Exhibit 13.1

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial and other data of First Ottawa Bancshares, Inc. and its wholly owned subsidiary, the First
National Bank of Ottawa. This information should be read in conjunction with the Consolidated Financial Statements and notes thereto included herein. All dollar amounts are in thousands, except per
share information.

|                                                                           |  | Year ended December 31, |        
|-------------------------------------------------------------------------- |  | ----------------------- | -------
|
|Statement of Income Data:                                                  |  |                         |        
|Total interest income                                                      |  | $                       | 14,921 
|Total interest expense                                                     |  |                         | 7,773  
|                                                                           |  |                         |        
|Net interest income                                                        |  |                         | 7,148  
|Provision for loan losses                                                  |  |                         | 300    
|Noninterest income                                                         |  |                         | 2,457  
|Noninterest expenses                                                       |  |                         | 6,732  
|                                                                           |  |                         |        
|Income before income taxes                                                 |  |                         | 2,573  
|Provision for income taxes                                                 |  |                         | 460    
|                                                                           |  |                         |        
|Net income                                                                 |  | $                       | 2,113  
|Per Share Data:                                                            |  |                         |        
|Net income                                                                 |  | $                       | 3.19   
|Cash dividends declared                                                    |  |                         | 3.00   
|Book value at end of year                                                  |  |                         | 34.79  
|Selected Financial Ratios:                                                 |  |                         |        
|Return on average assets(3)                                                |  |                         | .94    
|Return on average equity(3)                                                |  |                         | 8.92   
|Dividend payout ratio                                                      |  |                         | 94.04  
|Average equity to average assets(3)                                        |  |                         | 10.55  
|Net interest margin (tax equivalent)                                       |  |                         | 3.74   
|Allowance for loan losses to total loans at the end of period              |  |                         | 1.01   
|Nonperforming loans to total loans at the end of period(1)                 |  |                         | 1.15   
|Net loans charged off to average total loans                               |  |                         | .25    
|Balance Sheet Data:                                                        |  |                         |        
|Total assets                                                               |  | $                       | 232,565
|Total earning assets                                                       |  |                         | 216,927
|Average assets(2)                                                          |  |                         | 224,653
|Gross loans, including loans held for sale                                 |  |                         | 109,508
|Allowance for loan losses                                                  |  |                         | 1,109  
|Total deposits                                                             |  |                         | 165,267
|Federal funds purchased and securities sold under agreements to repurchase |  |                         | 35,899 
|Shareholders' equity                                                       |  |                         | 22,907 

---

1

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MANAGEMENT'S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended as a review of significant factors affecting the financial condition and results of operations of the Company
for the periods indicated. The discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto and the Selected Consolidated Financial Data presented herein. In
addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed elsewhere in this report.

Overview

The Company's principal business is conducted by the Bank and consists of a full range of community-based financial services, including commercial and retail
banking. The profitability of the Company's operations depends primarily on its net interest income, provision for loan losses, other income, and other expenses. Net interest income is the difference
between the income the Company receives on its loan and securities portfolios and its cost of funds, which consists of interest paid on deposits and borrowings. The provision for loan losses reflects
the cost of credit risk in the Company's loan portfolio. Other income consists of service charges on deposit accounts, trust and farm management fee income, securities gains (losses), gains (losses)
on sales of loans, and other income. Other expenses include salaries and employee benefits, as well as occupancy and equipment expenses and other noninterest expenses.

Net
interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts of and rates on interest-bearing liabilities. Net interest income is
sensitive to changes in market rates of interest and the Company's asset/liability management procedures in coping with such changes. The provision for loan losses is dependent upon management's
assessment of the collectibility of the loan portfolio under current economic conditions.

Consolidated Financial Condition

Total assets at December 31, 2001 were $232.6 million compared to $225.0 million at December 31, 2000, an increase of
$7.6 million, or 3.4%. The increase in total assets was a result of a $15.0 million increase in investment securities and certificates of deposit held for investment purposes. Securities
increased as a result of the redeployment of funds occurring due to loan repayments exceeding originations and increased borrowed funds. Other borrowings increased $9.3 million and were used
primarily to invest in
securities while returns were considered favorable in light of the current rate environment trends. The increase in other borrowings, including a $5.1 million increase in federal funds
purchased and a $4.2 million increase in Federal Home Loan Bank advances, was used to invest in securities, as deposits decreased $8.2 million during 2001. Loans held for sale also
increased $782,000 as customers refinanced loans in reaction to the current rate environment. Increases were partially offset by a decrease in loans receivable of $8.9 million, as loan
repayments exceeded new loans originated during 2001. Although loans receivable decreased overall, commercial and agricultural loans increased $13.1 million during 2001 due to an effort by
management to increase the size of the commercial loan portfolio. The increase in commercial and agricultural loans was offset by the decrease in installment loans of $14.8 million due to a
general decline in indirect lending volume and more stringent underwriting guidelines on consumer loans. Real estate loans also decreased $8.8 million due to the current rate environment and
the increase in refinancing and conventional loan sales during 2001.

2

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Total
equity was $22.9 million at December 31, 2001 compared to $22.6 million at December 31, 2000. The increase was primarily the result of an increase in
the unrealized gain (loss) on securities available-for-sale, net of tax, of $394,000 and net income of $2.1 million. The increase was partially offset by the repurchase
of Company common stock for $196,000 and dividends declared of $2.0 million.

Consolidated Results of Operations

Net income was $2.1 million for the year ended December 31, 2001 compared to $2.1 million for the year ended December 31, 2000. The
return on average assets was .94% in 2001 compared to .92% in 2000. The return on average equity decreased to 8.92% in 2001 from 9.62% in 2000. This resulted primarily from the change in the fair
value of securities, net of income tax effects, which is included in total equity when calculating this ratio.

Net
income was $2.1 million for the year ended December 31, 2000, a decrease of $100,000 from $2.2 million for the year ended December 31, 1999. The return on
average assets increased to .92% in 2000 from 0.90% in 1999. The return on average equity was 9.62% in 2000 with a return on average equity of 7.55% in 1999. This resulted primarily from the change in
the fair value of securities, net of income tax effects, which is included in total equity when calculating this ratio. This ratio was also impacted by the $5.0 million repurchase of Company
common stock in 2000.

2001 Compared to 2000

Net Interest Income.Net interest income was $7.2 million in 2001 compared to $7.5 million in 2000, a decrease
of $300,000, or 4.0%. Interest income on earning assets decreased $1.1 million in 2001 from 2000. The decrease was primarily due to decreased interest income on loans attributable to a decrease
in the average balance of loans of $10 million, while average tax-equivalent loan rates were falling. During 2001, the Federal Reserve made eleven interest rate cuts that ultimately
reduced the Bank's prime lending rate from 9.5% to 4.75% at the conclusion of the year. This unprecedented decline in rates put pressure on the Company's primary driver of earnings, the net interest
margin. Interest expense on interest-bearing liabilities decreased $752,000 as a result of a decrease in the average rate paid on liabilities of 29 basis points, from 4.65% in 2000 to 4.36% in 2001
and a decrease in the average balance of certificates of deposits of $6.6 million. The net interest margin on a tax equivalent basis decreased to 3.74% in 2001 from 3.87% in 2000. The primary
reason for the decrease in the net interest margin was the result of rates on earning assets repricing downward more quickly than the rates on interest-bearing liabilities in addition to an overall
decrease in volume of assets and liabilities.

Provision for Loan Losses.The provision for loan losses decreased $60,000 from $360,000 in 2000 to $300,000 in 2001. The
decrease in the provision was largely due to the decrease in the size of the loan portfolio in 2001 compared to 2000. As of December 31, 2001, the allowance for loan losses totaled
$1.1 million, or 1.01% of total loans, compared to $1.1 million, or .94% of total loans, at December 31, 2000. The amounts of the provision and allowance for loan losses are
influenced by current economic conditions, actual loss experience, industry trends, and other factors, including real estate values in the Company's market area and management's assessment of current
collection risks within its loan portfolio. Along with other financial institutions, management shares a concern for the possible continued softening of the economy in 2002. Should the economic
climate continue to deteriorate, borrowers may experience difficulty, and the level of non-performing loans, charge-offs, and delinquencies could rise and require increases in
the provision.

