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, 1998
                          Commission File No.: 1-14274

                         CITIZENS FIRST FINANCIAL CORP.
             (Exact name of Registrant as specified in its charter)

           DELAWARE                                           37-1351861
(State or other jurisdiction of                       (I.R.S. Employer I.D. No.)
incorporation or organization)

            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: NONE
           Securities registered pursuant to Section 12(b) of the Act:

                     COMMON STOCK PAR VALUE $0.01 PER SHARE
                                (Title of class)

                             AMERICAN STOCK EXCHANGE
                     (Name of exchange on which registered)

         Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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. [ ]

         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 $30,680,271 and is based upon the last sales price as quoted
on The American Stock Exchange for March 12, 1999.

         The Registrant had 2,204,417 shares of Common Stock outstanding as of
March 12, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

         PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1998, ARE INCORPORATED BY REFERENCE INTO PART II OF THIS FORM 10-K.

         PORTIONS OF THE PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.


<PAGE>


                                      INDEX

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                     <C>
PART I   

         Item 1   Business...............................................................................1
         Item 2   Properties............................................................................25
         Item 3   Legal Proceedings.....................................................................26
         Item 4   Submission of Matters to a Vote of Security Holders...................................26
         Supplemental Information - Executive Officers of the Registrant

PART II

         Item 5   Market for Registrant's Common Equity and Related Stockholder Matters.................27
         Item 6   Selected Financial Data...............................................................27
         Item 7   Management's Discussion and Analysis of Financial Condition and Results of
                  Operations............................................................................27
         Item 7A  Quantitative and Qualitative Disclosures about Market Risk............................27
         Item 8   Financial Statements and Supplementary Data...........................................27
         Item 9   Changes in and Disagreements With Accountants on Accounting and Financial 
                  Disclosures...........................................................................27

PART III

         Item 10  Directors and Executive Officers of the Registrant....................................27
         Item 11  Executive Compensation................................................................28
         Item 12  Security Ownership of Certain Beneficial Owners and Management........................28
         Item 13  Certain Relationships and Related Transactions........................................28

PART IV
         Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................28

Signatures..............................................................................................30

</TABLE>


<PAGE>


                                     PART I

ITEM 1   BUSINESS

GENERAL

         Citizens First Financial Corp. (the "Company") was incorporated under
Delaware law in January 1996. The Company completed its initial public offering
of 2,817,500 shares of common stock on May 1, 1996 in connection with the
conversion of Citizens Savings Bank, F.S.B (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"), the Federal Deposit Insurance Corporation ("FDIC") 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,
1998, the Company had total assets of $287.3 million, total deposits of $208.1
million and total stockholders' equity of $36.0 million.

         The Bank was originally chartered in 1888 by the State of Illinois and
in 1989 became a federally chartered 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 one- to
four-family residential mortgage loans, multi-family, commercial real estate,
consumer and other loans. The Bank originates loans for investment and for sale.
Currently, it is the Bank's policy 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 had two
wholly-owned service corporations, CSL Service Corporation and Fairbury
Financial Services Corp. CSL Service Corporation is an Illinois-chartered
corporation that has had limited activity selling tax-deferred annuities.
Fairbury Financial Services Corp., an Illinois-chartered corporation, that
serviced previously sold tax deferred annuities and long-term care insurance
policies that it sold on an agency basis was merged into CSL Service Corporation
in January, 1999.

INVESTMENT ACTIVITIES

         The investment policy of the Bank, as approved by the Board of
Directors, requires management to maintain adequate liquidity, generate a
favorable return on investments without incurring undue interest rate and credit
risk. The Bank has invested primarily in U.S. Agency securities, corporate and
mortgage-backed securities, a Federal Home Loan Bank demand investment account
FDIC insured certificates of deposit with maturities not to exceed 90 days,
mutual funds which qualify as liquid assets under the OTS regulations, federal
funds and U.S. government sponsored agency issued mortgage-backed securities.
SFAS 115 requires the Bank to designate its securities as held to maturity,
available for sale or held for trading. The Bank does not currently maintain a
portfolio of securities categorized as held to maturity or held for trading. The
Bank's investment securities generally consist of U.S. Agency obligations and
mortgage-backed and mortgage-related securities. The Bank's mortgage-backed
securities consist of pass through certificates representing interests in pools
of fixed and adjustable rate mortgage loans issued or guaranteed by FNMA, FHLMC
or GNMA. At December 31, 1998, the Bank's portfolio of investment and
mortgage-backed securities totaled $18.0 million, all of which was categorized
as available for sale.

         In recent periods, the Bank 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


                                      -1-
<PAGE>


         ORIGINATION, SALE, SERVICING AND PURCHASE OF LOANS. The Bank's loan
origination activities are conducted primarily by its loan personnel, operating
at its six branch offices. All loans originated by the Bank are underwritten by
the Bank pursuant to the Bank's policies and procedures. The Bank originates
both adjustable-rate and fixed-rate mortgage loans, commercial loans and
consumer loans. The Bank'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 Bank 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 Bank 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 LENDING. The Bank currently offers both
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences located in the Bank's primary market area, with maturities of up to
thirty years. While the Bank has originated such loans secured by properties
outside its market area, substantially all of such loans at December 31, 1998
were secured by property located in the Bank's primary market area. One- to
four-family mortgage loan originations are generally obtained from the Bank'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 LENDING. The Bank originates fixed and adjustable-rate
multi-family mortgage loans generally secured by 5 to 70 unit apartment and
student housing buildings located in the Bank's primary market area. In reaching
its decision on whether to make a multi-family loan, the Bank 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 Bank
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 LENDING. The Bank originates adjustable-rate
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 Bank'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 properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. The Bank
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 LENDING. The Bank 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 Bank's construction loans are originated
primarily to finance the


                                      -2-
<PAGE>
construction of one- to four-family, owner-occupied residential properties and
multi-family properties located in the Bank'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 dependent
largely 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 Bank may be confronted with a project, when completed, having a
value which is insufficient to assure full repayment.

         COMMERCIAL LENDING. The Bank offers commercial loans to businesses
operating in the Bank'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 whose value 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 and other assets and personal guarantees.

         CONSUMER AND OTHER LENDING. The Bank's portfolio of consumer and other
loans primarily consist 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 SERVICING. The Bank 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

         DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, checking accounts, money market accounts and certificate accounts. The
Bank 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, 1998, the average balance of
core deposits (savings, NOW, money market and non-interest-bearing checking
accounts) totaled $44.2 million, or 23.0%, of total average deposits. The flow
of deposits is influenced significantly by general economic conditions, changes
in money market rates, prevailing interest rates and competition. The Bank's
deposits are obtained predominantly from the areas in which its branch offices
are located. The Bank 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 


                                      -3-
<PAGE>


financial institutions significantly affect the Bank's ability to attract and
retain deposits. The Bank uses traditional means of advertising its deposit
products, including radio and print media and generally does not solicit
deposits from outside its market area. While certificate accounts in excess of
$100,000 are accepted by the Bank, the Bank does not actively solicit such
deposits nor does the Bank currently use brokers to obtain deposits. The Bank
has attempted to increase its deposit customer base and decrease in its level of
dependency on certificate accounts by offering interest free checking accounts
without minimum balance requirements.

MARKET AREA AND COMPETITION

         The Bank is a community-oriented savings institution offering a variety
of financial products and services to meet the needs of the communities it
serves. The Bank's deposit gathering is concentrated in the communities
surrounding its six offices located in the municipalities of Bloomington,
Normal, Eureka and Fairbury, Illinois which are part of McLean, Woodford and
Livingston Counties. On November 29, 1997, the Bank completed the sale of a
branch office in Chenoa, Illinois to another financial institution. McLean
County comprises the greater Bloomington/Normal metropolitan area and Woodford,
Tazewell and Livingston Counties are adjacent to the greater Bloomington/Normal
metropolitan area. The economy in McLean, Woodford, Tazewell and Livingston
Counties has historically benefitted from the presence of the national and
regional headquarters of State Farm Insurance Company, the Mitsubishi Motors
Corporation, Caterpillar, GTE, the Eureka Company, 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 Bank faces significant competition both in making loans and in
attracting deposits. The greater Bloomington/Normal metropolitan area is a
highly competitive market. The Bank 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 Bank. State Farm Insurance Company, Bloomington-Normal's
largest business, has received regulatory approval for opening a savings bank,
which it will operate through its agents on a national basis. The effect, if
any, that the venture will have on the Company when it commences operations in
1999, is unknown. The Bank'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 Bank 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.


                                      -4-
<PAGE>


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:

<TABLE>
<CAPTION>
                                                                  Gross           Gross
                                                Amortized      Unrealized      Unrealized         Fair
                                                   Cost           Gains           Losses          Value
                                                 -------         -------         -------         -------
                                                                  (Dollars in thousands)
<S>                                              <C>             <C>             <C>             <C>    
Available for sale at December 31, 1998:
   Federal agencies                              $ 6,500         $     6         $     2         $ 6,504
   Mortgage-backed securities                     10,380              10              91          10,299
   Other asset-backed securities                     231                                             231
   Marketable equity securities                    1,000                               1             999
                                                 -------         -------         -------         -------
       Total available for sale                  $18,111         $    16         $    94         $18,033
                                                 =======         =======         =======         =======


Available for sale at December 31, 1997:
   Federal agencies                              $ 4,209         $    14         $     4         $ 4,219
   Mortgage-backed securities                     14,210                             175          14,035
   Other asset-based securities                       46                                              46
   Marketable equity securities                    1,000               2                           1,002
                                                 -------         -------         -------         -------
       Total available  for sale                 $19,465         $    16         $   179         $19,302
                                                 =======         =======         =======         =======


Available for sale at December 31, 1996:
   Federal agencies                              $ 4,221                         $    32         $ 4,189
   Mortgage-backed securities                     23,569               3             458          23,114
   Other asset-backed securities                      68                                              68
   Marketable equity securities                    1,000                                           1,000
                                                 -------         -------         -------         -------
      Total available for sale                    28,858               3             490          28,371
                                                 =======         =======         =======         =======


Held to maturity at December 31,1996:
   Federal agencies                                1,000                               9             991
                                                 -------         -------         -------         -------
      Total investment securities                $29,858         $     3         $   499         $29,362
                                                 =======         =======         =======         =======
</TABLE>


                                      -5-
<PAGE>

The balance of Federal Home Loan Bank of Chicago stock owned at December 31 is
as follows 

                                     Cost
                  -----------------------------------------
                           (Dollars in thousands)
                   1998              1997             1996
                  ------            ------           ------
                  $1,971            $2,453           $1,662
                  ======            ======           ======

The fair value of Federal Home Loan Bank stock approximates cost. The yield on
the stock is approximately 6.625% at December 31, 1998.

The maturity distribution (dollars in thousands) and average yields for the
securities available for sale portfolio at December 31, 1998 were:

<TABLE>
<CAPTION>
                                        Within 1 Year                1 - 5 Years                 5 - 10 Years
                                   ----------------------      ----------------------      ----------------------
                                    Amount        Yield*        Amount        Yield*        Amount        Yield*
                                   --------      --------      --------      --------      --------      --------
<S>                                <C>           <C>           <C>           <C>           <C>           <C>   
Federal agencies                   $                    %      $  1,501         5.88%      $  5,003         6.62%
                                   --------      --------      --------      --------      --------      --------
    Total                          $      0         0.00%      $  1,501         5.88%      $  5,003         6.62%
                                   ========      ========      ========      ========      ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                                 Marketable Equity,
                                                                 Mortgage and Other
                                     Due After Ten Year       Asset-Backed Securities              Total
                                   ----------------------      ----------------------      ----------------------
                                    Amount        Yield*        Amount        Yield*        Amount        Yield*
                                   --------      --------      --------      --------      --------      --------
<S>                                <C>           <C>           <C>           <C>           <C>           <C>   
Federal agencies                                                                           $  6,504         6.45%
Marketable equity securities                                   $    999         5.90%           999         5.90%
Mortgage-backed securities                                       10,299         6.13%        10,299         6.13%
Other asset-backed securities                                       231         5.15%           231         5.15%
                                                               --------      --------      --------      --------
      Total                        $      0         0.00%      $ 11,529         5.96%      $ 18,033         6.34%
                                   ========      ========      ========      ========      ========      ========
</TABLE>


                                      -6-
<PAGE>


LOAN PORTFOLIO
Types of Loans

<TABLE>
<CAPTION>
                                           1998          1997          1996          1995          1994
                                                              (DOLLARS IN THOUSANDS)
<S>                                      <C>           <C>           <C>           <C>           <C>     
Commercial loans                         $ 33,649      $ 16,863      $  8,063      $  6,865      $  4,023
Real estate loans:
   Construction and land                   20,024        15,862        12,489        12,353         5,131
   Commercial                              24,073        25,610         8,934         8,679         7,847
   Residential                            150,273       168,938       174,253       152,177       149,913
Consumer and other loans                   12,072        12,345        11,444        11,719        12,607
                                         --------      --------      --------      --------      --------
   Total                                  240,091       239,618       215,183       191,793       179,521

Deferred premium on sale of loans              11            33            34            39            62
                                         --------      --------      --------      --------      --------

   Total gross loans                      240,102       239,651       215,217       191,832       179,583

Less:
   Undisbursed portion of loans (1)         7,189         9,049         3,397         2,859         2,129
   Unearned interest                                                                                   21
   Deferred loan fees                          29           293           266           200           171
   Allowance for loan losses                1,256           840           512           412           353
                                         --------      --------      --------      --------      --------

Loans, net                               $231,628      $229,469      $211,042      $188,361      $176,909
                                         ========      ========      ========      ========      ========
</TABLE>

(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, 1998, 1997, 1996, 1995 and 1994 were
$5,245,872, $2,393,567, $3,027,468, $-0- and $-0-, respectively, were not
included in the above totals.

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 and consumer and other loans) outstanding
as of December 31, 1998. Also presented are the amounts due after one year
classified according to the sensitivity to changes in interest rates.

<TABLE>
<CAPTION>
                                                           Maturing 
                                        ----------------------------------------------
                                         Within        1-5        Over 5
                                         1 Year       Years        Years        Total
                                        -------      -------      -------      -------
                                                    (Dollars in thousands)
<S>                                     <C>          <C>          <C>          <C>    
Commercial loans                        $15,782      $14,627      $ 3,240      $33,649
Real estate loans-Construction and
    Land                                 15,671        2,988        1,365       20,024
                                        -------      -------      -------      -------
     Total                              $31,453      $17,615      $ 4,605      $53,673
                                        =======      =======      =======      =======
</TABLE>


                                      -7-
<PAGE>

                                                   Maturing
                                            -----------------------
                                             1 - 5           Over
                                             Years          5 Years
                                            -------         -------
                                             (Dollars in thousands)

Loans maturing after one year with:
   Fixed rates                              $11,638         $ 2,852
   Variable rate                              5,977           1,753
                                            -------         -------
      Total                                 $17,615         $ 4,605
                                            =======         =======

Risk Elements
-------------
                                                         December
                                           ------------------------------------
                                           1998    1997    1996    1995    1994
                                           ----    ----    ----    ----    ----
                                                  (Dollars in thousands)
Nonaccruing loans                          $129    $737    $198    $311    $330

Loans contractually past due 90 days or
    more other than nonaccuring             250     211     369     637     209

Restructured loans                          325     341     463     364     375


Nonaccruing loans are loans which are reclassified to a 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 a
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 $32,865 for the year ended December 31, 1998, was recognized
on the nonaccruing and restructured loans listed in the table above, whereas
interest income of $41,315 would have been recognized under their original loan
terms.

POTENTIAL PROBLEM LOANS:
------------------------

Management has identified certain other loans totaling $296,000 as of December
31, 1998, not included in the risk elements table, which are current as to
principal and interest, about which there are doubts as to the borrowers'
ability to comply with present repayment terms.

The Bank generates commercial, mortgage and consumer loans from customers
located primarily in Central Illinois. The Bank's loans are generally secured by
specific items of collateral including real property, consumer assets, and
business assets. Although the Bank has a diversified loan portfolio, a
substantial portion of their debtors' ability to honor their contracts is
dependent upon economic conditions in Central Illinois.


                                      -8-
<PAGE>
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. The amount of impaired loans outstanding at December 31, 1998 and 1997 and
during 1998 and 1997 were immaterial. The Company considers 1-4 family real
estate and consumer loans to be homogeneous and are therefore excluded from the
separate identification for evaluation of impairment.

ALLOWANCE FOR LOAN LOSSES AND IMPAIRED LOANS

         The allowance for loan losses is maintained at a level management
believes to be adequate to provide for known and potential risks inherent in the
loan portfolios. On a quarterly basis, management assesses the adequacy of the
allowance for loan losses. Management's evaluation of the adequacy of the
allowance considers such factors as prior loss experience, loan delinquency
levels and trends, loan portfolio growth and reviews of impaired loans and the
value of underlying collateral securing these loans. The analysis of the
commercial and industrial loan portfolio includes assessments based on historic
loan losses and current quality grades of specific credits, current delinquent
and non-performing loans, current economic conditions, growth in the portfolio
and the results of recent audits and regulatory examinations. For the review of
the adequacy of the allowance for loan losses for real estate loans, assessments
are based on current economic conditions and real estate values, historic loan
losses and current quality grades of specific credits, recent growth and current
delinquent and non-performing loans. The adequacy of the allowance for loan
losses as it pertains to the consumer loan portfolio is based on the assessments
of current economic conditions, historic loan losses and the mix of loans,
recent growth and the current delinquent and non-performing loans.

         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 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 since December 31, 1996.
Because of the higher degree of risk associated with these types of loans, the
Compnay has undertaken to increase its allowance for loan losses to reflect this
increased risk.


                                      -9-
<PAGE>


      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 (in thousands):

SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------

<TABLE>
<CAPTION>
                                                     1998       1997       1996       1995       1994
                                                   --------------------------------------------------
<S>                                                <C>      <C>        <C>        <C>        <C>
Balance at January 1                               $  840     $  512     $  412     $  353     $  388

Loan Charged off (net):
Commercial loans                                       (8)        --         --         --        (50)

Real Estate Loans:   
    Construction and land                              (7)         --         --         --         --
    Commercial                                         --        (32)        --         --         (3)
    Residential                                       (32)      (106)       (47)       (59)       (29)
Consumer and other loans                               --        (32)        20         (5)       (34)
                                                   ------     ------     ------     ------     ------
Net chargeoffs                                        (47)      (188)      (67)        (64)      (116)
                                                   ------     ------     ------     ------     ------
Provision for loan losses                             463        516       (167)       123         81
                                                   ------     ------     ------     ------     ------
Balance at December 31                             $1,256     $  840     $  512     $  412     $  353
                                                   ======     ======     ======     ======     ======

Ration of net chargeoffs during the period to       0.02%      0.08%      0.03%      0.03%      0.07%
    average loans outstanding during the period

</TABLE>

         For many years, the Company has minimized credit risk by adhering to
sound underwriting and credit review policies. These policies are reviewed at
least annually and changes approved by the board of directors. Senior management
is actively involved in business development efforts and maintenance and
monitoring of credit underwriting approval.

         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.


                                      -10-
<PAGE>


ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
-------------------------------------------

         The percentages of allocation of the allowance for loan losses among
the various categories of loans have remained relatively steady for 1994

<TABLE>
<CAPTION>
                                                 1998                       1997                       1996         
------------------------------------------------------------------------------------------------------------------
                                                        % of                       % of                       % of
                                         Amount        Total        Amount        Total        Amount        Total
------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>           <C>          <C>           <C>
Commercial loans                         $  320       25.48%        $  213        25.36%       $   68        13.28%
Real estate loans:
    Construction and land                    70        5.57             40         4.76            46         8.98
    Commercial                              120        9.55            116        13.81            36         7.03
    Residential                             435       34.63            393        46.78           222        43.37
Consumer and other loans                     75        5.97             78         9.29           140        27.34
Unallocated                                 236       18.80              0         0.0%             0         0.0%
                                         ------       -----         ------       -----         ------       ----- 

    Total                                $1,256       100.0%        $  840       100.0%        $  512       100.0%
                                         ======       =====         ======       =====         ======       ===== 

</TABLE>

<TABLE>
<CAPTION>
                                                 1995                       1994       
---------------------------------------------------------------------------------------
                                                        % of                       % of
                                         Amount        Total        Amount        Total
---------------------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>          <C>
Commercial loans                         $   56       13.59%            69       19.55%
Real estate loans:        
    Construction and land                    16         3.88            24          6.8
    Commercial                               56        13.59            22         6.23
    Residential                             182        44.18           122        34.57
Consumer and other loans                    130        31.55           116        32.85
Unallocated                                   0         0.0%             0          0.0 
                                         ------       ------         -----       ------ 

    Total                                $  412       100.0%         $ 353       100.0%
                                         ======       ======         =====       ====== 

</TABLE>

The percentage of the allocation of the allowance for loan losses among the
various categories have changed for the years 1994 through 1998 to reflect 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. 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. The unallocated portion of the allowance for loan
losses represents the amount that is necessary to cover any current adverse
conditions on the loan portfolio such as the deterioration in the agricultural
industry.


                                      -11-
<PAGE>

DEPOSITS AND BORROWINGS

         DEPOSITS. The following table shows the average amount of deposits and
average rate of interest paid thereon for the years indicated.

<TABLE>
<CAPTION>
                                            1998                        1997                        1996
                                   ----------------------      ----------------------      ----------------------
                                    Amount         Rate         Amount         Rate         Amount         Rate
                                   --------      --------      --------      --------      --------      --------
                                                               (Dollars in Thousands)
<S>                                <C>           <C>           <C>           <C>           <C>           <C>
Balance at December 31:
Noninterest bearing deposits       $ 10,333       0.00%        $  7,531       0.00%        $  7,579          0.00%
Money Market deposit accounts        10,345       2.26            9,703       2.41           10,440          2.43
Savings deposits                     17,221       2.40           16,921       2.48           18,163          2.46
NOW accounts                         16,668       2.27           14,930       2.26           14,534          2.36
Certificate of deposit and
   other time deposits              147,591       5.77          148,812       5.83          155,937          5.84
                                   --------    -------         --------     ------         --------       -------
     Total deposits                $202,158       4.72%        $197,897       4.89%         $206,653         4.91%
                                   ========    =======         ========     ======         ========       =======
</TABLE>


As of December 31, 1998, certificates of deposit and other time deposits of
$100,000 or more mature as follows:

<TABLE>
<CAPTION>
                                                                   Maturing
                                       ----------------------------------------------------------------
                                       3 Months        3-6           6-12        Over 12
                                       or less        Months        Months        Months         Total
                                       --------      --------      --------      --------      --------
                                                             (Dollars in thousands)
<S>                                    <C>           <C>           <C>           <C>           <C>
Certificates of deposit and other
   time deposits                        $3,732        $1,602        $1,881         4,652       $11,867
                                        ======        ======        ======        ======       =======
Per cent                                31.45%        13.50%        15.85%        39.20%        100.0%
                                        ======        ======        ======        ======       =======

</TABLE>


                                      -12-
<PAGE>


         BORROWINGS. At December 31, 1998, the Bank had $39,410,000 in
outstanding advances from the FHLB. It is the policy of the Bank to utilize
advances from the FHLB as an alternative to retail deposits to fund its
operations and may do so in the future as part of its operating strategy. The
FHLB advances were collateralized primarily by certain of the Bank's mortgage
loans and secondarily by the Bank's investment in capital stock of the FHLB.
FHLB advances are made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The maximum amount that
the FHLB will advance to member institutions, including the Bank, fluctuates
from time to time in accordance with the policies of the OTS and the FHLB.
         
         The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated:


                                                    AT OR FOR THE YEAR
                                                    ENDED DECEMBER 31,
                                            ------------------------------------

                                               1998         1997         1996
                                              ------      -------      -------

                                                   (DOLLARS IN THOUSANDS)

FHLB advances:

Average balance outstanding ...........      $33,573      $33,858      $ 8,099
                                             =======      =======      =======
Maximum amount outstanding at any 
month-end during the period ...........       39,415       46,067       19,550
                                             =======      =======      =======

Balance outstanding at end of period ..       39,410       33,944       16,250
                                             =======      =======      =======

Weighted average interest rate during 
the period ............................        6.37%        6.26%        6.01%
                                             =======      =======      =======

Weighted average interest rate at end 
of period .............................        5.67%        6.08%        5.80%
                                             =======      =======      =======

RETURN ON EQUITY AND ASSETS

                                              1998         1997         1996
                                              ----         ----         ----
Return on assets (net income divided by                             
   average total assets)                      0.73%         0.69%       0.24%
Return on equity (net income divided by                 
   average equity (1)                         5.54%         4.88%       1.97%
Dividend payout ratio (dividends per                    
   share divided by net income per share)     0.00%         0.00%       0.00%
Equity to assets ratio (average equity                  
   divided by average total assets)          13.11%        14.15%      12.43%



(1) Prior to conversion on May 1, 1996, data relates to total equity capital.


                                      -13-
<PAGE>


SUBSIDIARY ACTIVITIES

         At December 31, 1998, the Bank had two wholly-owned service
corporations, CSL Service Corporation ("CSL") and Fairbury Financial Service
Corp. ("Fairbury Financial"). CSL sells tax-deferred annuities on an agency
basis. Fairbury Financial, which serviced previously sold tax deferred annuiites
and long-term care insurance policies that it sold on an agency basis, was
merged into CSL in January, 1999.

PERSONNEL

         As of December 31, 1998, the Bank had 88 authorized full-time employee
positions and 28 authorized part-time employee positions. The employees are not
represented by a collective bargaining unit and the Bank 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
Office of Thrift Supervision ("OTS") under the Home Owners' Loan Act, as amended
(the "HOLA"). In addition, the activities of savings institutions, such as the
Bank, are governed by the HOLA and the Federal Deposit Insurance Act ("FDI
Act").

         The Bank is subject to extensive regulation, examination and
supervision by the OTS, as its primary federal regulator, and the FDIC, as the
deposit insurer. The Bank's deposit accounts are insured up to applicable limits
by the Savings Association Insurance Fund ("SAIF") managed by the FDIC. The Bank
must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other savings institutions. The OTS and/or the FDIC conduct periodic
examinations to test the Bank's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or the Congress, could have a material adverse impact on the Company, the
Bank and their operations. Certain of the regulatory requirements applicable to
the Bank and to the Company are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this Form 10-K does not
purport to be a complete description of such statutes and regulations and their
effects on the Bank and the Company.

HOLDING COMPANY REGULATION

         The Company is a nondiversified unitary savings and loan holding
company within the meaning of the HOLA. As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that the Bank
continues to be a qualified thrift lender ("QTL"). See "Federal Savings
Institution Regulation - QTL Test." Upon any non-supervisory acquisition by the
Company of another savings institution or savings bank that meets the QTL test
and is deemed to be a savings institution by the OTS, the Company would become a
multiple savings and 


                                      -14-
<PAGE>


loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA 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 ("BHC Act"), subject to
the prior approval of the OTS, and certain activities authorized by OTS
regulation, and no multiple savings and loan holding company may acquire more
than 5% the voting stock of a company engaged in impermissible activities.

         The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring,without prior
written approval of the OTS, (i) control of any other savings association or
savings and loan holding company or substantially of all of the assets thereof
or (ii) more than 5% of the voting stock of another savings association or a
savings and loan holding company that is not a subsidiary. 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 associations
in more than one state, subject to two exceptions: (i) the approval of
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 specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.

         Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition, the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the OTS has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the association.

FEDERAL SAVINGS INSTITUTION REGULATION

         CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the Uniform Financial
Institution Rating System), and, together with the risk-based capital standard
itself, a 4% Tier I (core) risk-based capital standard. Core capital is defined
as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights and credit card relationships. The OTS
regulations also require that, in meeting the tangible, leverage (core) and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.


                                      -15-
<PAGE>


         The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, as assigned by the OTS capital regulation based on the
risks OTS believes are inherent in the type of asset. The components of Tier I
(core) capital are equivalent to those discussed earlier. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.

         The OTS regulatory capital requirements also incorporate an interest
rate risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. The Director of the OTS may
waive or defer a savings institution's interest rate risk component on a
case-by-case basis. At December 31, 1998, the Bank met each of its capital
requirements and it is anticipated that the Bank will not be subject to the
interest rate risk component.

         The following table presents the Bank's capital position at December
31, 1998.

<TABLE>
<CAPTION>

                                                                          EXCESS                 CAPITAL
                                                                                       -----------------------------

                                              ACTUAL      REQUIRED       (DEFICIENCY)         ACTUAL        REQUIRED
                                             -------     ---------       ------------         -------       ---------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                             <C>           <C>              <C>            <C>              <C> 
Tangible...............................        $28,033       $11,218          $16,815         10.00%          4.00%

Core (Leverage)........................         28,033        11,218           16,815          10.00           4.00

Risk-based.............................         29,203        14,495           14,708          16.12           8.00
</TABLE>


                                      -16-
<PAGE>


         PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings institution generally is considered "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
and its ratio of core capital to total assets is at least 4% (3% if the
institution receives the highest rating under the Uniform Financial Institution
Rating System). A savings institution that has a ratio of total capital to risk
weighted assets of less than 8%, a ratio of Tier I (core) capital to
risk-weighted assets of less than 4% or a ratio of core capital to total assets
of less than 4% (3% or less for institutions with the highest rating under the
Uniform Financial Institution Rating system) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The OTS could also take any one of a number
of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

         INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Bank are presently
insured by the SAIF. The SAIF and the Bank Insurance Fund ("BIF") are required
by law to achieve and maintain a ratio of insurance reserves to total insured
deposits equal to 1.25%. The BIF reached this required reserve ratio during
1995, while some predictions indicated that the SAIF would not reach this target
until the year 2002. The SAIF has not grown as quickly as the BIF for many
reasons, but in large part because almost half of the SAIF premiums had to be
used to retire bonds issued by the Financing Corporation ("FICO Bonds") in the
late 1980s to recapitalize the Federal Savings and Loan Insurance Corporation.

         Until 1995, the SAIF and BIF deposit insurance premium rate schedules
had been identical. But in mid-1995, the FDIC issued final rules modifying its
assessment rate schedules for SAIF and BIF member institutions. Under the
revised schedule, SAIF members continued to pay assessments ranging from $0.23
to $0.31 per $100 of deposits, while the BIF members paid assessments ranging
from zero to $0.27 per $100 of deposits, but the majority of BIF members paid
only the $2,000 minimum annual premium. Thrift industry represenatives argued
that this significant premium differential caused savings associations to
operate at a competitive disadvantage to their BIF insured bank counterparts.

         In 1996, President Clinton signed the Deposit Insurance Funds Act of
1996 ("DIFA") which among other things, imposed a special assessment of 65.7
basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996. As a result of the DIFA and the special assessment, the FDIC
has lowered the SAIF assessment to the current rate of 0 to 27 basis points.

         The amount each insured depository institution pays for FDIC insurance
coverage is determined in accordance with a risk-based assessment system under
which all insured depository institutions are placed into one of nine categories
and assessed insurnace premiums based upon their level of capital and
supervisory 


                                      -17-
<PAGE>


evaluation. SAIF member institutions classified as well-capitalized and
considered financially strong pay the lowest premium (currently 0.0% of
deposits) while SAIF member institutions that are undercapitalized and of
substantial supervisory concern pay the highest premium (currently .27% of
deposits).

         Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a 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 or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

         FICO BOND PAYMENTS. The DIFA also amended the Federal Home Loan Bank
Act to impose the assessment for the payment of the FICO Bonds against both SAIF
and BIF deposits beginning in 1997. As of January 1, 1998 BIF deposits are
assessed for FICO payments at a rate that is 20 percent of the rate assessed on
SAIF deposits. The FICO assessment rate on BIF and SAIF deposits will be the
same beginning on the earlier of January 1, 2000 or the date the BIF and SAIF
are merged.

         FEDERAL HOME LOAN BANK SYSTEM The Bank is a memeber of the Federal Home
Loan Bank System ("FHLB") which consists of 12 regional FHLBs. The FHLB provides
a central credit facility primarily for member associations. The Bank, as a
member of the FHLB- Chicago, is required to acquire and hold shares of capital
stock in that FHLB in an amount at least equal to 1 percent 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-Chicago, whichever is greater. The Bank iS in compliance with this
requirement, with an investment in FHLB-Chicago stock at December 31, 1998 of
$1,970,700. The FHLB advances must be secured by specified types of collateral
and may be obtained only for the purpose of purchasing or funding new
residential housing finance assets.


         LOANS TO ONE BORROWER. Under the HOLA, savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and bullion. At
December 31, 1998, the Bank's limit on loans to one borrower was $4.2 million.
The OTS, after reviewing applications from the Bank, has approved an increase in
the loan to one borrower limit for four of the Bank's borrowers to 30% of the
Bank's capital, which at December 31, 1998 increased their individual loan to
one borrower limit to $8.4 million. At December 31, 1998, the Bank's largest
aggregate outstanding balance of loans to one borrower was $7.2 million.

         BROKERED DEPOSITS. Well-capitalized savings associations that are not
troubled are not subject to brokered deposit limitations. Adequately-capitalized
associations are able to accept, renew or roll over brokered deposits but only
(i) with a waiver from the FDIC and (ii) subject to the limitation that they do
not pay an effective yield on any such deposit that exceeds by more than 75
basis points (a) the effective yield on deposits of comparable size and maturity
in such association's normal market area for deposits accepted in its normal
market area or (b) the national prime rate paid on deposits of comparable size
and maturity for deposits accepted outside the institution's normal market area.
Undercapitalized associations are not permitted to accept brokered deposits and
may not solicit deposits by offering an effective yield that exceeds by more
than 75 basis points the prevailing effective yields on insured deposits of
comparable maturity in the association's normal market area or in the market
area in which such deposits are being solicited. At December 31, 1998 the Bank
had no brokered deposits and was not soliciting brokered deposits.


                                      -18-
<PAGE>


         REAL ESTATE LENDING STANDARDS. The OTS and other federal banking
agencies have uniform regulations prescribing real estate lending standards. The
OTS regulations require each savings association to establish and maintain
written internal real estate lending standards consistent with safe and sound
banking practices and appropriate to the size of the institution and the nature
and scope of its real estate lending activities. The policy must also be
consistent with accompanying OTS guidelines, which include maximum loan-to-value
ratios for the following types of real estate loans: raw land (65 percent), land
development (75 percent), nonresidential construction (85 percent), improved
property (85 percent) and one-to-four-family residential construction (85
percent). Owner-occupied one-to-four family mortgage loans and home equity loans
do not have maximum loan-to-value ratio limits, but those with a loan-to-value
ratio at origination of 90 percent or greater are to be backed by private
mortgage insurance or readily marketable collateral. Institutions are also
permitted to make a limited amount of loans that do not conform to the proposed
loan-to-value limitaitons so long as such exceptions are appropriately reviewed
and justified. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standard are justified.

         QTL TEST. The HOLA requires savings institutions to meet a QTL test by
maintaining 65 percent of their portfolio assets (defined as all assets minus
intangible assets, property used by the association in conducting its business
and liquid assets equal to 20% of total assets) in certain qualified thrift
investments in at least nine out of every twelve months. Residential mortgage
loans and related investments, loans for educational purposes,loans to small
businesses and loans made through credit cards are qualified thrift investments.
In addition, other loans for personal, family and household purposes, along with
other specified assets, count as qualified thrift investments up to 20 percent
of portfolio assets.

         A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As of
December 31, 1998, the Bank maintained 76.25% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test.

         CAPITAL DISTRIBUTIONS. Effective April 1, 1999, the OTS regulations on
capital distributions have been amended so that no prior application or notice
is required to the OTS for certain capital distributions by a savings
association that is not a subsidiary of a savings and loan holding company.
Capital distributions subject to the regulations include: any distribution of
cash or other property made to shareholders on account of their ownership,
except for dividends consisting only of shares or rights to repurchase shares;
the repurchase, redemption or acquisition of shares of debt instruments included
in capital; any direct or indirect payment of cash or other property to
shareholders or affiliates in connection with a corporate restructuring; and any
distribution charged against capital accounts if the savings association would
not be well capitalized after the distribution. Any savings association that
does not qualify for expedited treatment for applications submitted to the OTS
must file an application for any capital distribution. A savings association
that is eligible for expedited treatment must file an application for a capital
distribution if the total of all capital distributions for the year exceeds net
income for the year to date plus retained net income for the preceding two
years, if the savings association would not be at least adequately capitalized
following the distribution or if the proposed distribution would violate any
applicable law, regulation or agreement with the OTS. In addition, a savings
association that is eligible for expedited treatment, must file a notice of any
capital distribution with the OTS if the savings association is a subsidiary of
a savings and loan holding company. A savings association that is eligible for
expedited treatment that is not a subsidiary of a savings and loan holding
company also must file a notice of capital distribution if the savings
association would not be well capitalized following the proposed capital
distribution or if the proposed capital distribution would reduce or retire any
common or preferred stock or debt instruments included in capital.

         Since the Bank is a subsidiary of a savings and loan holding company,
it must file a notice prior to any capital distribution and may, in some
instances, be required to file an application for approval of certain capital


                                      -19-
<PAGE>


distributions as outlined above. Notices or applications must be filed at least
30 days prior to the proposed declaration of a dividend or approval of another
capital distribution by the board of directors of the Bank. The OTS may
disapprove a notice or deny an application if a savings associaiton will be
undercapitalized following the distribution, if the proposed distribution raises
safety or soundness concerns, or if the proposed distribution violates any
applicable law, regulation or agreement with the OTS.

         LIQUIDITY. The Bank is required to maintain an average daily balance of
specified liquid assets sufficient to insure its safe and sound operation, but
not less than 4% of either its liquidity base at the end of the preceding
calendar quarter or the average daily balance of its liquidity base during the
preceding quarter. The liquidity base consists of net withdrawable deposit
accounts plus short-term borrowings. In computing net withdrawable accounts, the
Bank may exclude such accounts maturing in more than one year. The OTS may
initiate enforcement actions for failure to meet these liquidity requirements.
The Bank has never been subject to monetary penalties for failure to meet its
liquidity requirements.

         ASSESSMENTS. Savings institutions are required to pay assessments to
the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest quarterly
thrift financial report. The assessments paid by the Bank for the fiscal year
ended December 31, 1998 totaled $74,000.

         BRANCHING. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.

         TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (E.G., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Subsidiaries of a savings association are
genrally exempted from the definition of "affiliate". Section 23A limits the
aggregate amount of covered transactions with any individual affiliate to 10% of
the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In the absence of
comparable transactions, such transactions may occur only under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to non-affiliated companies. In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.

         The Bank's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also 


                                      -20-
<PAGE>


places individual and aggregate limits on the amount of loans the Bank may make
to insiders based, in part, on the Bank's capital position and requires certain
board approval procedures to be followed.

         ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.

         STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; asset quality; earnings; and
compensation, fees and benefits. 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, as required by the FDI
Act. The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.

         CNS Financial Management Requirements. FDIC regulations require
depository institutions having $500 million or more in total assets to have an
annual independent audit, an audit committee comprised solely of outside
directors, and to hire outside auditors to evaluate the institution's internal
control structure and procedures and compliance with laws and regulations
relating to safety and soundness. The FDIC , in adopting the regulations,
reiterated its belief that every depository institution, regardless of size,
should have an independent audit and independent audit committee.

         FEDERAL RESERVE SYSTEM. The Federal Reserve Board regulations require
savings 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 of 3% be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) and
an initial reserve of $1,434,000 plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $47.8 million. The first $4.7 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.


                                      -21-
<PAGE>


                  IMPACT OF CHARTER CHANGE ON BANK REGULATIONS

         GENERAL. As discussed above (See "Business-Recent Developments"), the
Bank is in the process of changing its charter from that of a federal savings
institution to an Illinois-chartered savings bank. After the charter change, the
Bank will be subject to regulation, examination and supervision by the Illinois
Office of Banks and Real Estate (the "IOBRE") as the chartering agency rather
than the OTS. Since the FDIC will become the Bank's primary federal regulatory
agency, its role in regulation, examination and supervision will be increased.

         Many of the regulatory requirements discussed above will not be
changed, although in some instances, the FDIC will play a more active role. The
requirements discussed above under the headings "Insurance of Deposits", "FICO
Bond Payments", "Federal Home Loan Bank System", "Brokered Deposits", "Real
Estate Lending Standards", "Transactions with Related Parties", "Standards for
Safety and Soundness", "Financial Management Requirements", and "Federal Reserve
System" will remain unchanged, although in some instances, the applicable
federal agency for enforcement will be the FDIC rather than the OTS. In other
areas, as discussed below, the Bank will be subject to different requirements
than those that currently apply to the Bank.

         CAPITAL REQUIREMENTS. Under the Illinois Savings Bank Act (the "ISBA")
and the regulations of the IOBRE, an Illinois savings bank must maintain a
minimum level of total capital equal to the higher of 3% of total assets or the
amount required to maintain insurance of deposits by the FDIC. The IOBRE has the
authority to require an Illinois savings bank to maintain a higher level of
capital if the IOBRE deems such higher level necessary based on the savings
bank's financial condition, history, management or earnings prospects.

         FDIC requirements for the leverage capital ratio and risk-weighted
capital ratios are virtually identical to those required by the OTS. Therefore,
the Bank will be required to maintain: (i) Tier 1 capital in an amount not less
than 3% of average adjusted total assets (the "leverage ratio"); (ii) Tier 1
capital in an amount no less than 4% of risk-weighted assets; and (iii) total
capital in an amount not less than 8% of risk-weighted assets. In the case of
the leverage ratio, the 3% requirement applies only to those institutions in the
strongest financial and managerial condition (with a composite rating of "1"
under the Uniform Financial Institutions Rating System). All other institutions
will be required to maintain a leverage ratio of 4% or 5%.

         LOANS TO ONE BORROWER. Under the ISBA, the total loans and extensions
of credit, both direct and indirect, by the Bank to any person (other than the
United States or its agencies, the State of Illinois or its agencies, and any
municipal corporation for money borrowed) outstanding at one time must not
exceed the greater of $500,000 or 20% of the Bank's total capital plus general
loan loss reserves. The Bank also may make loans in an amount equal to an
additional 10% of the Bank's capital plus general loan loss reserves if the
loans are 100% secured by readily marketable collateral.

         In addition, with the prior written approval of the IOBRE, a savings
bank that has capital in excess of 6% of assets may make loans to one person for
the development of residential housing properties located in Illinois of up to
30% of the savings bank's total capital and general loan loss reserves.

         LENDING RESTRICTIONS. While the ISBA places limitations on the types of
loans that the Bank may make, it does not include a QTL test. The Bank will be
authorized to make various loans secured by real estate, deposit accounts, or
cash surrender value of insurance policies or for the purpose of financing or
improving real estate or financing automobiles, mobile homes or education. Under
the ISBA, the Bank will be prohibited from making secured or unsecured loans for
business, corporate, commercial or agricultural purposes representing 


                                      -22-
<PAGE>


in the aggregate an amount in excess of 15% of its total assets, unless the
IOBRE authorizes in writing a higher percentage limit for such loans upon the
request of the Bank. However, the Bank will be authorized to make any loan that
it could make if it were an Illinois-chartered savings and loan association or a
federal savings and loan association or savings bank.

         CAPITAL DISTRIBUTIONS. Under the ISBA, dividends may only be declared
when the total capital of the Bank is greater than that required by Illinois
law. Dividends may be paid by the Bank out of net profits (i.e. earnings from
current operations, plus actual recoveries on loans, investments and other
assets, after deducting all current expenses, including dividends or interest on
deposits, additions to reserves as required by the IOBRE, actual losses, accrued
dividends on preferred stock, if any, and all state and federal taxes). The
written approval of the IOBRE must be obtained, however, before a savings bank
having total capital of less than 6% of total assets may declare dividends in
any calendar year in an amount in excess of 50% of its net profits for the
calendar year. A savings bank may not declare dividends in excess of its net
profits in any year without the approval of the IOBRE. In addition, before
declaing a dividend on its capital stock, a savings bank must transfer no less
than 10% of its net profits for the preceding half year in the case of quarterly
or semi-annual dividends or not less that 10% of the net profits for the
preceding two half year periods in the case of annual dividends to its paid-in
surplus until it shall have paid-in surplus equal to its capital stock. The
IOBRE and the FDIC also have the authority to prohibit the payment of any
dividends by the Bank if the IOBRE or the FDIC determines that the distribution
would constitute an unsafe or unsound practice.

         ASSESSMENTS. The IOBRE has established a schedule for the assessment of
"supervisory fees" upon all Illinois savings banks to fund the operations of the
IOBRE. 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 IOBRE. The IOBRE also assesses
fees for examinations conducted by the IOBRE's staff, based upon the number of
hours spent by the IOBRE's staff performing the examination.

         ENFORCEMENT. The IOBRE and FDIC have extensive enforcement authority
over Illinois-chartered savings banks. 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.

         The IOBRE is given authority by Illinois law 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, order of the IOBRE or due to any unsafe or unsound
practice, or the occurrence of an unsafe or unsound condition likely to cause
insolvency or substantial dissipation of assets or earnings that will weaken the
condition of the savings bank and prejudice the interests of depositors. The
FDIC also has authority under federal law to appoint a conservator or receiver
for an insured savings bank under certain circumstances. The FDIC is required,
with certain exceptions, to appoint a receiver or conservator for an insured
state savings bank if that savings bank was "critically undercapitalized" on
average during the calendar quarter beginning 270 days after the date onwhich
the savings bank became "critically undercapitalized". For this purpose,
"critically undercapitalized" means having a ratio of tangible capital to total
assets of less than 2%. See "-Prompt Corrective Regulatory Action". The FDIC may
also appoint itself as conservator or receiver for a state savings bank under
certain circumstances on the basis of the institution's fiancial condition or
upon the occurrence of certain events, including: (I) insolvency (whereby the
assets of the savings bank are less than its liabilities to depositors and
others); (ii) substantial dissipation of assets or earnings through violations
of law or unsafe or unsound practices; (iii) existence of an unsafe or unsound
condition to transact business; (iv) liklihood that the savings bank will be
unable to meet the demands of its depositors or to pay its obligations in the
normal course of business; and (v) insufficient capital, or the incurring or
likely incurring of losses that will deplete 


                                      -23-
<PAGE>



substantially all of the institution's capital with no reasonable prospect of
replenishment of capital without federal assistance.

CURRENT ACCOUNTING ISSUES

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

         During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement requires companies to record derivatives on the
balance sheet at their fair value. Statement No. 133 also acknowledges that the
method of recording a gain or loss depends on the use of the derivative.

         The new Statement applies to all entities. If hedge accounting is
elected by the entity, the method of assessing the effectiveness of the hedging
derivative and measurement approach of determining the hedge's ineffectiveness
must be established at the inception of the hedge.

         Statement No. 133 amends Statement No. 52 and supercedes No. 80, 105
and 119. Statement No. 107 is amended to include the disclosure provisions about
the concentrations of credit risk from Statement 105. Several Emerging Issues
Task Force consensuses also are changed or modified by the provisions of
Statement 133.

         Statement No. 133 will be effective for all fiscal years beginning
after June 15, 1999. The Statement may not be applied retroactively to financial
statement of prior periods. The adoption of the Statement would have no material
impact on the Company's financial condition or results of operation.

ACCOUNTING FOR MORTGAGE BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE

         Also in 1998, the FASB issued Statement No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". It establishes accounting
standards for certain activities of mortgage banking enterprises and for other
enterprises with similar mortgage operations. This Statement amends No. 65.

         Statement No. 65, as previously amended by Statements No. 115 and 125,
required a mortgage banking enterprise to classify a mortgage-backed security as
a trading security following the securitization of the mortgage loans held for
sale. This Statement further amends Statement No. 65 to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities must classify the resulting mortgage-backed security or other
retained interests based on the entity's ability to sell or hold those
investments.

         The determination of the appropriate classification for securities
retained after the securitization of mortgage loans by a mortgage banking
enterprise now conforms to Statement No. 115. The only new requirement is that
if an entity has a sales commitment in place, the security must be classified
into trading.

         This Statement is effective for the first fiscal quarter beginning
after December 15, 1998. On the date the Statement is initially applied, an
entity may reclassify mortgage-backed securities and other beneficial interest
retained after the securitization of mortgage loans held for sale from the
trading category, except for those with sales commitments in place. Those
securities and other interests shall be classified based on the 


                                      -24-
<PAGE>


entity's present ability and intent to hold the investments. The adoption of
this Statement would have no material impact on the Company's financial
condition and results of operations.

REPORTING THE COSTS OF START-UP ACTIVITIES

         During 1998, the Accounting Standards Executive Committee, ("AcSec")
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities". Statement of Position 98-5 will affect all non-government entities,
including not-for-profits, reporting start-up costs in their financial
statements.

1.       Some existing industry practices result in the capitalization and
         amortization of start-up costs. This Statement of Position requires
         that start-up costs be expensed when incurred. The Statement of
         Position applies to start-up activities and organizational costs
         associated with both development stage and established operating
         entities.

         According to Statement of Position 98-5, start-up activities are "those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting business with a
new class of customer or beneficiary, initiating a new process in an existing
facility, or commencing some new operation. Start-up activities include
activities related to organizing a new entity commonly referred to as
organizational costs". The adoption of this statement would have no material
impact on the Company's financial condition and results of operation.


Item 2   PROPERTIES

The Bank conducts its business through an executive and full service office
located in Normal and five 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.

<TABLE>
<CAPTION>

                                          LEASED OR         ORIGINAL YEAR          NET BOOK VALUE AT      DEPOSITS PER
             LOCATION                       OWNED         LEASED OR ACQUIRED       DECEMBER 31, 1998          OFFICE
-----------------------------------      ----------       ------------------       -----------------      ------------

                                                                                             (IN THOUSANDS)

<S>                                          <C>             <C>                               <C>                <C>    
EXECUTIVE BRANCH OFFICE:                    Owned            1997                       $3,726                 $17,600
2101 North Veterans Parkway*
Bloomington, Illinois  61704

BRANCH OFFICES:                             Owned            1963                          737                  59,881
301 Broadway*
Normal, Illinois  61761

2402 E. Washington*                         Owned            1980                          773                  42,442
Bloomington, Illinois  61704

1722 Hamilton Road*                         Owned            1995                        1,377                   9,419
Bloomington, Illinois  61704

115 N. Third Street*                        Owned            1981                          805                  51,993
Fairbury, Illinois  61739

205 S. Main *                               Owned            1974                          212                  26,762
Eureka, Illinois  61530                                                                 ------               ---------

Total                                                                                   $7,630               $ 208,097
                                                                                        ======               =========
</TABLE>
------------------
* An automated teller machine is located at each office.

None of the properties owned by the Company are subject to any emcumbrance.


                                      -25-
<PAGE>


ITEM 3   LEGAL PROCEEDINGS

         The Company 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 Company'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 1998 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:

<TABLE>
<CAPTION>
                                     OFFICERS WITH THE COMPANY                 PRINCIPAL OCCUPATION
      NAME AND AGE                     AND SUBSIDIARY BANK                    DURING PAST FIVE YEARS
      ------------                     -------------------                    ----------------------
<S>                            <C>                                      <C>
C. William Landefeld , 59      President and Chief Executive            President and Chief Executive    
                               Officer, Citizens First Financial        Officer, Citizens First Financial
                               Corp.; President and Chief Executive     Corp. since 1996; President and  
                               Officer, Citizens Savings Bank           Chief Executive Officer, Citizens
                               F.S.B.                                   Savings Bank F.S.B. since 1987   

Richard F. Becker, 51          Senior Vice President and Secretary,     Senior Vice President and Secretary,
                               Citizens First Financial Corp.;          Citizens First Financial Corp. since
                               Senior Vice Presidient and               1996, Senior Vice President and          
                               Secretary, Citizens Savings Bank         Secretary, Citizens Savings Bank    
                               F.S.B.                                   F.S.B. since 1996, Vice President,  
                                                                        Citizens Savings Bank F.S.B. since  
                                                                        1979.                               

Dallas G. Smiley, 52           Senior Vice President and Chief          Senior Vice President and Chief         
                               Financial Officer, Citizens First        Financial Officer, Citizens First 
                               Financial Corp.; Senior Vice             Financial Corp. since 1996, Senior Vice
                               President and Chief Financial            President, Citizens Savings Bank  
                               Officer, Citizens Savings Bank F.S.B.    F.S.B. since 1995, Vice President 
                                                                        and Chief Financial Officer,      
                                                                        Citizens Savings Bank F.S.B.      
                                                                        since 1987.                       
</TABLE>


                                      -26-
<PAGE>


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 and
related stockholder matters appears in the Registrant's 1998 Annual Report to
Stockholders on page 42 and is incorporated herein by reference. The Company did
not pay dividends during any quarter in 1998.

ITEM 6   SELECTED FINANCIAL DATA

         Information required under this item is incorporated by reference on
page 5 of the Company's 1998 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 1998 Annual Report to Stockholders on pages 6 through 10 and 13
through 15 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 11 and 12 of the Company's 1998 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 Olive LLP for the year
ended December 31, 1998 appears in the Registrant's 1998 Annual Report to
Stockholders on pages 16 through 41 and are incorporated herein by reference.

ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                    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 1999 Proxy Statement furnished to
its stockholders in connection with an annual meeting to be held April 26, 1999
(the "1999 Proxy Statement"), under the caption "Election of Directors", 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.


                                      -27-
<PAGE>


ITEM 11   EXECUTIVE COMPENSATION

         The information relating to directors' and executive compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 26, 1999 at pages 20 through
27.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required under this item is incorporated by reference
to pages 18 and 19 of the registrant's 1999 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" which Proxy
Statement has been filed with the Commission.

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 Proxy
Statement for the Annual Meeting of Shareholders to be held on April 26, 1999 at
page 23 under the caption "Transactions with Certain Related Persons".

PART IV

ITEM 14  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      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 of
                  the 1998 Annual Report to Stockholders
<TABLE>
<CAPTION>

                                                                                                               PAGE
<S>               <C>                                                                                           <C>
                  Independent Auditors' Report...................................................................16

                  Consolidated Balance Sheet as of
                  December 31, 1998 and 1997.....................................................................17

                  Consolidated Statement of Income for the
                  years ended December 31, 1998, 1997 and 1996...................................................18

                  Consolidated Statement of Changes in Stockholders' Equity
                  for the years ended December 31, 1998, 1997 and 1996...........................................19

                  Consolidated Statement of Cash Flows for the
                  years ended December 31, 1998, 1997 and 1996................................................20-21



                                      -28-
<PAGE>


                  Notes to Consolidated Financial Statements..................................................22-41
</TABLE>

                  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 1998 Annual Report to Stockholders (filed
                           herewith)
                 21.0      Subsidiary information is incorporated herein by
                           reference to "Part I - Subsidiaries"
                 23.0      Consent of Geo. S. Olive & Co., LLP
                 27.0      Financial Data Schedule

------------------
                  *        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 herein by reference to the Proxy
                           Statement for the Special Meeting of Shareholders
                           held on November 12, 1997.

         (b)      Reports on Form 8-K:

                  A report on Form 8-K was filed on October 16, 1998, to
                  announce the registrant's completion of a stock repurchase
                  program of 5% of its outstanding shares of common stock. The
                  120,449 shares were purchased at an average price of $15.83.

                  A report on Form 8-K was filed on November 19, 1998, to
                  announce the approval from the Office of Thrift Supervision
                  for the repurchase of 5% or 114,426 of its outstanding shares
                  of common stock.

                                      -29-
<PAGE>


CONFORMED                        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, hereunto duly authorized.

                                        CITIZENS FIRST FINANCIAL CORP.


                                        By:   /s/ C. William Landefeld
                                              ------------------------
                                              C. William Landefeld
                                              President, Chief Executive Officer
                                              and Director

                                        Date: March 31, 1999

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates stated.

<TABLE>
<CAPTION>

               Name                                           Title                                    Date
               ----                                           -----                                    ----
<S>                                 <C>                                                           <C> 
/s/ C. William Landefeld            President, Chief Executive Officer and Director               March 31, 1999
-------------------------------
C. William Landefeld                (principal executive officer)


/s/ Dallas G. Smiley                Senior Vice President, Treasurer and Chief Financial          March 31, 1999
-------------------------------
Dallas G. Smiley                    Officer (principal accounting and financial officer)


/s/ L. Carl Borngasser              Director                                                      March 31, 1999
-------------------------------
L. Carl Borngasser


/s/ Paul J. Hoffman                 Director                                                      March 31, 1999
-------------------------------
Paul J. Hoffman


/s/ Dean J. Broquard                Director                                                      March 31, 1999
-------------------------------
Dean J. Broquard


/s/ Ronald C. