/ Jerry A. Weberling
	Jerry A. Weberling
	Executive Vice President and Chief Financial Officer

EX-32.0 6 exhibit32_0.htm EXHIBIT 32.0 exhibit32_0.htm

Exhibit 32.0

SECTION 1350 CERTIFICATIONS

I, Thomas F. Prisby, Chairman of the Board and Chief Executive Officer, and Jerry A. Weberling, 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 June 30, 2010 (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)), as amended; 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:	July 28, 2010	By:	/s/ Thomas F. Prisby
			Thomas F. Prisby
			Chairman of the Board and Chief Executive Officer



Date:	July 28, 2010	By:	/s/ Jerry A. Weberling
			Jerry A. Weberling
			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.

-----END PRIVACY-ENHANCED MESSAGE-----

	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)		(Zip code)

	(219) 836-5500
	(Registrant’s telephone number, including area code)

Large accelerated filer £	Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company)	Smaller reporting company R

	June 30, 2010			December 31, 2009
ASSETS	(Unaudited)
Cash and amounts due from depository institutions	$	22,232		$	24,041
Interest-bearing deposits		9,411			387
Cash and cash equivalents		31,643			24,428
Investment securities available-for-sale, at fair value		190,893			188,781
Investment securities held-to-maturity, at cost		12,206			5,000
Investment in Federal Home Loan Bank stock, at cost		23,944			23,944
Loans receivable, net of unearned fees		756,052			762,386
Allowance for loan losses		(17,608	)		(19,461	)
Net loans		738,444			742,925
Accrued interest receivable		3,486			3,469
Other real estate owned		11,825			9,242
Office properties and equipment		20,383			20,382
Investment in bank-owned life insurance		35,060			34,575
Net deferred tax assets		17,568			18,036
Other assets		9,828			10,733
Total assets	$	1,095,280		$	1,081,515

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	899,482		$	849,758
Borrowed funds		73,106			111,808
Advance payments by borrowers for taxes and insurance		4,186			4,322
Other liabilities		5,733			5,254
Total liabilities		982,507			971,142
Commitments and contingencies		―			―
Shareholders’ 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; 10,846,650 and 10,771,061 shares outstanding		234			234
Additional paid-in capital		187,221			188,930
Retained earnings		82,028			80,564
Treasury stock, at cost; 12,576,656 and 12,652,245 shares		(155,168	)		(157,041	)
Accumulated other comprehensive loss, net of tax		(1,542	)		(2,314	)
Total shareholders’ equity		112,773			110,373
Total liabilities and shareholders’ equity	$	1,095,280		$	1,081,515

	Six Months Ended June 30,
	2010			2009
OPERATING ACTIVITIES:
Net income	$	1,679		$	2,131
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,527			1,337
Depreciation and amortization		806			781
Premium amortization on the early extinguishment of debt		―			133
Net discount accretion on investment securities available-for-sale		(307	)		(786	)
Net premium amortization on investment securities held-to-maturity		51			―
Deferred income tax expense		55			149
Share-based compensation		―			432
Net gain on sale of investment securities		(456	)		(720	)
Net (gain) loss on sale of other assets		(12	)		6
Increase in cash surrender value of bank-owned life insurance		(485	)		(334	)
Decrease in other assets		1,333			1,732
Increase in other liabilities		649			1,431
Net cash provided by operating activities		5,840			6,292
INVESTING ACTIVITIES:
Investment securities, available-for-sale:
Proceeds from sales		9,603			9,914
Proceeds from maturities and paydowns		44,843			45,573
Purchases		(54,612	)		(21,285	)
Investment securities, held-to-maturity:
Proceeds from maturities and paydowns		1,199			940
Purchases		(8,456	)		―
Net loan fundings		(2,013	)		(7,410	)
Proceeds from sale of other real estate owned		1,004			296
Proceeds from bank-owned life insurance		―			491
Purchases of property and equipment		(807	)		(694	)
Net cash provided by (used for) investing activities		(9,239	)		27,825
FINANCING ACTIVITIES:
Net increase in deposit accounts		49,670			6,957
Proceeds from Federal Home Loan Bank borrowed funds		18,000			114,000
Repayments of Federal Home Loan Bank borrowed funds		(46,087	)		(137,081	)
Decrease in short-term borrowed funds		(10,615	)		(17,687	)
Dividends paid on common stock		(218	)		(541	)
Net increase (decrease) in advance payments by borrowers for taxes and insurance		(136	)		1,801
Net disposition of Rabbi Trust shares		―			151
Net cash provided by (used for) financing activities		10,614			(32,400	)
Increase in cash and cash equivalents		7,215			1,717
Cash and cash equivalents at beginning of period		24,428			19,106
Cash and cash equivalents at end of period	$	31,643		$	20,823