Noninterest Income.The Company's noninterest income totaled $2.5 million in 2001 compared to $1.7 million in
2000. The increase was primarily a result of increases in service charges on deposit accounts and net gains on sales of securities and loans. Service charges increased as a result of changes

3

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in the fee structure related to overdrafts. The $164,000 increase in gains on the sale of mortgage loans in 2001 was primarily due to customers refinancing loans as rates decreased during the year.
Gains on the sale of investments also increased to $539,000 in 2001 from $11,000 in 2000 due to the sales of bonds to replace tax-exempt bonds with taxable positions, shorten maturities,
improve interest rate risk, and enhance current earnings.

Noninterest Expenses.The Company's noninterest expenses increased to $6.7 million in 2001 from $6.5 million in
2000. The increase was primarily due to increases in salaries and employee benefits and professional fees. Salaries and employee benefits increased $157,000 due to general pay increases, the hiring of
new loan personnel, and increases in employee insurance costs in 2001. Professional fees increased due to negotiations and professional fees associated with the purchase of the property in Morris,
Illinois for the purpose of branch expansion. These increases were partially offset by decreases in supplies and advertising and promotion expenses. Supplies and advertising and marketing expenses
decreased as a result of cost control efforts initiated by management in late 2000.

Income Taxes.The Company's tax rate varies from statutory rates principally due to interest income from
tax-exempt securities and loans. The Company's effective tax rate was 17.9% and 10.9% for 2001 and 2000.

2000 Compared to 1999

Net Interest Income.Net interest income was $7.5 million in 2000 compared to $8.2 million in 1999, a decrease
of $757,000, or 9.2%. Interest income on earning assets decreased $497,000 in 2000 from 1999. Interest income on loans increased slightly because of an increase in the average balance of loans of
$1.1 million, while average tax-equivalent loan rates remained stable. This increase was more than offset by a decrease in securities income of $717,000, which was primarily the
result of a decrease in the average balance of $11.5 million. The overall yield on securities on a tax-equivalent basis remained relatively stable. Interest expense on
interest-bearing liabilities increased $260,000 as a result of an increase in the average rate paid on liabilities of 25 basis points, from 4.40% in 1999 to 4.65% in 2000. This increase was primarily
due to the increase in the average balance of repurchase agreements of $7.4 million at a higher average cost than deposits. A decrease in the average balance of interest-bearing liabilities of
$4.9 million partially offset the increase in average rates. The net interest margin on a tax equivalent basis decreased to 3.87% in 2000 from 4.11% in 1999. The primary reason for the decrease
in the net interest margin was the increase in the average rate paid on interest-bearing liabilities exceeding the increase in the average yield on earning assets. Additionally, the ratio of
interest-bearing liabilities to earning assets increased in 2000 due to the repurchase of shares by the Company.

Provision for Loan Losses.The provision for loan losses decreased $24,000 from $384,000 in 1999 to $360,000 in 2000. The
decrease in the provision was largely due to the decrease in the size of the loan portfolio in 2000 compared to 1999. As of December 31, 2000, the allowance for loan losses totaled
$1.1 million, or .94% of total loans, compared to $1.1 million, or .82% of total loans, at December 31, 1999. The amounts of the provision and allowance for loan losses are
influenced by current economic conditions, actual loss experience, industry trends, and other factors, including real estate values in the Company's market area and management's assessment of current
collection risks within its loan portfolio.

Noninterest Income.The Company's noninterest income totaled $1.7 million in 2000 compared to $1.5 million in
1999. The increase was primarily a result of increases in service charges on deposit accounts and other income in 2000. Service charges increased as a result of changes in the fee structure related to
overdrafts. Other income increased primarily as a result of gains on the sale of loans of $76,000.

4

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Noninterest Expenses.The Company's noninterest expenses decreased to $6.5 million in 2000 from $6.7 million in
1999. The decrease was due to decreases in salaries and employee benefits, occupancy and equipment expense, supplies expense, advertising and promotions, and professional fees. These decreases were
partially offset by an increase in other expenses. The decrease in salaries and employee benefits was primarily due to $599,000 of settlement and curtailment losses incurred in 1999 related to the
Company's pension plan. Excluding the settlement and curtailment losses, salaries and benefits increased $354,000, or 11%, primarily due to the hiring of a new head lender and cost of living and merit
pay increases. Occupancy, supplies and advertising and marketing expenses decreased as a result of cost control efforts initiated by management in late 1999. Professional fees were higher in 1999 due
to the formation of the holding company. Other expenses increased due to an increase in expenses related to repossessed assets and increased director fees to be comparable to peers.

Income Taxes.The Company's tax rate varies from statutory rates principally due to interest income from
tax-exempt securities and loans. The Company's effective tax rate was 10.9% and 19.2% for 2000 and 1999.

Interest-Earning Assets and Interest-Bearing Liabilities

The following table sets forth the average balances, net interest income and expense, and average yields and rates for the Company's interest-earning assets and
interest-bearing liabilities for the indicated years on a tax-equivalent basis assuming a 34% tax rate.

5

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Analysis of Average Balances, Tax Equivalent Yields and RatesYears ended December 31, 2001, 2000, and 1999
($000s)

|                                     |                                                      | 2001 |         | 2000    |   | 1999  |       
|------------------------------------ | ---------------------------------------------------- | ---- | ------- | ------- | - | ----- | ------
|
|Loans(1)(3)                          |                                                      | $    | 113,106 |         | $ | 9,438 |       
|Investment CDs                       |                                                      |      | 1,728   |         |   | 72    |       
|Securities(2)(5)                     |                                                      |      | 94,043  |         |   | 6,063 |       
|Federal funds sold                   |                                                      |      | 2,697   |         |   | 112   |       
|                                     |                                                      |      |         |         |   |       |       
|                                     | Interest-earning assets                              |      |         | 211,574 |   |       | 15,685
|Non-interest-earning assets(6)       |                                                      |      | 13,079  |         |   |       |       
|                                     |                                                      |      |         |         |   |       |       
|                                     | Average assets                                       |      | $       | 224,653 |   |       |       
|                                     |                                                      |      |         |         |   |       |       
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                      |      |         |         |   |       |       
|NOW and money market                 |                                                      | $    | 33,607  |         |   | 624   |       
|Savings                              |                                                      |      | 16,654  |         |   | 326   |       
|Time deposits                        |                                                      |      | 96,615  |         |   | 5,513 |       
|Repurchase agreements                |                                                      |      | 27,062  |         |   | 1,125 |       
|Federal funds purchased              |                                                      |      | 1,589   |         |   | 58    |       
|Federal Home Loan Bank advance       |                                                      |      | 2,685   |         |   | 127   |       
|                                     |                                                      |      |         |         |   |       |       
|                                     | Interest-bearing liabilities                         |      |         | 178,212 |   |       | 7,773 
|                                     |                                                      |      |         |         |   |       |       
|                                     | Net interest income                                  |      |         |         |   | $     | 7,912 
|                                     |                                                      |      |         |         |   |       |       
|                                     | Net yield on interest-earning assets                 |      |         |         |   |       |       
|                                     | Interest-bearing liabilities to earning assets ratio |      |         |         |   |       |       
|Non-interest-bearing liabilities     |                                                      |      | 22,749  |         |   |       |       
|Shareholders' equity                 |                                                      |      | 23,692  |         |   |       |       
|                                     |                                                      |      |         |         |   |       |       
|                                     | Average liabilities and shareholders' equity         |      | $       | 224,653 |   |       |       
|                                     |                                                      |      |         |         |   |       |       

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6

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The components of the changes in net interest income are shown below. Changes in net interest income are allocated between amounts attributed to changes in rate and changes in volume for
the various categories of interest-earning assets and interest-bearing liabilities.

Analysis of Changes in Interest Income and Expense($000s)

|                               |                        | 2001 - 2000
Increase (Decrease) |        | 2000 - 1999
Increase (Decrease) |     
|------------------------------ | ---------------------- | ------------------------------- | ------ | ------------------------------- | ----
|
|Loans                          |                        | $                               | (1,044 | )                               | $   
|Investment CDs                 |                        |                                 | 72     |                                 |     
|Securities                     |                        |                                 | (265   | )                               |     
|Federal funds sold             |                        |                                 | 24     |                                 |     
|                               |                        |                                 |        |                                 |     
|                               | Total interest income  |                                 |        | (1,213                          | )   
|                               |                        |                                 |        |                                 |     
|INTEREST EXPENSE               |                        |                                 |        |                                 |     
|NOW and money market           |                        |                                 | (312   | )                               |     
|Savings                        |                        |                                 | (42    | )                               |     
|Time deposits                  |                        |                                 | (271   | )                               |     
|Repurchase agreements          |                        |                                 | (33    | )                               |     
|Federal Home Loan Bank advance |                        |                                 | 127    |                                 |     
|Federal funds purchased        |                        |                                 | (221   | )                               |     
|                               |                        |                                 |        |                                 |     
|                               | Total interest expense |                                 |        | (752                            | )   
|                               |                        |                                 |        |                                 |     
|                               |                        | Net interest earnings           |        | $                               | (461

Volume/rate
variances are allocated to the volume variance and the rate variance on an absolute basis.

Tax-exempt
income is reflected on a fully tax-equivalent basis utilizing a 34% rate for municipal securities and tax-exempt loans.

7

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's overall interest rate sensitivity is demonstrated by net interest income analysis and "Gap" analysis. Net interest income analysis measures the
change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in net interest income in the event of sudden and sustained 2.0%
increases and decreases in market interest rates. The tables below present the Company's projected changes in net interest income for the various rate shock levels for the three months ended
December 31, 2001 and 2000.

2001 Net Interest IncomeAmount

Change

Change(Dollars in Thousands)+200 bp

$
1,394

$
(536
)
(27.8
)%Base


1,930




200 bp


2,253


323

16.7
%


2000 Net Interest IncomeAmount

Change

Change(Dollars in Thousands)+200 bp

$
1,386

$
(363
)
(20.8
)%Base


1,749




200 bp


1,873


124

7.1
%


As
shown above, at December 31, 2001, the effect of an immediate 200 basis point increase in interest rates would decrease the Company's net interest income by 27.8% or
approximately $536,000. The effect of an immediate 200 basis point decrease in rates would increase the Company's net interest income by 16.7%, or approximately $323,000.

Interest
rate sensitivity reflects modest exposure in an increasing rate environment at the end of 2000. Falling interest rates throughout 2001 had an adverse effect on net interest
income. As a result net interest income sensitivity has increased from 2000 to 2001.

Liquidity and Capital Resources

The Company's primary sources of funds are deposits, repurchase agreements, and proceeds from principal and interest payments on loans and securities. While
maturities and scheduled amortization of loans and securities and calls of securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, and competition. The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships.

Liquidity
management is both a daily and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management's assessment of
(i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of its asset/liability
management program. Excess liquid assets are invested generally
in interest-earning overnight deposits and short- and intermediate-term U.S. government and agency obligations.

The
Company's cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Cash flows provided by
operating activities were $2.7 million, $3.0 million, and $1.6 million for the years ended December 31, 2001, 2000, and 1999. Net cash from investing activities consisted
primarily of principal collections on loans and proceeds from maturation and sales of securities offset by disbursements for loan originations and the purchase of securities. Net cash from financing
activities consisted primarily of changes in net deposits,

8

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short-term borrowings, and Federal Home Loan Bank advances partially offset by dividends paid and the purchase of Company stock.

The
Company's most liquid assets are cash and short-term investments. The levels of these assets are dependent on the Company's operating, financing, lending, and investing
activities during any given year. At December 31, 2001, cash and short-term investments totaled $7.9 million. The Company has other sources of liquidity if a need for
additional funds arises, including securities maturing within one year and the repayment of loans. The Company may also utilize the sale of securities available-for-sale,
federal funds lines of credit from correspondent banks, and borrowings from the Federal Home Loan Bank of Chicago and American National Bank.

The
following table discloses contractual obligations and commercial commitments of the Company as of December 31, 2001:

Total

Less Than
1 Year

1 - 3 Years

4 - 5 Years

After
5 YearsFederal funds purchased

$
5,050

$
5,050

$


$


$
Securities sold under agreements to repurchase


30,849


30,849








FHLB advances


4,000


4,000








Note payable


200


200








$
40,099

$
40,099

$


$


$



Total
Amounts
Committed

Less Than
1 Year

1 - 3 Years

4 - 5 Years

Over
5 YearsLines of credit(1)

$
11,971

$
6,447

$
460

$
557

$
4,507Standby letters of
credit(1)


342


16


326





Other commitments to extend credit(1)


99


99








$
12,412

$
6,562

$
786

$
557

$
4,507


---

During
2001 and 2000, the Company repurchased 3,925 and 87,719 shares of its common stock for $196,000 and $5.0 million.

Capital
provides the foundation for future growth. Regulatory agencies have developed minimum guidelines by which the adequacy of a financial institution's capital may be evaluated. All
of the Company's ratios exceed the levels required under regulatory guidelines as shown in Note 14 of the Consolidated Financial Statements.

Facilities

The Company has purchased real estate in Morris, Illinois with the intention of establishing a full service branch facility in that community. However, management
has not yet obtained construction cost estimates for the facility. In addition, an extensive remodeling project of the main banking facility was commenced in the third quarter of 2001, with an
estimated completion date prior to the end of the second quarter of 2002.

9

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Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of
America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than does inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of goods and services.

Special Note Concerning Forward-Looking Statements

This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain,
forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives,
future performance and business of the
Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally
identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. Additionally, all
statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information
or future events.

The
Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations
and future prospects of the Company and its subsidiaries include, but are not limited to, the following:



10

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These
risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning
the Company and its business, including other factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.

11

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REPORT OF INDEPENDENT AUDITORS

Board
of Directors and Shareholders
First Ottawa Bancshares, Inc.
Ottawa, Illinois

We
have audited the accompanying consolidated balance sheets of First Ottawa Bancshares, Inc. and Subsidiary as of December 31, 2001 and 2000 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Ottawa Bancshares, Inc. and
Subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

|                                     |  | Crowe, Chizek and Company LLP
|------------------------------------ |  | -----------------------------
|Oak Brook, Illinois
January 18, 2002 |  |                              

12

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FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY  CONSOLIDATED BALANCE SHEETS  December 31, 2001 and 2000  (In thousands, except share and per share data)

|                                                           |                                                                       | 2001                       |                                            | 2000   |        
|---------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------ | -------
|ASSETS                                                     |                                                                       |                            |                                            |        |        
|Cash and due from banks                                    |                                                                       | $                          | 7,933                                      |        | $      
|Certificates of deposit                                    |                                                                       |                            | 3,100                                      |        |        
|Securities available-for-sale                              |                                                                       |                            | 104,319                                    |        |        
|Loans held for sale                                        |                                                                       |                            | 1,475                                      |        |        
|Loans, less allowance for loan losses of $1,109 and $1,108 |                                                                       |                            | 106,924                                    |        |        
|Premises and equipment, net                                |                                                                       |                            | 2,839                                      |        |        
|Due from broker                                            |                                                                       |                            | 477                                        |        |        
|Interest receivable and other assets                       |                                                                       |                            | 5,498                                      |        |        
|                                                           |                                                                       |                            |                                            |        |        
|                                                           |                                                                       | Total assets               |                                            | $      | 232,565
|                                                           |                                                                       |                            |                                            |        |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                       |                                                                       |                            |                                            |        |        
|Liabilities                                                |                                                                       |                            |                                            |        |        
|                                                           | Deposits                                                              |                            |                                            |        |        
|                                                           | Demandnon-interest-bearing                                           |                            | $                                          | 21,437 |        
|                                                           | NOW accounts                                                          |                            |                                            | 23,835 |        
|                                                           | Money market accounts                                                 |                            |                                            | 8,554  |        
|                                                           | Savings                                                               |                            |                                            | 16,860 |        
|                                                           | Time, $100,000 and over                                               |                            |                                            | 20,479 |        
|                                                           | Other time                                                            |                            |                                            | 74,102 |        
|                                                           |                                                                       |                            |                                            |        |        
|                                                           |                                                                       | Total deposits             |                                            |        | 165,267
|                                                           | Federal funds purchased                                               |                            |                                            | 5,050  |        
|                                                           | Securities sold under agreements to repurchase                        |                            |                                            | 30,849 |        
|                                                           | Borrowings                                                            |                            |                                            | 4,200  |        
|                                                           | Interest payable and other liabilities                                |                            |                                            | 4,292  |        
|                                                           |                                                                       |                            |                                            |        |        
|                                                           |                                                                       | Total liabilities          |                                            |        | 209,658
|Shareholders' equity                                       |                                                                       |                            |                                            |        |        
|                                                           | Common stock1 par value, 750,000 shares authorized and issued        |                            |                                            | 750    |        
|                                                           | Additional paid-in capital                                            |                            |                                            | 4,000  |        
|                                                           | Retained earnings                                                     |                            |                                            | 23,178 |        
|                                                           | Treasury stock, at cost; 91,644 shares in 2001; 87,719 shares in 2000 |                            |                                            | (5,196 | )      
|                                                           | Accumulated other comprehensive income (loss)                         |                            |                                            | 175    |        
|                                                           |                                                                       |                            |                                            |        |        
|                                                           |                                                                       | Total shareholders' equity |                                            |        | 22,907 
|                                                           |                                                                       |                            |                                            |        |        
|                                                           |                                                                       |                            | Total liabilities and shareholders' equity |        | $      
|                                                           |                                                                       |                            |                                            |        |        

