##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-K Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003
Commission File No.: 0-27740 CITIZENS FIRST FINANCIAL CORP.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    37-1351861
(I.R.S. Employer I.D. No.)
 2101 North Veterans Parkway, Bloomington, Illinois 61704
(Address of principal executive offices) (Zip Code) Registrants telephone number: (309) 661-8700
Securities registered pursuant to Section 12(g) of the Act:Common Stock par value $0.01 per share
(Title of class) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for past 90 days.     Yes [x]   
No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act
Rule 12b-2).     Yes [  ]   
NO [XX] The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of
the registrant is $31,844,496 and is based upon the last sales price of $24.00
as quoted on The Nasdaq National Market on June 30, 2003, the last business day
of the registrants most recently completed second quarter. The Registrant had 1,510,287 shares of Common Stock outstanding as of
March 20, 2004. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December
31, 2003, are incorporated by reference into Part II of thisForm 10-K. Portions of the Proxy Statement for the 2004 Annual Meeting of
Shareholders are incorporated by reference into Part III of thisForm 10-K.




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INDEX PAGEPART IItem 1
    
    Business
    
    
    1Item 2
    
    Properties
    
    
    19Item 3
    
    Legal Proceedings
    
    
    20Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Supplemental Information - Executive Officers of the RegistrantPART IIItem 5
    
    Market for Registrants Common Equity and Related
Stockholder Matters
    
    
    21Item 6
    
    Selected Financial Data
    
    
    21Item 7
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21Item 7A
    
    Quantitative and Qualitative Disclosures about
Market Risk
    
    
    21Item 8
    
    Financial Statements and Supplementary Data
    
    
    21Item 9
    
    Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
    
    
    21Item 9A
    
    Controls and Procedures
    
    
    21PART IIIItem 10
    
    Directors and Executive Officers of the Registrant
    
    
    22Item 11
    
    Executive Compensation
    
    
    22Item 12
    
    Security Ownership of Certain Beneficial Owners
and Management
    
    
    22Item 13
    
    Certain Relationships and Related Transactions
    
    
    22Item 14
    
    Principal Accountant Fees and Services
    
    
    22Item 15
    
    Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
    
    
    23Signatures
    
    
    
    
    
    
    25Portions of 2003 Annual Report to ShareholdersCode of EthicsConsent of BKD, LLPCertification of C. William Landefeld to Sec. 302Certification of Dallas G. Smiley to Section 302Certification of C. William Landefeld to Sec. 906Certification of Dallas G. Smiley to Section 906
  -i-




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PART 1 
 Item 1 Business General Citizens First Financial Corp. (the Company) was incorporated under
Delaware law in January 1996. The Company completed an initial public offering
of 2,817,500 shares of common stock on May 1, 1996 in connection with the
conversion of Citizens Savings Bank, (the Bank) from the mutual to stock form
of ownership (the Conversion). The Company is a savings and loan holding
company and is subject to regulation by the Office of Thrift Supervision
(OTS), and the Securities and Exchange Commission (SEC). Currently, the
Company does not transact any material business other than through its
subsidiary, the Bank. At December 31, 2003, the Company had total assets of
$349.5 million, total deposits of $250.0 million and total stockholders equity
of $33.0 million. The Companys principal business is conducted primarily
through its subsidiary, the Bank. Accordingly, the discussion in this Report
addresses the Companys operations as they are conducted through the Bank. The Bank was originally chartered in 1888 by the State of Illinois and in
1989 became a federally chartered savings bank. In April 1999, the Bank was
converted from a federally chartered savings bank to an Illinois state savings
bank. The Banks principal business consists of the acceptance of retail
deposits from the general public in the area surrounding its branch offices and
the investment of those deposits, together with funds generated from operations
and borrowings, in commercial, agricultural, residential real estate mortgage,
commercial real estate, consumer and other loans. The Bank originates loans for
investment and for sale. Currently, the Banks policy is to sell, on a
servicing retained basis, most longer-term fixed rate one-to-four family
mortgage loans it originates as a method of controlling its growth, managing
its interest rate risk and increasing its loan servicing fee income. The
Banks revenues are derived principally from interest on its mortgage, consumer
and commercial loans, loan servicing fees and, to a lesser extent, the interest
on its securities. The Banks primary source of funds are deposits, principal
and interest payments on loans and securities, borrowings from the Federal Home
Loan Bank of Chicago and, to a lesser extent, proceeds from the sale of loans
and securities. The Bank has a wholly-owned service corporation, CSL Service
Corporation, an Illinois-chartered corporation that is a participant in a joint
venture that has purchased and is developing commercial real estate. Market Area and Competition The Company is a community-oriented savings institution offering a variety
of financial products and services to meet the needs of the communities it
serves. The Companys deposit gathering is concentrated in the communities
surrounding its five offices located in the municipalities of Bloomington,
Normal and Fairbury, Illinois, which are part of McLean and Livingston
Counties. McLean County comprises the greater Bloomington/Normal metropolitan
area and Livingston County is adjacent to the greater Bloomington/Normal
metropolitan area. The economy in McLean and Livingston Counties has
historically benefited from the presence of the national and regional
headquarters of State Farm Insurance Company, the Mitsubishi Motors
Corporation, Illinois Farm Bureau, Illinois State University and Illinois
Wesleyan University as well as a variety of agricultural related businesses.
These counties are the primary market area for the Banks lending and deposit
gathering activities. The Company faces significant competition both in making loans and in
attracting deposits. The greater Bloomington/Normal metropolitan area is a
highly competitive market. The Company faces direct competition from a
significant number of financial institutions operating in its market area, many
with a state-wide or regional presence and in some cases a national presence.
Many of these financial institutions are significantly larger and have greater
financial resources than the Company. State Farm Insurance Company,
Bloomington-Normals largest business, has a savings bank, which it operates
through its agents on a national basis. The Companys competition for loans
comes principally from commercial banks, savings and loan associations,
mortgage banking companies, credit unions and insurance companies. Its most
direct competition for deposits has historically come from savings and loan
associations and commercial banks. In addition, the Company faces
increasing competition for deposits from non-bank institutions such as
brokerage firms and insurance companies in such areas as short-term money
market funds, corporate and government securities funds, mutual funds and
annuities. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.




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Investment Activities The investment policy of the Company, as approved by the Board of
Directors, requires management to maintain adequate liquidity and generate a
favorable return on investments without incurring undue interest rate and
credit risk. The Company has invested primarily in U.S. government sponsored
agency issued mortgage-backed securities, U.S. Agency securities, federal funds
sold, a Federal Home Loan Bank demand investment account and eligible mutual
funds. SFAS 115 requires the Company to designate its securities as held to
maturity, available for sale or held for trading. The Company does not
currently maintain a portfolio of securities categorized as held to maturity or
held for trading. The Companys investment securities generally consist of
U.S. Agency obligations and mortgage-backed and mortgage-related securities.
The Companys mortgage-backed securities consist of pass through certificates
representing interests in pools of fixed and adjustable rate mortgage loans
issued or guaranteed by GNMA, FHLMC or FNMA. At December 31, 2003, the
Companys portfolio of investment and mortgage-backed securities totaled $20.7
million, all of which was categorized as available for sale. In recent periods, the Company has primarily invested in securities in
order to maintain liquid assets for its operations and as a means of utilizing
its excess funding not necessary for loan originations. The Board of Directors
reviews all of the activity in the investment portfolio on a monthly basis. Lending Activities Origination, Sale, Servicing and Purchase of LoansThe Companys loan
origination activities are conducted primarily by its loan personnel, operating
at its five offices. All loans originated by the Company are underwritten by
the Company pursuant to the Companys policies and procedures. The Company
originates both adjustable-rate and fixed-rate mortgage loans, commercial loans
and consumer loans. The Companys ability to originate loans is dependent upon
the relative customer demand for the type of loan and demand for fixed-rate or
adjustable-rate loans, which is affected by the current and expected future
level of interest rates. While the Company has in the past, from time to time, sold adjustable-rate
one- to four-family loans and retained mortgage loans with terms of 10 years or
more, it is currently the general policy of the Company to originate for sale
in the secondary market one-to-four family fixed-rate mortgage loans with
maturities exceeding ten years and to originate for investment all
adjustable-rate one-to-four family mortgage loans and fixed-rate one-to-four
family mortgage loans with maturities of ten years or less. One-to-Four Family Mortgage LendingThe Company currently offers both
fixed-rate and adjustable-rate mortgage loans secured by one-to-four family
residences located in the Companys primary market area, with maturities of up
to thirty years. While the Company has originated such loans secured by
properties outside its market area, substantially all of such loans at December
31, 2003 were secured by property located in the Companys primary market area.
One-to-four family mortgage loan originations are generally obtained from the
Companys loan representatives operating in its branch offices and their
contacts with the local real estate industry, existing or past customers, and
members of the local communities. Multi-Family LendingThe Company originates fixed and adjustable-rate
multi-family mortgage loans generally secured by 5 to 70 unit apartment and
student housing buildings located in the Companys primary market area. In
deciding on whether to make a multi-family loan, the Company considers the
qualifications and financial condition of the borrower as well as the value and
condition of the underlying property. The factors considered by the Company
include: the net operating income of the mortgaged premises before debt
service and depreciation; the debt coverage ratio (the ratio of net earnings to
debt service); and the ratio of loan amount to appraised value. Commercial Real Estate LendingThe Company originates commercial real
estate loans that are generally secured by properties used for business
purposes such as small office buildings or a combination of residential and
retail facilities located in the Companys primary market area. Loans secured by commercial real estate properties, like multi-family
loans, generally involve larger principal amounts and a greater degree of risk
than one-to-four family residential mortgage loans. Because payments on loans
secured by commercial real estate properties are often dependent on successful
operation or management of the -2-