Supplemental disclosures:
Loans transferred to other real estate owned	$	4,007	$	4,578
Cash paid for interest on deposits		4,182		5,953
Cash paid for interest on borrowed funds		986		1,738
Cash paid for taxes		1,075		402

		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 Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4.	Controls and Procedures	51


	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 3.	Defaults Upon Senior Securities	53

Item 4.	(Removed and Reserved)	53

Item 5.	Other Information	53

Item 6.	Exhibits	54

Signature Page		55

Certifications of Principal Executive Officer and Principal Financial Officer		56
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.0

	Common Stock		Additional Paid-In Capital			Retained Earnings			Treasury Stock			Unallocated Common Stock Held By ESOP			Accum- ulated Other Compre- hensive Income (Loss)			Total
Balance at January 1, 2009	$	234	$	189,211		$	81,525		$	(157,466	)	$	(832	)	$	(863	)	$	111,809
Net income		―		―			2,131			―			―			―			2,131
Other comprehensive income: Change in unrealized depreciation on investment securities available-for-sale, net of reclassification and tax		―		―			―			―			―			1,128			1,128
Total comprehensive income		―		―			―			―			―			―			3,259
Net purchases of Rabbi Trust shares		―		(364	)		―			515			―			―			151
Shares earned under ESOP		―		(401	)		―			―			832			―			431
Amortization of award under RRP		―		1			―			―			―			―			1
Forfeiture of RRP award		―		906			18			(906	)		―			―			18
Unearned compensation restricted stock awards		―		(349	)		―			349			―			―			―
Dividends declared on common stock ($0.02 per share)		―		―			(219	)		―			―			―			(219	)
Balance at June 30, 2009	$	234	$	189,004		$	83,455		$	(157,508	)	$	―		$	265		$	115,450

Balance at January 1, 2010	$	234	$	188,930		$	80,564		$	(157,041	)	$	―		$	(2,314	)	$	110,373
Net income		―		―			1,679			―			―			―			1,679
Other comprehensive income: Change in unrealized depreciation on investment securities available-for-sale, net of reclassification and tax		―		―			―			―			―			772			772
Total comprehensive income		―		―			―			―			―			―			2,451
Net distribution of Rabbi Trust shares		―		(320	)		―			320			―			―			―
Forfeiture of restricted stock awards		―		273			3			(273	)		―			―			3
Vesting of restricted stock awards		―		164			―			―			―			―			164
Unearned compensation restricted stock awards		―		(395	)		―			395			―			―			―
Reclassification of treasury stock issuances of restricted stock at average cost		―		(1,431	)		―			1,431			―			―			―
Dividends declared on common stock ($0.02 per share)		―		―			(218	)		―			―			―			(218	)
Balance at June 30, 2010	$	234	$	187,221		$	82,028		$	(155,168	)	$	―		$	(1,542	)	$	112,773

	June 30, 2010
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Government sponsored entity (GSE) securities	$	4,071	$	(3	)	$	―	$	―		$	4,071	$	(3	)
Collateralized mortgage obligations		5,126		(58	)		7,096		(477	)		12,222		(535	)
Commercial mortgage-backed securities		3,234		(53	)		―		―			3,234		(53	)
Pooled trust preferred securities		―		―			20,124		(6,745	)		20,124		(6,745	)
	$	12,431	$	(114	)	$	27,220	$	(7,222	)	$	39,651	$	(7,336	)

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
GSE securities:
Due in one year or less	$	17,488	$	17,825
Due after one year through five years		27,048		27,573
Collateralized mortgage obligations		59,259		60,782
Commercial mortgage-backed securities		62,779		64,503
Pooled trust preferred securities		26,869		20,124
Equity securities		―		86
	$	193,443	$	190,893

	Held-to-Maturity
	Amortized Cost		Fair Value
	(Dollars in thousands)
Asset backed securities:
Due after five years	$	8,206	$	8,323
State and municipal securities:
Due in one year or less		2,000		2,041
Due after one year through five years		2,000		2,092
	$	12,206	$	12,456

	Investment Securities Available-for-Sale
	Three Months Ended			Six Months Ended
	June 30, 2010			June 30, 2010
	(Dollars in thousands)
Balance at beginning of period	$	19,901		$	20,012
Total realized and unrealized gains:
Included in accumulated other comprehensive loss		333			336
Purchases, sales, issuances and settlements, net		(110	)		(224	)
Balance at end of period	$	20,124		$	20,124

	Fair Value Measurements at June 30, 2010
	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)
Impaired loans	$	7,374	$	―	$	―	$	7,374
Other real estate owned		2,300		―		―		2,300

	Fair Value Measurements at December 31, 2009
	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)
Impaired loans	$	29,411	$	―	$	―	$	29,411
Other real estate owned		1,740		―		―		1,740

	June 30,				December 31,
	2010				2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)
Financial Assets
Cash and cash equivalents	$	31,643	$	31,643	$	24,428	$	24,428
Investment securities, available-for-sale		190,893		190,893		188,781		188,781
Investment securities, held-to-maturity		12,206		12,456		5,000		5,179
Federal Home Loan Bank stock		23,944		23,944		23,944		23,944
Loans receivable, net of allowance for loan losses		738,444		743,195		742,925		745,594
Accrued interest receivable		3,486		3,486		3,469		3,469
Total financial assets	$	1,000,616	$	1,005,617	$	988,547	$	991,395
Financial Liabilities
Deposits	$	899,482	$	902,100	$	849,758	$	850,894
Borrowed funds		73,106		75,588		111,808		113,379
Accrued interest payable		131		131		145		145
Total financial liabilities	$	972,719	$	977,819	$	961,711	$	964,418

			Number of Shares			Weighted- Average Grant- Date Fair Value
Unvested at December 31, 2009				165,664		$	6.04
2010 awards:
Granted	120,392						3.62
Forfeited	(7,615	)					3.49
Net 2010 grant awards				112,777			3.63
Vested				(14,883	)		13.70
Forfeited				(70,692	)		3.48
Unvested at June 30, 2010				192,866		$	4.98

	Three Months Ended June 30,
	2010							2009
	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Loans receivable (1)	$	757,478	$	9,626		5.10	%	$	751,957	$	9,807		5.23	%
Investment securities (2)		201,735		2,163		4.24			232,853		3,020		5.13
Other interest-earning assets (3)		28,588		123		1.73			29,766		137		1.85
Total interest-earning assets		987,801		11,912		4.84			1,014,576		12,964		5.13

Non-interest earning assets		102,063							85,174
Total assets	$	1,089,864						$	1,099,750

Interest-bearing liabilities:
Deposits:
Checking accounts	$	132,870		51		0.15		$	135,470		115		0.34
Money market accounts		156,937		261		0.67			158,341		286		0.72
Savings accounts		118,691		99		0.33			119,879		104		0.35
Certificates of deposit		396,378		1,735		1.76			367,418		2,244		2.45
Total deposits		804,876		2,146		1.07			781,108		2,749		1.41

Borrowed funds:
Other short-term borrowed funds (4)		13,663		16		0.47			10,870		20		0.74
FHLB borrowed funds		60,121		421		2.77			117,170		860		2.90
Total borrowed funds		73,784		437		2.34			128,040		880		2.72
Total interest-bearing liabilities		878,660		2,583		1.18			909,148		3,629		1.60
Non-interest bearing deposits		88,914							64,509
Non-interest bearing other liabilities		10,446							14,520
Total liabilities		978,020							988,177
Shareholders' equity		111,844							111,573
Total liabilities and shareholders' equity	$	1,089,864						$	1,099,750
Net interest-earning assets	$	109,141						$	105,428
Net interest income / interest rate spread			$	9,329		3.66	%			$	9,335		3.53	%
Net interest margin						3.79	%						3.69	%
Ratio of average interest-earning assets to average interest-bearing liabilities						112.42	%						111.48	%

	Number of Shares			Weighted- Average Exercise Price
Options outstanding at December 31, 2009		769,795		$	13.08
Granted		―			―
Exercised		―			―
Forfeited		(3,000	)		13.48
Expired unexercised		(114,800	)		11.00
Options outstanding at June 30, 2010		651,995		$	13.44

Options exercisable at June 30, 2010		651,995		$	13.44

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(Dollars in thousands)
Income before income taxes	$	1,159		$	804		$	1,966		$	2,878
Provision for loan losses		817			713			2,527			1,337
Pre-tax, pre-provision earnings		1,976			1,517			4,493			4,215

Add back (subtract):
Net gain on sale of investment securities		―			―			(456)			(720	)
Net (gain) loss on sale of other assets		(11	)		6			(12	)		6
OREO related expense		262			212			898			411
Loan collection expense		153			230			322			528
Severance and early retirement expense		437			―			440			―
Special assessment – FDIC insurance		―			495			―			495

Pre-tax, pre-provision earnings from core operations	$	2,817		$	2,460		$	5,685		$	4,935

Pre-tax, pre-provision earnings from core operations to average assets		1.03	%		0.89	%		1.05	%		0.89	%

	Three Months Ended June 30, 2010
	compared to June 30, 2009
	Increase (decrease) due to
	Rate			Volume			Rate / Volume			Total Change
	(Dollars in thousands)
Interest income:
Loans receivable	$	(251	)	$	72		$	(2	)	$	(181	)
Investment securities		(523	)		(403	)		69			(857	)
Other interest-earning assets		(9	)		(5	)		―			(14	)
Total		(783	)		(336	)		67			(1,052	)

Interest expense:
Deposits:
Checking accounts		(63	)		(2	)		1			(64	)
Money market accounts		(22	)		(3	)		―			(25	)
Savings accounts		(4	)		(1	)		―			(5	)
Certificates of deposit		(636	)		177			(50	)		(509	)
Total deposits		(725	)		171			(49	)		(603	)
Borrowed funds:
Other short-term borrowed funds		(7	)		5			(2	)		(4	)
FHLB borrowed funds		(39	)		(419	)		19			(439	)
Total borrowed funds		(46	)		(414	)		17			(443	)
Total		(771	)		(243	)		(32	)		(1,046	)
Net change in net interest income	$	(12	)	$	(93	)	$	99		$	(6	)

	Six Months Ended June 30, 2010
	compared to June 30, 2009
	Increase (decrease) due to
	Rate			Volume			Rate / Volume			Total Change
	(Dollars in thousands)
Interest income:
Loans receivable	$	(617	)	$	174		$	(5	)	$	(448	)
Investment securities		(800	)		(1,021	)		134			(1,687	)
Other interest-earning assets		(99	)		(46	)		12			(133	)
Total		(1,516	)		(893	)		141			(2,268	)

Interest expense:
Deposits:
Checking accounts		(98	)		17			(8	)		(89	)
Money market accounts		(94	)		(20	)		3			(111	)
Savings accounts		(11	)		(2	)		―			(13	)
Certificates of deposit		(1,556	)		181			(58	)		(1,433	)
Total deposits		(1,759	)		176			(63	)		(1,646	)
Borrowed funds:
Other short-term borrowed funds		(19	)		4			(1	)		(16	)
FHLB borrowed funds		(55	)		(839	)		26			(868	)
Total borrowed funds		(74	)		(835	)		25			(884	)
Total		(1,833	)		(659	)		(38	)		(2,530	)
Net change in net interest income	$	317		$	(234	)	$	179		$	262