See
accompanying notes to consolidated financial statements.

13

---



FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY  CONSOLIDATED STATEMENTS OF INCOME  Years ended December 31, 2001, 2000, and 1999  (In thousands, except share and per share data)

|                                                    |                                      | 2001                           |         | 2000  |        | 1999    |       
|--------------------------------------------------- | ------------------------------------ | ------------------------------ | ------- | ----- | ------ | ------- | ------
|Interest income                                     |                                      |                                |         |       |        |         |       
|                                                    | Loans (including fee income)         |                                | $       | 9,416 |        | $       | 10,461
|                                                    | Securities                           |                                |         |       |        |         |       
|                                                    |                                      | Taxable                        |         |       | 3,880  |         |       
|                                                    |                                      | Exempt from federal income tax |         |       | 1,441  |         |       
|                                                    | Federal funds sold                   |                                |         | 112   |        |         | 88    
|                                                    | Certificates of deposit              |                                |         | 72    |        |         |      
|                                                    |                                      |                                |         |       |        |         |       
|                                                    |                                      | Total interest income          |         |       | 14,921 |         |       
|Interest expense                                    |                                      |                                |         |       |        |         |       
|                                                    | NOW account deposits                 |                                |         | 387   |        |         | 562   
|                                                    | Money market deposit accounts        |                                |         | 237   |        |         | 374   
|                                                    | Savings deposits                     |                                |         | 326   |        |         | 368   
|                                                    | Time deposits                        |                                |         | 5,513 |        |         | 5,784 
|                                                    | Repurchase agreements                |                                |         | 1,125 |        |         | 1,158 
|                                                    | Federal funds purchased              |                                |         | 58    |        |         | 279   
|                                                    | Borrowings                           |                                |         | 127   |        |         |      
|                                                    |                                      |                                |         |       |        |         |       
|                                                    |                                      | Total interest expense         |         |       | 7,773  |         |       
|                                                    |                                      |                                |         |       |        |         |       
|Net interest income                                 |                                      |                                | 7,148   |       |        | 7,470   |       
|Provision for loan losses                           |                                      |                                | 300     |       |        | 360     |       
|                                                    |                                      |                                |         |       |        |         |       
|Net interest income after provision for loan losses |                                      |                                | 6,848   |       |        | 7,110   |       
|Noninterest income                                  |                                      |                                |         |       |        |         |       
|                                                    | Service charges on deposit accounts  |                                |         | 819   |        |         | 746   
|                                                    | Trust and farm management fee income |                                |         | 420   |        |         | 417   
|                                                    | Other income                         |                                |         | 441   |        |         | 501   
|                                                    | Gain (loss) on sale of loans         |                                |         | 238   |        |         | 74    
|                                                    | Securities gains (losses), net       |                                |         | 539   |        |         | 11    
|                                                    |                                      |                                |         |       |        |         |       
|                                                    |                                      | Total noninterest income       |         |       | 2,457  |         |       
|Noninterest expenses                                |                                      |                                |         |       |        |         |       
|                                                    | Salaries and employee benefits       |                                |         | 3,893 |        |         | 3,736 
|                                                    | Occupancy and equipment expense      |                                |         | 822   |        |         | 813   
|                                                    | Data processing expense              |                                |         | 510   |        |         | 513   
|                                                    | Supplies                             |                                |         | 119   |        |         | 142   
|                                                    | Advertising and promotions           |                                |         | 112   |        |         | 141   
|                                                    | Professional fees                    |                                |         | 354   |        |         | 308   
|                                                    | Other expenses                       |                                |         | 922   |        |         | 857   
|                                                    |                                      |                                |         |       |        |         |       
|                                                    |                                      | Total noninterest expenses     |         |       | 6,732  |         |       
|                                                    |                                      |                                |         |       |        |         |       
|Income before income taxes                          |                                      |                                | 2,573   |       |        | 2,349   |       
|Provision for income taxes                          |                                      |                                | 460     |       |        | 257     |       
|                                                    |                                      |                                |         |       |        |         |       
|Net income                                          |                                      | $                              | 2,113   |       | $      | 2,092   |       
|Earnings per share                                  |                                      | $                              | 3.19    |       | $      | 3.14    |       
|Average shares outstanding                          |                                      |                                | 662,249 |       |        | 667,092 |       

See
accompanying notes to consolidated financial statements.

14

---



FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY  Years ended December 31, 2001, 2000, and 1999  (In thousands, except per share data)

|                                                                                              |  | Common
Stock |     | Additional
Paid-In
Capital |   | Retained
Earnings |  | Treasury
Stock |        | Accumulated
Other
Comprehensive
Income (Loss) |   | Total
Share-
holders'
Equity |  
|--------------------------------------------------------------------------------------------- |  | ------------ | --- | -------------------------- | - | ----------------- |  | -------------- | ------ | --------------------------------------------- | - | ---------------------------- | -
|Balance at January 1, 1999                                                                    |  | $            | 750 |                            | $ | 4,000             |  | $              | 23,043 |                                               | $ |                             |  
|Net income                                                                                    |  |              |    |                            |   |                  |  |                | 2,154  |                                               |   |                             |  
|Unrealized net loss on securities available-for-sale, net of reclassification and tax effects |  |              |    |                            |   |                  |  |                |       |                                               |   |                             |  
|                                                                                              |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Comprehensive loss                                                                            |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Cash dividends declared ($3.00 per share)                                                     |  |              |    |                            |   |                  |  |                | (2,250 | )                                             |   |                             |  
|                                                                                              |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Balance at December 31, 1999                                                                  |  |              | 750 |                            |   | 4,000             |  |                | 22,947 |                                               |   |                             |  
|Net income                                                                                    |  |              |    |                            |   |                  |  |                | 2,092  |                                               |   |                             |  
|Unrealized net gain on securities available-for-sale, net of reclassification and tax effects |  |              |    |                            |   |                  |  |                |       |                                               |   |                             |  
|Comprehensive income                                                                          |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Cash dividends declared ($3.00 per share)                                                     |  |              |    |                            |   |                  |  |                | (1,987 | )                                             |   |                             |  
|Purchase of 87,719 treasury shares                                                            |  |              |    |                            |   |                  |  |                |       |                                               |   | (5,000                       | )
|                                                                                              |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Balance at December 31, 2000                                                                  |  |              | 750 |                            |   | 4,000             |  |                | 23,052 |                                               |   | (5,000                       | )
|Net income                                                                                    |  |              |    |                            |   |                  |  |                | 2,113  |                                               |   |                             |  
|Unrealized net gain on securities available-for-sale, net of reclassification and tax effects |  |              |    |                            |   |                  |  |                |       |                                               |   |                             |  
|Comprehensive income                                                                          |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Cash dividends declared ($3.00 per share)                                                     |  |              |    |                            |   |                  |  |                | (1,987 | )                                             |   |                             |  
|Purchase of 3,925 treasury shares                                                             |  |              |    |                            |   |                  |  |                |       |                                               |   | (196                         | )
|                                                                                              |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  
|Balance at December 31, 2001                                                                  |  | $            | 750 |                            | $ | 4,000             |  | $              | 23,178 |                                               | $ | (5,196                       | )
|                                                                                              |  |              |     |                            |   |                   |  |                |        |                                               |   |                              |  

See
accompanying notes to consolidated financial statements.

15

---



FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY  CONSOLIDATED STATEMENTS OF CASH FLOWS  Years ended December 31, 2001, 2000, and 1999  (In thousands, except per share data)

|                                                  |                                                                           | 2001                                                         |                                    | 2000    |       | 1999   |        
|------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------- | ------- | ----- | ------ | -------
|Cash flows from operating activities              |                                                                           |                                                              |                                    |         |       |        |        
|                                                  | Net income                                                                |                                                              | $                                  | 2,113   |       | $      | 2,092  
|                                                  | Adjustments to reconcile net income to net cash from operating activities |                                                              |                                    |         |       |        |        
|                                                  |                                                                           | Change in deferred loan fees                                 |                                    |         |      |        |        
|                                                  |                                                                           | Provision for loan losses                                    |                                    |         | 300   |        |        
|                                                  |                                                                           | Depreciation and amortization                                |                                    |         | 283   |        |        
|                                                  |                                                                           | Premium amortization on securities, net                      |                                    |         | 35    |        |        
|                                                  |                                                                           | Net real estate loans originated for sale                    |                                    |         | (544  | )      |        
|                                                  |                                                                           | Net (gains) losses on loan sales                             |                                    |         | (238  | )      |        
|                                                  |                                                                           | Federal Home Loan Bank stock dividends                       |                                    |         | (40   | )      |        
|                                                  |                                                                           | Net (gains) losses on sales of securities available-for-sale |                                    |         | (539  | )      |        
|                                                  |                                                                           | Change in interest receivable and other assets               |                                    |         | 1,087 |        |        
|                                                  |                                                                           | Change in interest payable and other liabilities             |                                    |         | (41   | )      |        
|                                                  |                                                                           |                                                              |                                    |         |       |        |        
|                                                  |                                                                           |                                                              | Net cash from operating activities |         |       | 2,416  |        
|Cash flows from investing activities              |                                                                           |                                                              |                                    |         |       |        |        
|                                                  | Proceeds from sales of securities available-for-sale                      |                                                              |                                    | 19,612  |       |        | 2,452  
|                                                  | Proceeds from maturities of securities                                    |                                                              |                                    | 46,297  |       |        | 4,662  
|                                                  | Purchases of securities available-for-sale                                |                                                              |                                    | (77,119 | )     |        | (7,335 
|                                                  | Purchases of investment certificates of deposit                           |                                                              |                                    | (3,100  | )     |        |       
|                                                  | Net change in loans receivable                                            |                                                              |                                    | 8,372   |       |        | 10,296 
|                                                  | Premises and equipment expenditures, net                                  |                                                              |                                    | (608    | )     |        | (276   
|                                                  |                                                                           |                                                              |                                    |         |       |        |        
|                                                  |                                                                           |                                                              | Net cash from investing activities |         |       | (6,546 | )      
|Cash flows from financing activities              |                                                                           |                                                              |                                    |         |       |        |        
|                                                  | Change in deposits                                                        |                                                              |                                    | (8,186  | )     |        | (10,436
|                                                  | Change in federal funds purchased                                         |                                                              |                                    | 5,050   |       |        | (7,600 
|                                                  | Change in securities sold under agreements to repurchase                  |                                                              |                                    | 6,211   |       |        | 5,973  
|                                                  | Proceeds from borrowings                                                  |                                                              |                                    | 4,200   |       |        |       
|                                                  | Purchase of treasury stock                                                |                                                              |                                    | (196    | )     |        | (5,000 
|                                                  | Dividends paid                                                            |                                                              |                                    | (1,987  | )     |        | (2,162 
|                                                  |                                                                           |                                                              |                                    |         |       |        |        
|                                                  |                                                                           |                                                              | Net cash from financing activities |         |       | 5,092  |        
|                                                  |                                                                           |                                                              |                                    |         |       |        |        
|Change in cash and due from banks                 |                                                                           |                                                              | 962                                |         |       | (6,272 | )      
|Cash and due from banks at beginning of year      |                                                                           |                                                              | 6,971                              |         |       | 13,243 |        
|                                                  |                                                                           |                                                              |                                    |         |       |        |        
|Cash and due from banks at end of year            |                                                                           | $                                                            | 7,933                              |         | $     | 6,971  |        
|Supplemental disclosures of cash flow information |                                                                           |                                                              |                                    |         |       |        |        
|                                                  | Cash paid during the year for                                             |                                                              |                                    |         |       |        |        
|                                                  |                                                                           | Interest                                                     |                                    | $       | 8,038 |        | $      
|                                                  |                                                                           | Income taxes                                                 |                                    |         | 350   |        |        
|                                                  | Noncash investing activities                                              |                                                              |                                    |         |       |        |        
|                                                  |                                                                           | Transfers made from loans to other real estate owned         |                                    |         | 215   |        |        
|                                                  |                                                                           | Due from broker                                              |                                    |         | 477   |        |        

See
accompanying notes to consolidated financial statements.

16

---



FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2001, 2000, and 1999  (Table dollars in thousands, except per share data)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation:The consolidated financial statements include First Ottawa
Bancshares, Inc. ("Bancshares") and its wholly owned subsidiary, First National Bank of Ottawa ("the Bank") and the Bank's wholly owned subsidiary, First Ottawa Financial Corporation, together
referred to as "the Company." During 2001, the Bank organized a wholly owned subsidiary, First Ottawa Financial Corporation, to sell insurance and investment products. Intercompany transactions and
balances are eliminated in consolidation.

Use of Estimates:To prepare financial statements in conformity with accounting principles generally accepted in the United
States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments, derivatives, and status of contingencies are particularly subject to change.

Cash Flow Reporting:Net cash flows are reported for customer loan and deposit transactions, federal funds purchased, and
securities sold under repurchase agreements.

Securities:Securities are classified as available-for-sale when they might be sold before maturity.
Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported, net of tax, as other comprehensive income. Equity securities include
Federal Home Loan Bank stock and Federal
Reserve Bank stock, which are restricted securities that are carried at cost, and a mutual fund investment that is carried at fair value. Securities are written down to fair value, with a charge to
expense, when a decline in fair value is not temporary.

Realized
gains and losses on sales are determined using the amortized cost of the specific security sold. Interest income includes amortization of purchase premiums and discounts.

Derivatives:All derivative instruments are recorded at their fair values and the change in the fair value of a derivative is
included in interest income. If derivative instruments are designated as hedges of fair values, both the change in the fair value of the hedge and the hedged item are included in current earnings.
Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and reclassified to earnings when the hedged transaction is reflected in earnings. Ineffective portions of
hedges are reflected in earnings as they occur.

Loans:Loans are reported at the principal balance outstanding, net of deferred loan fees and costs and the allowance for
loan losses. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost, net of deferred loan fees, or estimated fair value in the aggregate.

Interest
income is not reported when full loan repayment is in doubt, typically when payments are past due over 90 days. Payments received on such loans are reported as principal
reductions.

Allowance for Loan Losses:The allowance for loan losses is a valuation allowance for probable incurred credit losses,
increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, known and
inherent risks in the portfolio, information about specific borrower situations and estimated

17

---

collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's
judgment, should be charged off.

Loan
impairment is reported when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature, such as residential
mortgage and consumer loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of
estimated future cash flows using the loan's existing rate or at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more, or when the internal grading system indicates a doubtful classification.

Premises and Equipment:Asset cost is reported net of accumulated depreciation. Depreciation expense is calculated on the
straight-line method over the assets useful lives. These assets are reviewed for impairment when events indicate that the carrying amount may not be recoverable. Maintenance and repairs
are charged to expense and improvements are capitalized.

Mortgage Servicing Rights:Servicing rights are recognized as assets for the allocated value of servicing rights retained on
loans sold and are classified with interest receivable and other assets in the consolidated balance sheets. Servicing rights are expensed in proportion to and over the period of estimated net
servicing revenues. Impairment is evaluated based on the fair value of the rights. Any impairment of a grouping is reported as a valuation allowance. There was no such valuation allowance recorded at
year-end 2001 and 2000, and mortgage servicing rights were not material at either date.

Other Real Estate:Real estate owned, other than that used in the normal course of business, is carried at the lower of cost
basis (fair value at date of foreclosure) or fair value less estimated costs to sell. Any reduction to fair value from a related loan at the time of acquisition is accounted for as a loan loss. Any
subsequent reductions in fair value less estimated costs to sell are recorded by charges to expense and a corresponding valuation allowance on the related real estate.

Employee Benefits:A defined benefit pension plan covers substantially all employees, with benefits based on years of service
and compensation prior to retirement. Pension expense is the net of service cost (prior to freezing the plan) and interest cost, return on plan assets, and amortization of gains and losses not
immediately recognized. Contributions to the plan are based on the maximum amount deductible for income tax purposes. On November 10, 1999, all pension plan benefits were frozen with the intent
of considering alternative methods of providing retirement benefits to employees. See Note 9 regarding curtailment and settlement losses.

A
401(k) profit sharing plan covers eligible employees with more than one year of service (one thousand working hours) and who are at least 21 years of age. The plan allows
employee contributions. The Company may make a discretionary matching contribution equal to a percentage of salary deferral. The matching percentage is limited to 6% of compensation. The Company made
contributions of $90,000 in 2001 and $87,000 in 2000.

Income Taxes:Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Fair Values of Financial Instruments:Fair values of financial instruments are estimated using relevant market information
and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk,

18

---

prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair
value estimates of existing on- and off-balance-sheet financial instruments do not include the value of anticipated future business or the values of assets and liabilities not
considered financial instruments.

Earnings Per Share:Basic earnings per share is calculated based on the weighted average common shares outstanding during the
year. The Company had no dilutive securities during 2001, 2000, or 1999.

Comprehensive Income:Comprehensive income includes both net income and other comprehensive income (loss). Other
comprehensive income (loss) includes the change in unrealized gains and losses on securities available-for-sale, net of deferred income taxes.

New Accounting Pronouncements:The Financial Accounting Standards Board issued SFAS No. 142, Goodwill and
Other Intangible Assets,in July 2001. The statement, which was adopted by the Company effective January 1, 2002, no longer
allows for the amortization of goodwill and requires that the carrying value of goodwill be written down when it is deemed to be impaired. Management's analysis as of January 1, 2002 indicated
no impairment to goodwill at that date. The adoption of this standard on January 1, 2002 did not have a material effect on the Company's financial statements.

Reclassifications:Some items in the prior year financial statements were reclassified to conform to the current
presentation.

NOTE 2SECURITIES

Securities available-for-sale as of December 31, 2001 are as follows:

Fair
Value

Gross
Unrealized
Gains

Gross
Unrealized
LossesU.S. treasuries

$
1,580

$
70

$
U.S. government agencies


74,568


545


(891
)States and political subdivisions


18,614


505


(153
)Mortgage-backed securities and collateralized mortgage obligations


5,030


203


Corporate bonds


2,614


18


(13
)Equity securities


1,913


26


(45
)$
104,319

$
1,367

$
(1,102
)


Securities
available-for-sale as of December 31, 2000 are as follows:

Fair
Value

Gross
Unrealized
Gains

Gross
Unrealized
LossesU.S. treasuries

$
8,047

$
27

$
(23
)U.S. government agencies


45,693


74


(708
)States and political subdivisions


33,147


485


(320
)Mortgage-backed securities and collateralized mortgage obligations


4,288


101


Equity securities


1,270


36


(4
)$
92,445

$
723

$
(1,055
)


As
of December 31, 2001 and 2000, the Company had approximately $7,042,000 and $6,225,000 invested in bonds issued by municipalities located within LaSalle County, Illinois.

19

---

Securities
with an approximate carrying value of $58,826,000 and $60,415,000 were pledged at December 31, 2001 and 2000 to secure trust and public deposits, repurchase agreements,
and for other purposes as required or permitted by law.

Contractual
maturities of securities available-for-sale at year-end 2001 were as follows. Securities not due at a single maturity date, primarily
mortgage-backed and equity securities, are shown separately.

Amortized
Cost

Fair
ValueDue in one year or less

$
4,987

$
5,037Due after one year through five years


79,313


79,608Due after five years through ten years


9,102


8,962Due after ten years


3,893


3,769Mortgage-backed securities and collateralized mortgage obligations


4,827


5,030Equity securities


1,932


1,913$
104,054

$
104,319


Information
regarding sales of securities available-for-sale follows:

2001

2000

1999Proceeds

$
19,612

$
2,452

$
28,622Gross gains


540


14


125Gross losses


(1
)

(3
)

(134
)


NOTE 3LOANS

Major classifications of loans as of December 31, 2001 and 2000 are summarized as follows:

2001

2000Real estate

$
47,322

$
56,109Commercial and agricultural


29,361


16,266Installment, net of unearned income


24,595


39,441Home equity lines of credit


6,795


5,143108,073


116,959Deferred loan fees


(40
)

(40
)Allowance for loan losses


(1,109
)

(1,108
)$
106,924

$
115,811


Certain
executive officers, directors, and their related interests are loan customers of the Company. A summary of such loans made by the Company in the ordinary course of business is as
follows:

Balance at December 31, 2000

$
1,999New loans


168Repayments


(146
)Balance at December 31, 2001

$
2,021


Tax-exempt
commercial and agricultural loans totaled approximately $712,000 and $747,000 at December 31, 2001 and 2000. The interest on these loans, which is included
in loan income and is

20

---

exempt from federal income tax, totaled approximately $43,000, $40,000, and $52,000 for the years ended December 31, 2001, 2000, and 1999.

Loans
on which the accrual of interest has been discontinued or reduced amounted to approximately $387,000 and $467,000 at December 31, 2001 and 2000. The average balance of
impaired loans for 2001, 2000, and 1999 was approximately $1,243,000, $1,295,000, and $1,303,000. Interest income recognized on a cash basis from impaired loans was not material for the years ended
December 31, 2001, 2000, and 1999.

Information
regarding impaired loans at December 31, 2001 and 2000 is as follows:

2001

2000Impaired loans with related allowance for loan losses

$
635

$
1,570Impaired loans with no related allowance for loan losses


689


Total impaired loans

$
1,324

$
1,570Allowance for loan losses allocated to impaired loans

$
180

$
383


NOTE 4ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses is summarized as follows for the years ended December 31:

2001

2000

1999Balance at beginning of year

$
1,108

$
1,059

$
1,029Recoveries on loans previously charged off


101


204


118Loans charged off


(400
)

(515
)

(472
)Provision for loan losses


300


360


384Balance at end of year

$
1,109

$
1,108

$
1,059


NOTE 5PREMISES AND EQUIPMENT

Bank premises and equipment consisted of the following at December 31:

2001

2000Land

$
549

$
466Bank premises


3,245


3,234Furniture and equipment


2,923


2,730Total cost


6,717


6,430Less accumulated depreciation


4,255


3,9892,462


2,441Construction in progress


377


56Net book value

$
2,839

$
2,497


The
Bank is in the process of remodeling the main office. Total estimated cost to complete the renovation of the main bank are $511,000 at December 31, 2001.

21

---

NOTE 6DEPOSITS

At December 31, 2001, the scheduled maturities of certificates of deposit were as follows:

2002

$
62,1652003


20,9542004


7,2742005


2,5562006 and thereafter


1,632$
94,581


NOTE 7BORROWINGS

Borrowings at December 31, 2001 consisted of a Federal Home Loan Bank advance and a note payable. The Federal Home Loan Bank advance at December 31,
2001 consists of a $4,000,000 open line of credit with the Federal Home Loan Bank of Chicago, maturing on February 2, 2002. The line of credit is secured by a blanket lien on the Company's
portfolio of one-to-four family mortgages. The interest rate for advances is at a variable market rate (4.4% at December 31, 2001).

The
note payable consists of a $500,000 unsecured line of credit with American National Bank, maturing on November 8, 2002. The outstanding balance under the line of credit was
$200,000 at December 31, 2001. Interest is payable quarterly at the American National Bank's prime rate or LIBOR plus 175 basis points (3.63% at December 31, 2001).

NOTE 8SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase are financing arrangements. Physical control is maintained for all securities sold under repurchase agreements.
Information concerning securities sold under agreements to repurchase is summarized as follows:

2001

2000Average balance during the year

$
27,062

$
19,111Average interest rate at year end


2.31
%

6.10
%Average interest rate during the year


4.16
%

6.06
%Maximum month-end balance during the year

$
33,203

$
26,772


The
following is a schedule of securities sold under repurchase agreements and related securities as of December 31, 2001. The schedule presents the amortized cost and fair value
of each type of security sold under agreements to repurchase by selected maturity dates:

|                                  |  | Overnight |        | 130 Days |   | 31 - 90
Days |  | Over
90 Days |       | Total
|--------------------------------- |  | --------- | ------ | -------- | - | ------------ |  | ------------ | ----- | -----
|
|U.S. treasuries and agencies      |  | $         | 6,500  |          | $ | 6,430        |  | $            | 2,269 |      
|Corporate bonds                   |  |           | 1,123  |          |   | 1,115        |  |              |      |      
|States and political subdivisions |  |           | 1,475  |          |   | 1,518        |  |              | 1,002 |      
|                                  |  |           |        |          |   |              |  |              |       |      
|                                  |  | $         | 9,098  |          | $ | 9,063        |  | $            | 3,271 |      
|                                  |  |           |        |          |   |              |  |              |       |      
|Repurchase agreements             |  | $         | 17,437 |          |   |              |  | $            | 3,150 |      

22

---

NOTE 9PENSION PLAN

The following tables set forth the pension plan's funded status and amounts actuarially determined for the years indicated:

2001

2000

1999Change in benefit obligationBeginning benefit obligation

$
2,230

$
2,649

$
4,087Service cost








169Interest cost


151


180


281Curtailment impact








(738
)Actuarial loss (gain)


(37
)

(30
)

896Benefits paid


(205
)

(569
)

(2,046
)Ending benefit obligation

$
2,139

$
2,230

$
2,649Change in plan assetsBeginning fair value

$
1,367

$
1,840

$
3,550Actual return


(61
)

(12
)

91Employer contribution


115


108


245Benefits paid


(205
)

(569
)

(2,046
)Ending fair value

$
1,216

$
1,367

$
1,840Funded status

$
(923
)
$
(863
)
$
(809
)Unrecognized net actuarial gain








Unrecognized transition cost








Accrued benefit cost

$
(923
)
$
(863
)
$
(809
)


2001

2000

1999Assumptions usedDiscount rate


7.0
%

7.0
%

7.0
%Expected return on plan assets


7.0


7.0


7.0Rate of compensation increase








4.5Components of net periodic benefit costService cost

$


$


$
169Interest cost


151


180


281Curtailment and settlement loss








599Return on plan assets


(61
)

12


(91
)Amortization


(152
)

(103
)

(75
)Net expense (income)

$
(62
)
$
89

$
883


During
1999, lump-sum distributions totaling $1,898,000 were paid out to participants accepting early retirement benefits, resulting in a settlement loss of $408,000. In
addition, in November 1999, the Company approved freezing the pension plan effective in January 2000, resulting in a curtailment loss of $191,000. Settlement and curtailment losses are
included in pension cost above.

23

---

NOTE 10INCOME TAXES

The components of the provision for income taxes for the years ended December 31 are as follows:

2001

2000

1999Currently payable taxFederal

$
495

$
411

$
467State


(12
)




(32
)Deferred tax (benefit) expense


(23
)

(154
)

14$
460

$
257

$
449


The
balance sheets include the following amounts of deferred tax assets and liabilities at December 31:

2001

2000Deferred tax assetsUnrealized loss on securities available-for-sale

$


$
113Bad debt deduction


228


228Pension plan


347


302Deferred compensation


104


76Deferred loan fees


10


13AMT carryforward


90


139Other


105


79884


950Deferred tax liabilitiesUnrealized gain on securities available-for-sale


(90
)

Depreciation


(90
)

(75
)Mortgage servicing rights


(52
)

(58
)Federal Home Loan Bank stock dividends


(32
)

(16
)Other


(4
)

(5
)(268
)

(154
)Net deferred tax asset

$
616

$
796


No
valuation allowance was required on deferred tax assets.

The
difference between the financial statement provision and the amounts computed by applying the federal income tax rate of 34% to income before income taxes is reconciled as follows:

2001

2000

1999Federal income tax expense at statutory rate

$
875

$
799

$
885Increase (decrease) in taxes resulting from Tax-exempt interest


(452
)

(576
)

(642
)Nondeductible interest expense


59


84


79State income taxes and other items, net


(22
)

(50
)

127$
460

$
257

$
449


24

---

NOTE 11DERIVATIVES

The Company uses derivatives to fix future cash flows for interest payments on some of its floating rate certificates of deposit. In this regard, the Company has
entered into an interest rate swap with the Federal Home Loan Bank of Chicago to fix the interest rate on a specific certificate of deposit product. At December 31, 2001, the Company had
$585,000 of certificates of deposit, which mature in 2006, in which it pays the Federal Home Loan Bank a weighted average interest rate of 4.31% and will receive an interest rate from the Federal Home
Loan Bank based on the appreciation of the S&P 500 Index. This interest received from the Federal Home Loan Bank will be paid to the customer. The assets and liabilities in this transaction are being
netted and the expense recorded in interest expense on deposits.

In
addition to the above, the Company also purchased $3,000,000 of certificates of deposit which are included in the certificates of deposit caption on the consolidated balance sheet.
These investments mature throughout 2006. The investments that individually do not exceed $100,000 are secured by the FDIC. Investments that do individually exceed $100,000 are guaranteed by a standby
letter of credit issued by the Federal Home Loan Bank of Pittsburgh with an interest rate of 0%. The initial investment is not at risk, but the return on the investment is based on a calculation of
the appreciation in the S&P 500 Index. The fair value of this embedded derivative is recorded in other assets and the
fair value adjustment is included in interest income. At December 31, 2001, the fair value was estimated to be $72,000.

NOTE 12COMMITMENTS, OFF-BALANCE-SHEET RISK, AND CONTINGENCIES

There are various contingent liabilities that are not reflected in the consolidated financial statements, including claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial
condition or results of operations.

At
year-end 2001 and 2000, reserves of $1,256,000 and $1,677,000 were required as deposits with the Federal Reserve or as cash on hand. These reserves do not earn interest.

Some
financial instruments are used in the normal course of business to meet the financing needs of customers. These financial instruments include commitments to extend credit, standby
letters of credit, and financial guarantees. These involve, to varying degrees, credit and interest-rate risk in excess of the amounts reported in the financial statements.

Exposure
to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit, standby letters of credit, and financial guarantees
written. The same credit policies are used for commitments and conditional obligations as are used for loans. Collateral or other security is normally required to support financial instruments with
credit risk.

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being used, the total commitments do not necessarily
represent future cash requirements. Standby letters of credit and financial guarantees written are conditional commitments to guarantee a customer's performance to a third party.

A
summary of the notional or contractual amounts of financial instruments with off-balance-sheet risk at year end follows:

2001

2000Commitments to extend credit

$
99

$
1,364Unused lines of credit


11,971


9,328Standby letter of credit


342


44


25

---

At
December 31, 2001, all of the commitments to extend credit were at variable rates of interest.

NOTE 13FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate fair values for financial instruments. The carrying amount is considered to estimate fair value for
cash and due from banks, demand, NOW, money market and savings deposits, federal funds purchased, securities sold under repurchase agreements, accrued interest receivable and payable, and variable
rate loans or deposits. Securities fair values are based on quoted market prices or, if no quotes are available, on the rate and term of the security and on information about the issuer. The fair
value of loans held for sale and derivatives are based on quoted market prices. For fixed rate loans or deposits, the fair value is estimated by discounted cash flow analysis using current market
rates for the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. The fair value of
off-balance-sheet items is based on the fees or cost that would currently be charged to enter into or terminate such agreements and is not material.

The
carrying values and estimated fair values of the Company's financial instruments as of December 31, 2001 and 2000 are as follows:

2001

2000Carrying
Value

Estimated
Fair
Value

Carrying
Value

Estimated
Fair
ValueFinancial assetsCash and due from banks

$
7,933

$
7,933

$
6,971

$
6,971Certificates of deposit


3,100


3,100





Securities available-for-sale


104,319


104,319


92,445


92,445Loans held for sale


1,475


1,475


693


693Loans, net


106,924


107,974


115,811


114,538Due from broker


477


477





Certificate of deposit derivative


72


72





Accrued interest receivable


2,325


2,325


2,627


2,627Financial liabilitiesDeposits with no stated maturities


(70,686
)

(70,686
)

(72,493
)

(72,493
)Time deposits and securities sold under agreements to repurchase


(125,430
)

(127,227
)

(125,598
)

(125,600
)Federal funds purchased


(5,050
)

(5,050
)




Borrowings


(4,200
)

(4,236
)




Accrued interest payable


(1,483
)

(1,483
)

(1,748
)

(1,748
)


NOTE 14REGULATORY AND CAPITAL MATTERS

Bancshares may pay dividends without restriction under the current Federal Reserve regulations so long as it remains "adequately capitalized" after such payment.
The Bank is subject to statutory dividend restrictions which provide, in general, that the Bank may pay the current year's earnings and the prior two years' retained earnings without the prior
approval of the Office of the Comptroller of Currency (OCC). The Bank requested and obtained approval of the OCC to pay a special dividend of $5,000,000 to Bancshares in 2000, which facilitated the
tender offer and redemption discussed below. The Bank also requested and received prior approval to pay up to $2,250,000 in other dividends during 2000. Because of the extraordinary $5,000,000
dividend paid in 2000, the Bank received prior approval from the OCC to pay dividends in 2001 and an approval will be required to pay dividends in 2002.

26

---

The
Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications
are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The
prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and plans for capital restoration are required.

The
Company's only activity is ownership of the Bank, and, therefore, its capital, capital ratios, and minimum required levels of capital are materially the same as the Bank's. At year
end, actual capital levels and minimum required levels for the Bank were:

|                  |                                          | Actual |   | Minimum Required
for Capital
Adequacy Purposes |  | Minimum Required
to Be Well
Capitalized Under
Prompt Corrective
Action Provisions |  
|----------------- | ---------------------------------------- | ------ | - | ---------------------------------------------- |  | --------------------------------------------------------------------------------- | -
|
|December 31, 2001 |                                          |        |   |                                                |  |                                                                                   |  
|                  | Total capital (to risk-weighted assets)  |        | $ | 23,848                                         |  | 18.6                                                                              | %
|                  | Tier I capital (to risk-weighted assets) |        |   | 22,739                                         |  | 17.6                                                                              |  
|                  | Tier I capital (to average assets)       |        |   | 22,739                                         |  | 10.1                                                                              |  
|December 31, 2000 |                                          |        |   |                                                |  |                                                                                   |  
|                  | Total capital (to risk-weighted assets)  |        | $ | 23,910                                         |  | 18.8                                                                              | %
|                  | Tier I capital (to risk-weighted assets) |        |   | 22,609                                         |  | 17.8                                                                              |  
|                  | Tier I capital (to average assets)       |        |   | 22,609                                         |  | 10.0                                                                              |  

At December 31, 2001, the Company and the Bank were categorized as well capitalized and management is not aware of any conditions or events
since the most recent notification that would change the Company's or Bank's category.

NOTE 15OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income components and related taxes for the years ended are as follows:

2001

2000

1999Unrealized holding gains (losses) on securities available-for-sale

$
1,136

$
2,276

$
(4,827
)Reclassification adjustments for (gains) losses recognized in income


(539
)

(11
)

9Net unrealized gains (losses)


597


2,265


(4,818
)Tax effect


(203
)

(770
)

1,638Other comprehensive income (loss)

$
394

$
1,495

$
(3,180
)


27

---

NOTE 16PARENT COMPANY FINANCIAL STATEMENTS

The following are the condensed balance sheets and statements of income and cash flows for First Ottawa Bancshares, Inc. without subsidiary.

Condensed
balance sheets as of December 31 are as follows:

2001

2000ASSETSCash and due from banks

$
6

$
9Investment in subsidiary


23,074


22,543Dividends receivable


1,325


1,325Other assets


32


31Total assets

$
24,437

$
23,908LIABILITIES AND SHAREHOLDERS' EQUITYOther liabilities

$
5

$
Loan payable


200


Dividends payable


1,325


1,325Shareholders' equity


22,907


22,583Total liabilities and shareholders' equity

$
24,437

$
23,908


Condensed
statements of income for the years ended December 31 are as follows:

2001

2000

1999Dividends from Bank

$
1,987

$
7,075

$
2,250Other expenses


11


79


Income tax benefit





(30
)

Equity in (overdistributed) undistributed Bank income


137


(4,934
)

(96
)Net income

$
2,113

$
2,092

$
2,154


Condensed
statements of cash flows for the years ended December 31 are as follows:

2001

2000

1999Cash flows from operating activitiesNet income

$
2,113

$
2,092

$
2,154Adjustments to reconcile net income to net cash from operating activitiesChange in other assets and liabilities


4


145


Equity in overdistributed (undistributed) Bank income


(137
)

4,934


96Net cash from operating activities


1,980


7,171


2,250Cash flows from financing activitiesLoan proceeds


200





Purchase of treasury stock


(196
)

(5,000
)

Dividends paid


(1,987
)

(2,162
)

(2,250
)Net cash from financing activities


(1,983
)

(7,162
)

(2,250
)Net change in cash and cash equivalents


(3
)

9


Beginning cash and cash equivalents


9





Ending cash and cash equivalents

$
6

$
9

$



28

---

NOTE 17QUARTERLY FINANCIAL DATA (UNAUDITED)

Interest
Income

Net
Interest
Income

Net
Income

Earnings
Per Share2001First quarter

$
3,845

$
1,776

$
478

$
0.72Second quarter


3,785


1,807


445


0.67Third quarter


3,713


1,783


522


0.79Fourth quarter(a)


3,578


1,782


668


1.012000First quarter

$
4,013

$
1,964

$
543

$
0.80Second quarter


3,995


1,909


544


0.82Third quarter


3,988


1,787


481


0.73Fourth quarter


3,999


1,810


524


0.79


---

29

---



FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY  SHAREHOLDER INFORMATION

ANNUAL MEETING

The Annual Meeting of Shareholders will be held at 3 p.m., local time on May 15, 2002 at the corporate headquarters located at 701 LaSalle Street,
Ottawa, Illinois 61350.

PRICE RANGE OF COMMON STOCK

As of February 28, 2002, there were approximately 540 shareholders of record and 658,356 outstanding shares of common stock.

The
Company repurchased 3,925 shares of its common stock at a price of $50 per share during the fourth quarter of 2001 pursuant to a tender offer.

The
Company's common stock is not traded on any national or regional securities exchange and there is no established public trading market for it. Transactions in the Company's common
stock have been infrequent. To the knowledge of the Company's management, since January 1, 2000, an aggregate of approximately 80,241 shares of the Company's common stock was transferred in
approximately 49 separate transactions, excluding the 3,925 shares purchased by the Company at $50 per share on December 28, 2001. These transfers represent both transfers for consideration
(i.e., sales) and transfers for no consideration (e.g., gifts, estate transfers, etc.). The Company's management is unable to differentiate such transfers and has limited knowledge of the sale prices
for transfers involving consideration. The last price known to the Company's management was a sale of 100 shares on January 24, 2002 at $51 per share.

The
following table sets forth dividends paid per share on the Company's common stock on the dates indicated:

Date

DividendsJanuary 1, 2000

$
2.00July 1, 2000


1.00January 1, 2001


2.00July 1, 2001


1.00January 1, 2002


2.00


ANNUAL REPORT

A copy of First Ottawa Bancshares, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2001 as filed with the
Securities and Exchange Commission may be obtained without charge by contacting Cheryl Gage, Corporate Secretary, First Ottawa Bancshares, Inc., 701-705 LaSalle Street, Ottawa,
Illinois 61350.

30

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