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properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. The
Company seeks to minimize these risks through its underwriting standards, which
require such loans to be qualified on the basis of the propertys income and
debt coverage ratio. Construction and Land LendingThe Company originates loans for the
acquisition and development of commercial and residential property located in
its primary market area. These loans are offered to local developers and
individuals. The majority of the Companys construction loans are originated
primarily to finance the construction of one-to-four family, owner-occupied
residential properties and multi-family properties located in the Companys
primary market area. Such loans are offered for the construction of properties
that are pre-sold or for which permanent financing has been secured, as well as
for properties that are not pre-sold or for which permanent financing has not
been secured. Construction and land development financing is generally considered to
involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is largely
dependent upon the accuracy of the initial estimate of the propertys value at
completion of construction or development compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the Company may be confronted with a project, when completed,
having a value which is insufficient to assure full repayment. Commercial LendingThe Company offers commercial loans to businesses
operating in the Companys primary market area on a selective basis. Unlike mortgage loans, which generally are made on the basis of the
borrowers ability to make repayment from his or her employment and other
income, and which are secured by real property the value of which tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrowers ability to make repayment
from the cash flow of the borrowers business. As a result, the availability
of funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself. Further, the collateral
securing the loans may depreciate over time, may be difficult to appraise and
may fluctuate in value based on the success of the business. Included in this
total are agricultural loans made within our lending area. These agricultural
loans are generally offered with one year terms in amounts up to $500,000 and
are generally secured by crops, equipment, other assets and personal
guarantees. Consumer and Other LendingThe Companys portfolio of consumer and other
loans primarily consists of fixed-rate, fixed-term home equity loans,
adjustable home equity lines of credit, loans secured by automobiles, home
improvement loans, loans secured by deposit accounts and unsecured personal
loans. Loan ServicingThe Company generally services all loans it retains for
investment and also services a portfolio of one-to-four family mortgage loans
for others which is primarily generated from its loan sale activity. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections as required of mortgaged premises,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain insurance and
tax payments on behalf of the borrowers and generally administering the loans. Deposit Activities DepositsThe Company offers a variety of deposit accounts with a range of
interest rates and terms. The Companys deposit accounts consist of savings,
NOW accounts, checking accounts, money market accounts, certificate and
brokered deposit accounts. The Company also offers certificate of deposit
accounts with balances in excess of $100,000 at negotiated rates (jumbo
certificates) and Individual Retirement Accounts (IRAs). For the year ended
December 31, 2003, the balance of core deposits (savings, money market and
demand deposit accounts) totaled $90.6 million, or 36.2%, of total deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates,
prevailing interest rates and competition. The Companys deposits are obtained
predominantly from the areas in which its branch offices are located. The
Company relies primarily on customer service and long-standing relationships
with customers to attract and retain these deposits; however, market interest
rates and rates offered by competing financial institutions significantly
affect the Companys ability to attract and retain deposits. The Company uses
traditional means of advertising its deposit products, including radio and
print media -3-




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and generally does not solicit deposits from outside its market
area. While certificate accounts in excess of $100,000 are accepted by the
Company, the Company does not actively solicit such deposits. The Company has
attempted to increase its deposit customer base and decrease its dependency on
certificate accounts by offering interest free checking accounts without
minimum balance requirements. The Company has $10.0 million of brokered
deposits with maturities from 10 to 33 months at an average rate of 2.6%.
Brokered deposits are an alternative source of liquidity that offers the
Company the opportunity to obtain funds at a competitive interest rate. Statistical Data INVESTMENT SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses and
approximate market value of the investment securities at the dates indicated
were: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair(Dollars in thousands)
    
    Cost
    
    Gains
    
    Losses
    
    ValueAvailable for sale at December 31,
2003:U.S. government agencies
    
    $
    6,802
    
    
    $
    
    
    
    $
    48
    
    
    $
    6,754Mortgage-backed securities
    
    
    12,978
    
    
    
    155
    
    
    
    135
    
    
    
    12,998Other securities
    
    
    1,003
    
    
    
    
    
    
    
    9
    
    
    
    994Total available for sale
    
    $
    20,783
    
    
    $
    155
    
    
    $
    192
    
    
    $
    20,746
 Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair(Dollars in thousands)
    
    Cost
    
    Gains
    
    Losses
    
    ValueAvailable for sale at December 31,
2002:Mortgage-backed securities
    
    $
    17,084
    
    
    $
    343
    
    
    $
    45
    
    
    $
    17,382Other securities
    
    
    3,307
    
    
    
    23
    
    
    
    
    
    
    
    3,330Total available for sale
    
    $
    20,391
    
    
    $
    366
    
    
    $
    45
    
    
    $
    20,712
 The balance of Federal Home Loan Bank of Chicago stock owned at December 31 is
as follows: Cost(Dollars in thousands)2003
    
    2002$
    15,206
    
    
    $
    4,697
 Federal Home Loan Bank stock is stated at cost and is a required investment for
institutions that are members of the Federal Home Loan Bank system. The
required investment in the common stock is based on a predetermined formula.
The Federal Home Loan Bank stock is recognized based on the price at which it
may be resold to the Federal Home Loan Bank. The yield on the stock is approximately 6.50% at December 31, 2003. -4-




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The maturity distribution (dollars in thousands) and average yields for the
securities available for sale portfolio at December 31, 2002 were: Within 1 Year
    
    1 - 5 Years
    
    5 - 10 YearsAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldU.S. government agencies
    
    $
    
    
    
    
    
    %
    
    $
    3,847
    
    
    
    3.31
    %
    
    $
    2,907
    
    
    
    3.20
    %Mortgage-backed securities
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    1,141
    
    
    
    3.70
    %Other securities
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Total
    
    $
    
    
    
    
    
    %
    
    $
    3,847
    
    
    
    3.31
    %
    
    $
    4,048
    
    
    
    3.34
    %
 Due After 10 Years
    
    Marketable
EquitySecurities
    
    
    

TotalAmount
    
    Yield
    
    Amount
    
    Yield
    
    Amount
    
    YieldU.S. government agencies
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    6,754
    
    
    
    3.26
    %Mortgage-backed securities
    
    
    11,857
    
    
    
    4.86
    %
    
    
    
    
    
    
    
    %
    
    
    12,998
    
    
    
    4.76
    %Other securities
    
    
    
    
    
    
    
    %
    
    
    994
    
    
    
    2.19
    %
    
    
    994
    
    
    
    2.19
    %Total
    
    $
    11,857
    
    
    
    4.86
    %
    
    $
    994
    
    
    
    2.19
    %
    
    $
    20,746
    
    
    
    4.15
    %
 With exception of securities of U.S. government agencies and corporations, the
Company did not hold any securities of a single issuer, payable from and
secured by the same source of revenue or taxing authority, the book value of
which exceeded 10% of stockholders equity at December 31, 2003. LOAN PORTFOLIO Types of Loans (Dollars in thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Commercial &
agricultural loans
    
    $
    38,047
    
    
    $
    33,438
    
    
    $
    27,667
    
    
    $
    20,622
    
    
    $
    19,622Real estate loans:Construction
    
    
    36,577
    
    
    
    37,545
    
    
    
    36,908
    
    
    
    40,141
    
    
    
    31,968Commercial
    
    
    86,368
    
    
    
    82,008
    
    
    
    79,667
    
    
    
    71,566
    
    
    
    64,336Residential
    
    
    120,936
    
    
    
    128,692
    
    
    
    138,439
    
    
    
    150,914
    
    
    
    152,444Consumer and other loans
    
    
    9,866
    
    
    
    9,754
    
    
    
    10,783
    
    
    
    13,246
    
    
    
    12,806Total
    
    
    291,794
    
    
    
    291,437
    
    
    
    293,464
    
    
    
    296,489
    
    
    
    281,176Less:Undisbursed
portion of
loans (1)
    
    
    9,317
    
    
    
    8,846
    
    
    
    4,200
    
    
    
    11,174
    
    
    
    15,623Allowance for loan
losses
    
    
    3,072
    
    
    
    3,753
    
    
    
    2,421
    
    
    
    1,826
    
    
    
    1,679Loans, net
    
    $
    279,405
    
    
    $
    278,838
    
    
    $
    286,843
    
    
    $
    283,489
    
    
    $
    263,874
 (1) The undisbursed portion of loans represents amounts included in gross
loans above that have been approved, but not disbursed to the borrower. Loans held for sale at December 31, 2003, 2002, 2001, 2000 and 1999 were
$376,088, $6,098,342, $6,910,101 $1,494,359, and $3,007,425, respectively, and
were not included in the above totals. -5-




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Maturities and Sensitivities of Loans to Changes in Interest Rates Presented in the table below are the maturities of loans (excluding
commercial real estate, residential real estate, consumer and other loans)
outstanding as of December 31, 2003. Also presented are the amounts due after
one year, classified according to the sensitivity to changes in interest rates. MaturingWithin
    
    1-5
    
    Over 5(Dollars in thousands)
    
    1 Year
    
    Years
    
    Years
    
    TotalCommercial & agricultural
loans
    
    $
    25,868
    
    
    $
    12,179
    
    
    $
    0
    
    
    $
    38,047Real estate loans-
Construction
    
    
    36,577
    
    
    
    0
    
    
    
    0
    
    
    
    36,577Total
    
    $
    62,445
    
    
    $
    12,179
    
    
    $
    0
    
    
    $
    74,624
 Maturing1-5
    
    Over(Dollars in thousands)
    
    Years
    
    5 YearsLoans maturing after one year with:Fixed rates
    
    $
    12,179
    
    
    $
    0Variable rate
    
    
    0
    
    
    
    0Total
    
    $
    12,179
    
    
    $
    0
 Risk Elements December(Dollars in thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Nonaccruing loans
    
    $
    2,452
    
    
    $
    4,410
    
    
    $
    3,177
    
    
    $
    1,493
    
    
    $
    435Loans contractually
past due 90 days or
more other
than nonaccruing
    
    
    7
    
    
    
    1,753
    
    
    
    2,613
    
    
    
    3,767
    
    
    
    134Restructured loans
    
    
    
    
    
    
    
    
    
    
    3,334
    
    
    
    301
    
    
    
    314
 Nonaccruing loans are loans which are reclassified to nonaccruing status
when in managements judgment the collateral value and financial condition of
the borrower do not justify accruing interest. Interest previously recorded
but not deemed collectible is reversed and charged against current income.
Interest income on these loans is then recognized when collected. Restructured loans are loans for which the contractual interest rate has
been reduced or other concessions are granted to the borrower because of
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans. Interest income of $107,000 for the year ended December 31, 2003, was
recognized on the nonaccruing loans listed in the table above, whereas interest
income of $193,000 would have been recognized under their original loan terms. The Company accounts for impaired loans in accordance with SFAS No. 114
and No. 118, Accounting by Creditors for an Impairment of a Loan and
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. These Statements require that impaired loans within the scope of
these Statements be measured at the present value of expected future cash flows
discounted at the loans effective interest rate, or as a practical expedient,
at the loans observable market price or fair value of the collateral, if the
loan is collateral dependent. A loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due, both principal and interest, according to the
contractual terms of the note. -6-




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Impaired Loans: Balance at(Dollars in thousands)
    
    December 31,2003Impaired loans with an allowance
    
    $
    7,427Impaired loans for which the discounted cash
flows or collateral value exceeds the carrying
value of the loan
    
    
    16,639Total impaired loans
    
    $
    24,066
 Impaired Loans: Year Ended(Dollars in thousands)
    
    December 31, 2003Average balance of impaired loans
    
    $
    22,410Interest income recognized on impaired loans
    
    $
    729Cash-basis interest included above
    
    $
    728
 Allowance for Loan Losses and Impaired Loans The Company maintains an allowance for loan losses to absorb losses
inherent in the loan portfolio. The allowance for losses decreased from
$3,753,000 at December 31, 2002 to $3,072,000 at December 31, 2002, a decrease
of $681,000 or 18.1%. (See Managements Discussion and Analysis of Financial
Condition and Results of Operation on pages 5-11 in the Companys 2003 Annual
Report for a discussion of impaired loans) The allowance is based on ongoing
assessments of the estimated probable losses inherent in the loan portfolio.
The methodology for assessing the appropriateness of the allowance consists of
several key elements, which include a formula allowance, and a specific
allowance for identified problem loans. The formula allowance is calculated by applying loss factors to
outstanding loans based on the internal risk grade of such loans. Changes in
risk grades of both performing and non-performing loans affect the amount of
the formula allowance. Loss factors are based on historical loss experience and
may be adjusted for significant factors that, in managements judgment, affect
the collectibility of the portfolio as of the evaluation date. Loss factors are
based on (1) historical loss experience over a five-year period, which
management believes approximates a business cycle; (2) individual evaluations
of residential, commercial real estate, construction, agricultural, commercial
and consumer loans; (3) expected charge-offs by loan classification for
one-year; (4) general economic and business conditions affecting the Companys
lending areas; (5) collateral values; (6) loan volumes and concentrations; (7)
seasoning of the loan portfolio; (8) specific industry conditions and (9)
recent loss experience in particular segments of the portfolio. A specific allowance is established in cases where management has
identified significant conditions or circumstances related to a loan that
management believes indicate the probability that a loss has been incurred. The allowance for loan losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount of actual losses can vary
significantly from the estimated amounts. The methodology includes several
features that are intended to reduce the differences between estimated and
actual losses. The Company closely monitors any difference of actual and
estimated losses and adjusts the methodology accordingly. The Company generates commercial, mortgage and consumer loans from
customers located primarily in Central Illinois. The Companys loans are
generally secured by specific items of collateral including real property,
consumer assets, and business assets. Although the Company has a diversified
loan portfolio, a substantial portion of their debtors ability to honor their
contracts is dependent upon economic conditions in Central Illinois. Although
the risk of non-payment for any reason exists with respect to all loans,
certain other more specific risks are associated with each type of loan. The
primary risks associated with commercial loans are quality of the borrowers
management and the impact of national and local economic factors. Currently,
the business atmosphere remains stable for the local
economy in the McLean, Livingston and Tazewell -7-




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##### Table of Contents



County areas. Risk associated
with real estate loans include concentrations of loans in a loan type, such as
residential real estate, decline in real estate values and a sudden rise in
interest rates. Individual loans face the risk of borrowers unemployment as a
result of deteriorating economic conditions or renewed contract differences
between unions and management of several large companies in the Companys
market area. The Companys strategy with respect to addressing and managing
these types of risks is for the Company to follow its loan policies and
underwriting criteria. The Company has substantially increased its investment in commercial,
commercial real estate and construction and land loans in the last five years.
Because of the higher degree of risk associated with these types of loans, the
Company has increased its allowance for loan losses to reflect this increased
risk. A provision for loan losses is charged to income to increase the allowance
to a level deemed to be adequate based on managements evaluation. When a loan
or a part thereof is considered by management to be uncollectible, a charge is
made against the allowance. Recoveries of previously charged-off loans are
credited back to the allowance. The following table summarizes the changes in
the allowance for loan losses for the last five years: Summary of Loan Loss Experience (Dollars in thousands)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Balance at January 1
    
    $
    3,753
    
    
    $
    2,421
    
    
    $
    1,826
    
    
    $
    1,679
    
    
    $
    1,256Loans charged off:Commercial loans
    
    
    (834
    )
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    Real estate loans:Construction and land
    
    
    (1,834
    )
    
    
    (100
    )
    
    
    (130
    )
    
    
    (2,800
    )
    
    
    Commercial
    
    
    (110
    )
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    Residential
    
    
    (394
    )
    
    
    (123
    )
    
    
    
    
    
    
    (103
    )
    
    
    (57
    )Consumer and other loans
    
    
    (16
    )
    
    
    (95
    )
    
    
    (50
    )
    
    
    
    
    
    
    Total charge-offs
    
    
    (3,188
    )
    
    
    (471
    )
    
    
    (350
    )
    
    
    (2,903
    )
    
    
    (57
    )Loan recoveries:Commercial loans
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate loans:Residential
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other loans
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net charge-offs
    
    
    (3,143
    )
    
    
    (471
    )
    
    
    (350
    )
    
    
    (2,903
    )
    
    
    (57
    )Provision for loan losses
    
    
    2,462
    
    
    
    1,803
    
    
    
    945
    
    
    
    3,050
    
    
    
    480Balance at December 31
    
    $
    3,072
    
    
    $
    3,753
    
    
    $
    2,421
    
    
    $
    1,826
    
    
    $
    1,679Ratio of net charge-offs
during the period to
average loans outstanding
during the period
    
    
    1.14
    %
    
    
    0.16
    %
    
    
    0.12
    %
    
    
    1.03
    %
    
    
    0.02
    %
 Management believes the allowance for loan losses is adequate to absorb
probable loan losses and that the policies and procedures in place to identify
and monitor loans for potential losses are satisfactory. -8-




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##### Table of Contents



Allocation of the Allowance for Loan Losses Presented below is an analysis of the composition of the allowance for
loan losses (in thousands of dollars) and percent of loans in each category
to total loans: 2003
    
    2002
    
    2001% of loans
    
    
    
    
    
    % of loans
    
    
    
    
    
    % of loansin each
    
    
    
    
    
    in each
    
    
    
    
    
    in eachcategory
    
    
    
    
    
    category
    
    
    
    
    
    categoryto total
    
    
    
    
    
    to total
    
    
    
    
    
    to totalAmount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loansCommercial loans
    
    $
    980
    
    
    
    13.04
    %
    
    $
    969
    
    
    
    11.47
    %
    
    $
    302
    
    
    
    9.43
    %Real estate loans:Construction and land
    
    
    1,089
    
    
    
    12.54
    %
    
    
    1,917
    
    
    
    12.88
    %
    
    
    1,077
    
    
    
    12.58
    %Commercial
    
    
    217
    
    
    
    29.60
    %
    
    
    270
    
    
    
    28.14
    %
    
    
    580
    
    
    
    27.15
    %Residential
    
    
    664
    
    
    
    41.45
    %
    
    
    367
    
    
    
    44.16
    %
    
    
    375
    
    
    
    47.17
    %Consumer and other loans
    
    
    122
    
    
    
    3.37
    %
    
    
    230
    
    
    
    3.35
    %
    
    
    87
    
    
    
    3.67
    %Total
    
    $
    3,072
    
    
    
    100.0
    %
    
    $
    3,753
    
    
    
    100.0
    %
    
    $
    2,421
    
    
    
    100.0
    %
 2000
    
    1999% of loans
    
    
    
    
    
    % of loansin each
    
    
    
    
    
    in eachcategory
    
    
    
    
    
    categoryto total
    
    
    
    
    
    to totalAmount
    
    loans
    
    Amount
    
    loansCommercial loans
    
    $
    440
    
    
    
    6.96
    %
    
    $
    455
    
    
    
    6.98
    %Real estate loansConstruction and land
    
    
    325
    
    
    
    13.54
    %
    
    
    235
    
    
    
    11.37
    %Commercial
    
    
    400
    
    
    
    24.14
    %
    
    
    320
    
    
    
    22.88
    %Residential
    
    
    495
    
    
    
    50.90
    %
    
    
    540
    
    
    
    54.22
    %Consumer and other loans
    
    
    136
    
    
    
    4.46
    %
    
    
    129
    
    
    
    4.55
    %Total
    
    $
    1,826
    
    
    
    100.0
    %
    
    $
    1,679
    
    
    
    100.0
    %
 The allowance for loan losses in each category of loans have changed for
the years 1999 through 2003 reflecting the changes in the types of loans that
the Company was originating, the degree of risk associated with these loans and
the performance of specific loans. Since 1999, the increased investment in the
higher risk commercial, commercial real estate and construction and land loans
is reflected in the increased allowance attributed to these classifications
during that period. -9-




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##### Table of Contents



DEPOSITS AND BORROWINGS Deposits The following table shows the average amount of deposits and average rate
of interest paid thereon for the years indicated. 2003
    
    2003
    
    2002
    
    2002
    
    2001
    
    2001Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average(Dollars in thousands)
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    RateBalance at December 31:Noninterest-bearing
deposits
    
    $
    23,195
    
    
    
    
    
    
    $
    20,911
    
    
    
    
    
    
    $
    17,516
    
    
    
    Money market deposit
accounts
    
    
    26,057
    
    
    
    1.57
    %
    
    
    24,260
    
    
    
    2.49
    %
    
    
    16,394
    
    
    
    3.14
    %Savings deposits
    
    
    18,392
    
    
    
    0.82
    %
    
    
    17,201
    
    
    
    1.38
    %
    
    
    15,025
    
    
    
    2.12
    %NOW accounts
    
    
    22,565
    
    
    
    0.73
    %
    
    
    21,332
    
    
    
    1.14
    %
    
    
    16,173
    
    
    
    1.63
    %Certificate of deposit and
other time deposits
    
    
    153,868
    
    
    
    3.28
    %
    
    
    159,362
    
    
    
    4.17
    %
    
    
    168,200
    
    
    
    5.97
    %Total deposits
    
    $
    244,077
    
    
    
    2.36
    %
    
    $
    243,066
    
    
    
    3.18
    %
    
    $
    233,308
    
    
    
    4.77
    %
 As of December 31, 2003, certificates of deposit and other time deposits
(including brokered deposits) of $100,000 or more mature as follows: Maturing(Dollars in thousands)3 Months
    
    3-6
    
    6-12
    
    Over 12or less
    
    Months
    
    Months
    
    Months
    
    TotalCertificates of deposit and other
time deposits
    
    $
    13,010
    
    
    $
    3,240
    
    
    $
    2,440
    
    
    $
    12,733
    
    
    $
    31,423Per cent
    
    
    41.40
    %
    
    
    10.31
    %
    
    
    7.77
    %
    
    
    40.52
    %
    
    
    100.00
    %
 RETURN ON EQUITY AND ASSETS 2003
    
    2002
    
    2001Return on assets (net income divided by
average total assets)
    
    
    0.47
    %
    
    
    0.55
    %
    
    
    0.63
    %Return on equity (net income divided by
average equity
    
    
    5.00
    %
    
    
    6.11
    %
    
    
    6.84
    %Dividend payout ratio (dividends per
share divided by net income per share)
    
    
    36.90
    %
    
    
    24.06
    %
    
    
    16.53
    %Equity to assets ratio (average equity
divided by average total assets)
    
    
    9.29
    %
    
    
    8.99
    %
    
    
    9.16
    %
 Subsidiary Activities At December 31, 2003, the Bank had a wholly-owned service corporation, CSL
Service Corporation (CSL), an Illinois chartered company. CSL is a
participant in a joint venture real estate development (Williamsburg Place
LLC), which has purchased and is developing commercial real estate. -10-




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##### Table of Contents



Personnel As of December 31, 2003, the Company had 76 authorized full-time employee
positions and 19 authorized part-time employee positions. The employees are not
represented by a collective bargaining unit and the Company considers its
relationship with its employees to be good. REGULATION AND SUPERVISION General The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of
the OTS under the Home Owners Loan Act, as amended (the HOLA). The Bank is an Illinois state chartered savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the Savings
Association Insurance Fund (the SAIF). The Bank is subject to extensive
regulation by the Illinois Office of Banks and Real Estate (the OBRE), as its
chartering authority, and by the FDIC, as deposit insurer. The Bank must file
reports with the OBRE and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approval prior to entering into
certain transactions such as establishing branches and mergers with, or
acquisitions of, other depository institutions. There are periodic examinations
by the OBRE and the FDIC to assess the Banks compliance with various
regulatory requirements and its financial condition. This regulation and
supervision establishes a framework of activities in which a savings bank can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulation, whether by the OBRE, the FDIC or
through legislation, could have a material adverse impact on the Company and
the Bank and their operations and stockholders. The Holding Company will also
be required to file certain reports with and otherwise comply with the rules
and regulations, of the OTS, the OBRE and the Securities and Exchange
Commission (the SEC) under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Holding Company are
referred to below or elsewhere herein. However, the description of such
requirements is not exhaustive and it does not purport to be a complete
description of the applicable laws and regulations. The OBRE has established a schedule for the assessment of supervisory
fees upon all Illinois savings banks to fund the operations of the OBRE. These
supervisory fees are computed on the basis of each savings banks total assets
(including consolidated subsidiaries) and are payable at the end of each
calendar quarter. A schedule of fees has also been established for certain
filings made by Illinois savings banks with the OBRE. The OBRE also assesses
fees for examinations conducted by the OBREs staff, based upon the number of
hours spent by the OBREs staff performing the examination. During the year
ended December 31, 2003, the Bank paid approximately $49,000 in supervisory
fees and expenses Bank Regulations Capital Requirements.Under the Illinois Savings Bank Act (the ISBA) and
the regulations of the OBRE, an Illinois savings bank must maintain a minimum
capital at a level not less than that required to maintain insurance of
deposits by the FDIC. The OBRE has the authority to require an Illinois savings
bank to maintain a higher level of capital if deemed necessary based on the
savings banks financial condition, history, management or earnings prospects. -11-




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##### Table of Contents



The FDIC has also adopted risk-based capital guidelines to which the Bank
is subject. The Bank is required to maintain certain levels of regulatory
capital in relation to regulatory risk-weighted assets. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
items to four risk-weighted categories ranging from 0% to 100%, with higher
levels of capital being required for the categories perceived as representing
greater risk. The guidelines divide a savings banks capital into two tiers.
The first tier (Tier I) includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary (Tier II) capital includes, among other items, cumulative
perpetual and long-term limited life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital. In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio. These regulations provide for a minimum Tier I leverage
ratio of 3% for banks that meet certain specified criteria, including that they
have the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based
capital requirements on individual institutions when particular circumstances
warrant. The following is a summary of the Banks regulatory capital at December
31, 2003: Total Capital to Risk-Weighted Assets
    
    
    13.5
    %Tier I Leverage Ratio
    
    
    8.6
    %Tier I to Risk-Weighted Assets
    
    
    12.3
    %
 The FDIC, along with other federal banking agencies, adopted a regulation
providing that the agencies will take account of the exposure of a banks
capital and economic value to changes in interest rate risk in assessing a
banks capital adequacy. Standards for Safety and Soundness.The federal banking agencies have
adopted Interagency Guidelines Establishing Standards for Safety and Soundness.
The Guidelines set forth safety and soundness standards in various areas such
as internal controls, audit, systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and quality, earnings and compensation
that the banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the appropriate
federal banking agency determines that an institution fails to meet any
standard prescribed by the Guidelines, the agency may require the institution
to submit to the agency an acceptable plan to achieve compliance with the
standard. Lending Restriction.The Bank is prohibited by the ISBA from making
secured or unsecured loans for business, commercial or agricultural purposes
representing in the aggregate an amount in excess of 15% of its total assets,
unless the OBRE authorizes in writing a higher percentage limit for such loans
upon the request of an institution. The Bank is also subject to a loans-to-one borrower limitation. Under the
ISBA, the total loans and extensions of credit by the Bank to any person
outstanding at one time must not exceed the greater of $500,000 or 25% of the
Banks total capital plus general loan loss reserves. In addition, the Bank may
make loans in an amount equal to an additional 10% of the Banks capital plus
general loan loss reserves if secured by readily marketable collateral. Dividend Limitations.Under the ISBA, dividends may only be declared when
the total capital of the Bank is greater than that required by the ISBA.
Dividends may be paid by the Bank out of its net profits. The written approval
of the OBRE must be obtained, however, before a savings bank having total
capital of less than 6% of total assets may declare dividends in any year in an
amount in excess of 50% of its net profits for that year. A savings bank may
not declare dividends in excess of its net profits in any year without the
approval of the OBRE. Finally, the Bank will be unable to pay dividends in an
amount which would reduce its capital below
the greater of (i) the amount required by the FDIC capital regulations or
otherwise specified by the FDIC, (ii) the amount required by the OBRE or (iii)
the amount required for the liquidation account established by the Bank in
connection with the Banks conversion to stock form. The OBRE and the FDIC also
have the authority to prohibit the payment of any dividends -12-




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##### Table of Contents



by the Bank if the
OBRE or the FDIC determines that the distribution would constitute an unsafe or
unsound practice. Prompt Corrective Regulatory Action.Federal law requires, among other
things, that the federal bank regulatory authorities take prompt corrective
action with respect to banks that do not meet minimum capital requirements.
For these purposes, the law establishes various capital categories. The FDIC
has adopted regulations to implement the prompt corrective action legislation.
Under the regulations, an institution is deemed to be undercapitalized if it
has a total risk-based capital ratio of less than 8%, a Tier I risk-based
capital ratio of less than 4%, or generally a leverage ratio of less than 4%.
An institution is deemed to be significantly undercapitalized if it has a
risk-based capital ratio of less than 6%, a Tier I risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution is deemed to
be critically undercapitalized if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than 2%. Undercapitalized banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A banks compliance with such plan must be guaranteed by any
company that controls the undercapitalized institution in an amount equal to
the lesser of 5% of the Banks total assets when deemed undercapitalized or the
amount necessary to achieve the status of adequately capitalized. If an
undercapitalized bank fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. Significantly undercapitalized banks
are subject to one or more of a number of additional restrictions, including
but not limited to an order by the FDIC to sell sufficient voting stock to
become adequately capitalized, requirements to reduce total assets and cease
receipt of deposits from correspondent banks or dismiss directors or officers.
Critically undercapitalized institutions also may not make any payment of
principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any material transactions outside
the ordinary course of business. In addition, subject to a narrow exception,
the appointment of a receiver or conservator is required for a critically
undercapitalized institution within 270 days after it obtains such status. Transactions with Affiliates.Transactions between depository institutions
and their affiliates are governed by federal law. An affiliate of a savings
bank is any company or entity that controls, is controlled by, or is under
common control with the savings bank, other than a subsidiary. In a holding
company context, at a minimum, the parent holding company of a savings bank and
any companies which are controlled by such parent holding company are
affiliates of the savings bank. Generally, the extent to which the savings bank
or its subsidiaries may engage in covered transactions, including loans, with
any one affiliate is limited to 10% of such savings banks capital stock and
surplus, and there is an aggregate limit on all such transactions with all
affiliates of 20% of such capital stock and surplus. Federal law also
establishes specific collateral requirements for loans or extensions of credit
to, or guarantees or acceptances on letters of credit issued on behalf of an
affiliate. Covered transactions and a broad list of other specified
transactions with an affiliate also must be on terms substantially the same, or
no less favorable, to the savings bank or its subsidiary as similar
transactions with non-affiliates. Federal law also restricts a savings bank with respect to loans to
directors, executive officers, and principal stockholders. Loans to directors,
executive officers and stockholders who control, directly or indirectly, 10% or
more of voting securities of a savings bank, and certain related interests of
any of the foregoing, may not exceed the savings banks total capital and
surplus. Loans to directors, executive officers and principal shareholders must
be made on terms substantially the same as offered in comparable transactions
to other persons, except that such insiders may receive preferential loans made
pursuant to a compensation program that is widely available to the Banks
employees and does not give preference to the insider over other employees.
Federal law also requires that the board of directors approve loans to insiders
exceeding a certain amount. There are additional limitations on loans to
executive officers. Enforcement.The OBRE and the FDIC have extensive enforcement authority
over Illinois-chartered savings banks, including the Bank. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders and to remove directors and
officers. In general, these enforcement actions may be initiated in response to
violations of laws and regulations and to unsafe or unsound practices. -13-




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##### Table of Contents



The OBRE is given authority by the ISBA to appoint a conservator or
receiver for an Illinois savings bank under certain circumstances including,
but not limited to, insolvency, a substantial dissipation of assets due to
violation of law, regulation or order of the OBRE or an unsafe or unsound
practice or the likelihood that the savings bank will be unable to meet the
demands of depositors or pay its obligations in the normal course of business.
The FDIC also has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. Insurance of Deposit Accounts.Deposits of the Bank are presently insured
by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of the three subcategories based on examination ratings
and other supervisory information. An institutions assessment rate depends
upon the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points of assessable deposits for the healthiest institutions to 27
basis points for the riskiest. In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation (FICO) to recapitalize the predecessor to the SAIF. Payments
toward the FICO bonds amounted to $38,000 in 2003. The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future. Insurance of deposits may be terminated by the FDIC upon finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. The Bank does not
know of any practice, condition or violation that might lead to termination of
deposit insurance. Federal Reserve System.The Federal Reserve Board regulations require
depository institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: for the first $6.6 million of net
transaction accounts there is no reserve; for net transaction accounts totaling
over $6.6 million and up to $45.5 million the reserve requirement is 3%; and
for net transaction accounts greater than $45.5 million, the reserve
requirement is $1.164 million plus 10% against that portion of total
transaction accounts in excess of $45.5 million. The above dollar amounts and
percentages are subject to periodic adjustment by the Federal Reserve Board.
The Bank is in compliance with the foregoing requirement. Federal Home Loan Bank System.The Bank is a member of the Federal Home
Loan Bank (the FHLB) system, which consists of 12 regional FHLBs. The FHLBs
provides a central credit facility primarily for member institutions. The Bank,
as a member of the FHLB of Chicago, is required to acquire and hold shares of
capital stock in an amount at least equal to 1% of the aggregate principal
amount of its unpaid residential mortgage loans and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB,
whichever is greater. The Bank is in compliance with this requirement with an
investment in FHLB stock at December 31, 2003 of $15,205,900. The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could result in the FHLBs imposing a higher rate of interest on
advances to their members.
For the years ended December 31, 2003, 2002, and 2001, dividends from the FHLB
to the Bank amounted to approximately $686,000, $242,000 and $295,000,
respectively. Holding Company Regulation .Federal law allows a state savings bank that
qualifies as a qualified thrift lender to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
federal law. Such election results in its holding company being regulated as a
savings and loan holding company by the OTS rather than as a bank holding
company by the Federal Reserve Board. The Bank has made such election and has
received approval from the OTS -14-




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##### Table of Contents



for the Company to become a savings and loan
holding company. The Company has registered with the OTS and is subject to OTS
regulations, examinations, supervision and reporting requirements. In addition,
the OTS has enforcement authority over the Company and its non-savings
institution subsidiaries. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings institution. Additionally, the Bank is required to notify
the OTS at least 30 days before declaring any dividend to the Company. Because
the Bank is chartered under Illinois law, the Company is also subject to
registration with and regulation by the OBRE. As a unitary savings and loan company, the Company is generally not
restricted under existing laws as to the types of business activities in which
it may engage. The Gramm-Leach-Bliley Act of 1999 provides that no company may
acquire control of a savings association after May 4, 1999, unless it engages
only in the financial activities permitted for financial holding companies
under the law and for multiple savings and loan holding companies as described
below. Further, the Gramm-Leach-Bliley Act specifies that existing savings and
loan holding companies may only engage in such activities. The
Gramm-Leach-Bliley Act, however, grandfathered the unrestricted authority for
activities with respect to unitary savings and loan holding companies existing
prior to May 4, 1999, such as the Company, so long as the Bank continues to
comply with the qualified thrift lender test. Upon any non-supervisory
acquisition by the Company of another savings association as a separate
subsidiary, the Company would become a multiple savings and loan holding
company and would be subject to extensive limitations on the types of business
activities in which it could engage. Federal law limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, subject to prior
approval of the OTS, and to other activities authorized by OTS regulation.
Multiple savings and loan holding companies are prohibited from acquiring or
retaining, with certain exceptions, more than 5% of a non-subsidiary company
engaged in activities other than those permitted by federal law. Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from merging with or acquiring
more than 5% of the voting stock of another savings institution or holding
company thereof without prior written approval of the OTS. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors. The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by savings
and loan holding companies; and (ii) the acquisition of a savings institution
in another state if the laws of the state of the target savings institution
permit such acquisitions. The states vary in the extent to which they permit
interstate savings and loan holding company acquisitions. In order to elect and continue to be regulated as a savings and loan
holding company by the OTS, the Bank must continue to qualify as a qualified
thrift lender. This requires the Bank to maintain compliance with the test for
a domestic building and loan association, as defined in the Internal Revenue
Code, or with a Qualified Thrift Lender Test. Under the Test, a savings
association is required to maintain at least 65% of its portfolio assets
(total assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to
conduct business) in certain qualified thrift investments (including
residential mortgages and related investments, certain mortgage-backed and
related securities, and credit card loans, student loans and small business
loans) in at least 9 months out of each 12 month period. A holding
company of a savings institution that fails to qualify as a qualified thrift
lender must either convert to a bank holding company and thereby become subject
to the regulation and supervision of the Federal Reserve Board or operate under
certain restrictions. As of December 31, 2003, the Bank maintained in excess
of 65% of its portfolio assets in qualified thrift investments. The Bank also
met the test in each of the prior 12 months and, therefore, is a qualified
thrift lender. -15-




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FEDERAL AND STATE INCOME TAXATION Federal Taxation General. The Company and its affiliates file a consolidated federal income
tax return. To the extent a member of the consolidated group incurs a loss
which is utilized to reduce the consolidated groups federal tax liability,
that member will be reimbursed by those members that would have incurred
federal tax liability if not for the members tax loss. Amounts provided for income tax expense are based upon income reported for
financial statement purposes and do not necessarily represent amounts currently
payable to federal or other tax authorities. Deferred income taxes, which
principally arise from the temporary differences related to the recognition of
certain income and expense items for financial reporting purposes and the
period in which they affect federal and state taxable income, are included in
the amounts provided for income taxes. Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
1996 Act), which was enacted on August 20, 1996, made significant changes to
provisions of the Internal Revenue Code of 1986 (the Code) relating to a
savings institutions use of bad debt reserves for federal income tax purposes
and requires such institutions to recapture (i.e. include in income) certain
portions of their accumulated bad debt reserves. Prior to the enactment of the
1996 Act, the Bank was permitted to establish tax reserves for bad debts and to
make annual additions thereto, which additions, within specified formula
limits, were deducted in arriving at the Banks taxable income. The Banks
deduction with respect to qualifying loans, which are generally loans secured
by certain interests in real property, could be computed using an amount based
on a six-year moving average of the Banks actual loss experience (the
Experience Method), or a percentage equal to 8% of the Banks taxable income
(the PTI Method), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve. The Banks deduction with respect to non-qualifying
loans was required to be computed under the Experience Method. The 1996 Act.Under the 1996 Act, for its current and future taxable years
as a Small Bank, the Bank is permitted to make additions to its bad debt
reserves for Federal income tax purposes under the Experience Method based on
total loans. However, the Bank is required to recapture (i.e. include in
income) over a six-year period the excess of the balance of its bad debt
reserves as of December 31, 1995 over the balance of such reserves as of
December 31, 1987. As of December 31, 1995, the Banks bad debt reserve
exceeded the balance of such reserve as of December 31, 1987 by $326,713. This
excess has been fully recaptured into taxable income as of December 31, 2003. Distributions.Under the 1996 Act, if the Bank makes non-dividend
distributions to the Company, such distributions will be considered to have
been made from the Banks unrecaptured bad debt reserves (including the balance
of its reserves as of December 31, 1987) to the extent thereof, and an amount
based on the amount distributed (but not in excess of the amount of such
reserves) will be included in the Banks income. In general, the term
non-dividend distributions is defined as distributions in excess of the
Banks current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, and distributions in
partial or complete liquidation. Dividends paid out of the Banks current or
accumulated earnings and profits will not cause this pre-1988 reserve to be
included in the Banks income. The amount of additional taxable income created by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately 65% of the amount of
such distribution (but not in excess of the amount of such reserves) would be
included in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserves. Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the
same affiliated group of corporations. The corporate dividends received
deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividend received may be excluded. -16-




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State Taxation Illinois State Taxation. The Company and its subsidiaries are required to
file Illinois income tax returns and pay tax at an effective tax rate of
approximately 4.7% on Illinois taxable income, assuming a 35% Federal income
tax rate. For these purposes, Illinois taxable income, generally means federal
taxable income subject to certain modifications, the primary one of which is
the exclusion of interest income from United States Treasury obligations. The Company and its subsidiaries file one combined corporation return for
State of Illinois income tax purposes. Delaware State Taxation.As a Delaware holding company not earning income
in Delaware, the Company is exempted from Delaware Corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. Critical Accounting Policies The accounting and reporting policies of the Company are in accordance
with accounting principles generally accepted in the United States and conform
to general practices within the banking industry. The Companys significant
accounting policies are described in detail in the notes to the Companys
consolidated financial statements for the year ended December 31, 2003. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions. The financial position and results of operations can
be affected by these estimates and assumptions and are integral to the
understanding of reported results. Critical accounting policies are those
policies that management believes are the most important to the portrayal of
the Companys financial condition and results, and they require management to
make estimates that are difficult, subjective, or complex. Allowance for Credit Losses- The allowance for credit losses provides
coverage for probable losses inherent in the Companys loan portfolio.
Management evaluates the adequacy of the allowance for credit losses each
quarter based on changes, if any, in underwriting activities, the loan
portfolio composition (including product mix and geographic, industry or
customer-specific concentrations), trends in loan performance, regulatory
guidance and economic factors. This evaluation is inherently subjective, as it
requires the use of significant management estimates. Many factors can affect
managements estimates of specific and expected losses, including volatility of
default probabilities, rating migrations, loss severity and economic and
political conditions. The allowance is increased through provisions charged to
operating earnings and reduced by net charge-offs. The Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial
loans is based on reviews of individual credit relationships and an analysis of
the migration of commercial loans and actual loss experience. The allowance
recorded for homogeneous consumer loans is based on an analysis of loan mix,
risk characteristics of the portfolio, fraud loss and bankruptcy experiences,
and historical losses, adjusted for current trends, for each homogeneous
category or group of loans. The allowance for credit losses relating to
impaired loans is based on the loans observable market price, the collateral
for certain collateral-dependent loans, or the discounted cash flows using the
loans effective interest rate. Regardless of the extent of the Companys analysis of customer
performance, portfolio trends or risk management processes, certain inherent
but undetected losses are probable within the loan portfolio. This is due to
several factors including inherent delays in obtaining information regarding a
customers financial condition or changes in their unique business conditions,
the judgmental nature of individual loan evaluations, collateral assessments
and the interpretation of economic trends. Volatility of economic or
customer-specific conditions affecting the identification and estimation of
losses for larger non-homogeneous credits and the sensitivity of assumptions
utilized to establish allowances for homogenous
groups of loans are among other factors. The Company estimates a range of
inherent losses related to the existence of these exposures. The estimates are
based upon the Companys evaluation of imprecision risk associated with the
commercial and consumer allowance levels and the estimated impact of the
current economic environment. -17-




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##### Table of Contents



Mortgage Servicing Rights-Mortgage servicing rights (MSRs) associated
with loans originated and sold, where servicing is retained, are capitalized
and included in other intangible assets in the consolidated balance sheet. The
value of the capitalized servicing rights represents the present value of the
future servicing fees arising from the right to service loans in the portfolio.
Critical accounting policies for MSRs relate to the initial valuation and
subsequent impairment tests. The methodology used to determine the valuation of
MSRs requires the development and use of a number of estimates, including
anticipated principal amortization and prepayments of that principal balance.
Events that may significantly affect the estimates used are changes in interest
rates, mortgage loan prepayment speeds and the payment performance of the
underlying loans. The carrying value of the MSRs is periodically reviewed for
impairment based on a determination of fair value. For purposes of measuring
impairment, the servicing rights are compared to a valuation prepared based on
a discounted cash flow methodology, utilizing current prepayment speeds and
discount rates. Impairment, if any, is recognized through a valuation allowance
and is recorded as amortization of intangible assets. Forward Looking Statements This annual report on Form 10-K (including certain information
incorporated by reference) contains forward-looking statements, including
certain plans, expectations, goals and projections, which are subject to
numerous assumptions, risks and uncertainties. These forward-looking statements
are identified by the use of terms such as believes, anticipates,
estimates, expects, projects or similar words. Actual results could
differ materially from those contained or implied by such statements for a
variety of factors including, but not limited to: changes in general and/or
local economic conditions; movements in interest rates; competitive pressures
on product pricing and services; success and timing of business strategies,
and; the nature, extent and timing of governmental actions and reforms. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Current Events On January 26, 2004, the Bank entered into a Memorandum of Understanding
(the MOU) with the Federal Deposit Insurance Corporation (the FDIC) and the
Illinois Office of Banks and Real Estate (the OBRE). The Bank is subject to
supervision, examination and regulation by the FDIC and the OBRE. The MOU
requires the Bank to take various actions to correct deficiencies related to
management, asset quality and earnings. The specific actions to be taken by the
Bank were described in a Form 8-K filed by the Company with the Securities and
Exchange Commission on January 27, 2004. -18-




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Item 2 Properties The Bank conducts its business through an executive and full-service
office located in Bloomington and four other full service branch offices. The
Company believes that the Banks current facilities are adequate to meet the
present and immediately foreseeable needs of the Bank and the Company. OriginalYear
    
    Net Book Value atLeased
    
    Leased or
    
    December 31,
    
    DepositsLocation
    
    or Owned
    
    Acquired
    
    2003
    
    per Office(Dollars in
thousands)Executive Branch Office:2101 North Veterans Parkway*Bloomington, Illinois 61704
    
    Owned
    
    
    1997
    
    
    $
    3,360
    
    
    $
    63,023Branch Offices:301 Broadway*
Normal, Illinois 61761
    
    Owned
    
    
    1963
    
    
    
    346
    
    
    
    49,6892402 E. Washington*
Bloomington, Illinois 61704
    
    Owned
    
    
    1980
    
    
    
    659
    
    
    
    43,1211722 Hamilton Road*
Bloomington, Illinois 61704
    
    Owned
    
    
    1995
    
    
    
    1,145
    
    
    
    23,599115 N. Third Street*
Fairbury, Illinois 61739
    
    Owned
    
    
    1981
    
    
    
    592
    
    
    
    60,553Total
    
    
    
    
    
    
    
    
    
    $
    6,102
    
    
    $
    239,985
 * An automated teller machine is located at each office.
None of the properties owned by the Company are subject to any encumbrance. -19-




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Item 3 Legal Proceedings The registrant is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the registrants financial condition or results of operations. 
 Item 4 Submission of Matters to a Vote of Security Holders No matters were submitted during the fourth quarter of 2003 to a vote of
security holders, through the solicitation of proxies or otherwise. 
 SUPPLEMENTAL INFORMATION - EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions with the Company and subsidiary bank of all
executive officers of the Company are listed below: Officers with the Company
    
    Principal OccupationName and Age
    
    And Subsidiary Bank
    
    During Past Five YearsC. William Landefeld, 64
    
    President and Chief
Executive Officer,
Citizens First
Financial Corp.;
President and Chief
Executive Officer,
Citizens Savings
Bank.
    
    President and Chief
Executive Officer,
Citizens First
Financial Corp. since
1996; President and
Chief Executive
Officer, Citizens
Savings Bank since
1987.Dallas G. Smiley, 57
    
    Executive Vice
President, Secretary,
Treasurer and Chief
Financial Officer,
Citizens First
Financial Corp.;
Executive Vice
President, Secretary,
Treasurer and Chief
Financial Officer,
Citizens Savings
Bank.
    
    Executive Vice
President, Secretary,
Treasurer and Chief
Financial Officer,
Citizens First
Financial Corp. since


2004, Executive Vice
President, Secretary,
Treasurer and Chief
Financial Officer,
Citizens Savings Bank
since 2004, Senior
Vice President,
Secretary, Treasurer
and Chief Financial
Officer, Citizens
First Financial Corp.
since 2003, Senior
Vice President,
Secretary, Treasurer
and Chief Financial
Officer, Citizens
Savings Bank since
2003, Senior Vice
President, Treasurer
and Chief Financial
Officer, Citizens
First Financial Corp.
since 1996, Senior
Vice President,
Treasurer and Chief
Financial Officer,
Citizens Savings Bank
since 1995, Vice
President, Treasurer
and Chief Financial
Officer, Citizens
Savings Bank
1987-1995.
 -20-




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PART II 
 Item 5 Market for the Registrants Common Equity and Related Stockholder Matters Information relating to the market for registrants common equity,
dividends paid and related stockholder matters appears in the registrants 2003
Annual Report to Stockholders on page 44 and is incorporated herein by
reference. 
 Item 6 Selected Financial Data Information required under this item is incorporated by reference to page
4 of the Companys 2003 Annual Report to Stockholders under the caption
Selected Financial Data. 
 Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations The above-captioned information appears under Managements Discussion and
Analysis of Results of Operations and Financial Condition in the registrants
2003 Annual Report to Stockholders on pages 5 through 11 and 14 through 17 and
is incorporated herein by reference. 
 Item 7A Quantitative and Qualitative Disclosures about Market Risk The information required under this item is incorporated by reference to
pages 12 and 13 of the Companys 2003 Annual Report to Stockholders. 
 Item 8 Financial Statements and Supplementary Data The Consolidated Financial Statements of Citizens First Financial Corp.
and its subsidiaries, together with the report thereon by BKD, LLP for the year
ended December 31, 2003 on pages 18 through 43 and the information contained
under the caption Quarterly Financial Information on page 44 in the
registrants 2003 Annual Report to Stockholders are incorporated herein by
reference. 
 Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A Controls and Procedures (a) Disclosure controls and procedures. We evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as of
December 31, 2003. Our disclosure controls and procedures are the controls and
other procedures that we designed to ensure that we record, process, summarize
and report in a timely manner the information we must disclose in reports that
we file with or submit to the SEC. C. William Landefeld, our President and
Chief Executive Officer, and Dallas G. Smiley, our Executive Vice President and
Chief Financial Officer, reviewed and participated in this evaluation. Based
on this evaluation, Messrs. Landefeld and Smiley concluded that, as of the date
of their evaluation, our disclosure controls were effective. (b) Internal controls. During the quarter ended December 31, 2003, there
have not been any significant changes in our internal accounting controls or in
other factors that could significantly affect those controls. -21-




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##### Table of Contents



PART III 
 Item 10 Directors and Executive Officers of the Registrant The information required under this item relating to directors is
incorporated by reference to the registrants 2004 Proxy Statement furnished to
its stockholders in connection with an annual meeting to be held April 26, 2004
(the 2004 Proxy Statement), under the caption Election of Directors on page
8, under the caption Audit Committee Financial Expert and on pages 9 and 10,
under the caption Code of Ethics on page 9, and Compliance with Section 16
on page 25, which Proxy Statement has been filed with the Commission. The
information required under this item relating to executive officers is set
forth in Part I, Supplemental Information  Executive Officers of the
Registrant of this annual report on Form 10-K. 
 Item 11 Executive Compensation The information relating to directors and executive compensation is
incorporated herein by reference to the registrants 2004 Proxy Statement at
pages 17 through 21 and pages 10 and 11 under the caption Directors
Compensation. 
 Item 12 Security Ownership of Certain Beneficial Owners and Management The information required under this item is incorporated by reference to
pages 15 and 16 of the registrants 2004 Proxy Statement, under the captions
Security Ownership of Directors, Nominees for Directors, Most Highly
Compensated Executive Officers and All Directors and Executive Officers as a
Group and Security Ownership of Shareholder Holding 5% or More. Equity Compensation Plan Information Number of securitiesremaining availableNumber of securities
    
    
    
    
    
    for future issuanceto be issued upon
    
    
    
    
    
    under equityexercise of
    
    Weighted-average
    
    compensation plansoutstanding
    
    exercise price of
    
    (excludingoptions, warrants
    
    outstanding options,
    
    securities in columnand rights
    
    warrants and rights
    
    (A))Plan Category
    
    (A)
    
    (B)
    
    (C)Equity
compensation plans
approved by
security holders
    
    
    262,100
    
    
    $
    12.87
    
    
    
    4,512Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    

    
    
    Total
    
    
    262,100
    
    
    $
    12.87
    
    
    
    4,512
 
 Item 13 Certain Relationships and Related Transactions The information relating to certain relationships and related transactions
is incorporated herein by reference to the registrants 2004 Proxy Statement at
page 21 under the caption Transactions with Certain Related Persons. 
 Item 14 Principal Accountant Fees and Services The information relating to principal accountant fees and services is
incorporated herein by reference to the registrants 2004 Proxy Statement at
page 13 and 14 under the caption Item 2. Ratification of Auditors. -22-




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Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K  (1)
    
    The following documents are filed as a part of this report:  (1)
    
    Financial Statements  Consolidated Financial Statements of the Company
are incorporated by reference to the following indicated
pages 19 through 43 of the 2003 Annual Report to Stockholders PAGEIndependent Accountants Report
    
    
    18Consolidated Balance Sheets as of
December 31, 2003 and 2002
    
    
    19Consolidated Statements of Income for the
years ended December 31, 2003, 2002 and 2001
    
    
    20Consolidated Statements of Stockholders Equity
for the years ended December 31, 2003, 2002 and 2001
    
    
    21Consolidated Statements of Cash Flows for the
years ended December 31, 2003, 2002 and 2001
    
    
    22-23Notes to Consolidated Financial Statements
    
    
    24-43
 -23-




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The remaining information appearing in the Annual Report to
Stockholders is not deemed to be filed as part of this report,
except as expressly provided herein.  (2)
    
    Financial Statement Schedules  All schedules are omitted because they are not required or
applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.  (3)
    
    Exhibits  The following exhibits are filed as part of this report.  3.1
    
    Certificate of Incorporation of Citizens First Financial Corp.*3.2
    
    Bylaws of Citizens First Financial Corp.**4.0
    
    Stock Certificate of Citizens First Financial Corp.*10.1
    
    Citizens Savings Bank, F.S.B. Employee Stock Ownership Plan*10.2
    
    Form of Employment Agreement between Citizens
Savings Bank, F.S.B. and certain executive officers*10.3
    
    Form of Employment Agreement between Citizens
First Financial Corp. and certain executive officers*10.4
    
    Form of Citizens Savings Bank, F.S.B. Supplemental Executive
Retirement Plan*10.5
    
    Form of Change in Control Agreement between
Citizens Savings Bank, F.S.B. and certain executive officers*10.6
    
    Form of Citizens Savings Bank, F.S.B.
Supplemental Executive Retirement Plan*10.7
    
    Form of Citizens Savings Bank, F.S.B. Employee
Severance Compensation Plan*10.8
    
    Citizens First Financial Corp. 1997 Stock-Based
Incentive Plan***13.0
    
    Portions of 2003 Annual Report to Stockholders
(filed herewith)(1)
    
    Subsidiary information is incorporated herein by
reference to Part I, Item 1 - Subsidiary Activities14.0
    
    Code of Ethics23.0
    
    Consent of BKD, LLP31.1
    
    Certification of C. William Landefeld Required by Rule 13a-14(a)31.2
    
    Certification of Dallas G. Smiley Required by Rule 13a-14(a)32.1
    
    Certification of C. William Landefeld required by
Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 135032.2
    
    Certification of Dallas G. Smiley required by Rule 13a-14(b)
and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350    *
    
    Incorporated herein by reference to the
Exhibits to Form SB-2, Registration Statement, filed on
January 24, 1997 and any amendments thereto, Registration
No. 333-556.**
    
    Incorporated by reference to Exhibit 99.1
to Current Report on Form 8-K filed on September 1, 2000.***
    
    Incorporated herein by reference to the Proxy
Statement for the Special Meeting of Shareholders held on
November 12, 1997.  (b)
    
    Reports on Form 8-K: On November 3, 2003, the Company filed a Form 8-K with the
Securities and Exchange Commission to announce earnings for the quarter
ended September 30, 2003. -24-




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 29th day
of March, 2004. CITIZENS FIRST FINANCIAL CORP.By:
    /s/ C. William LandefeldC. William Landefeld 

President, Chief Executive Officer
and DirectorDate: March 29, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant in
the capacities and on the dates indicated. Name
    
    Title
    
    Date/s/ C. William Landefeld
    
    President, Chief Executive
Officer and Director
(principal executive
officer)
    
    March 29, 2004C. William Landefeld/s/ Dallas G. SmileyDallas G. Smiley
    
    Executive Vice President,
Secretary, Treasurer and
Chief Financial Officer (principal accounting and financial officer)
    
    March 29, 2004/s/ Dr. Lowell M. Thompson
    
    Director
    
    March 29, 2004Dr. Lowell M. Thompson/s/ Harold L. Hoeferle
    
    Director
    
    March 29, 2004Harold L. Hoeferle/s/ Mary Ann Webb
    
    Director
    
    March 29, 2004Mary Ann Webb/s/ L. Carl Borngasser
    
    Director
    
    March 29, 2004L. Carl Borngasser/s/ Arthur W. Mier
    
    Director
    
    March 29, 2004Arthur W. Mier/s/ Martin L. Hogan
    
    Director
    
    March 29, 2004Martin L. Hogan
 -25-




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##### Table of Contents



EXHIBIT INDEX  3.1
    
    Certificate of Incorporation of Citizens First Financial Corp.*3.2
    
    Bylaws of Citizens First Financial Corp.**4.0
    
    Stock Certificate of Citizens First Financial Corp.*10.1
    
    Citizens Savings Bank, F.S.B. Employee Stock Ownership Plan*10.2
    
    Form of Employment Agreement between Citizens
Savings Bank, F.S.B. and certain executive officers*10.3
    
    Form of Employment Agreement between Citizens
First Financial Corp. and certain executive officers*10.4
    
    Form of Citizens Savings Bank, F.S.B. Supplemental Executive
Retirement Plan*10.5
    
    Form of Change in Control Agreement between
Citizens Savings Bank, F.S.B. and certain executive officers*10.6
    
    Form of Citizens Savings Bank, F.S.B.
Supplemental Executive Retirement Plan*10.7
    
    Form of Citizens Savings Bank, F.S.B. Employee
Severance Compensation Plan*10.8
    
    Citizens First Financial Corp. 1997 Stock-Based
Incentive Plan***13.0
    
    Portions of 2003 Annual Report to Stockholders
(filed herewith)(1)
    
    Subsidiary information is incorporated herein by
reference to Part I, Item 1 - Subsidiary Activities14.0
    
    Code of Ethics23.0
    
    Consent of BKD, LLP31.1
    
    Certification of C. William Landefeld Required by Rule 13a-14(a)31.2
    
    Certification of Dallas G. Smiley Required by Rule 13a-14(a)32.1
    
    Certification of C. William Landefeld required by
Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 135032.2
    
    Certification of Dallas G. Smiley required by Rule 13a-14(b)
and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350    *
    
    Incorporated herein by reference to the
Exhibits to Form SB-2, Registration Statement, filed on
January 24, 1997 and any amendments thereto, Registration
No. 333-556.**
    
    Incorporated by reference to Exhibit 99.1
to Current Report on Form 8-K filed on September 1, 2000.***
    
    Incorporated herein by reference to the Proxy
Statement for the Special Meeting of Shareholders held on
November 12, 1997.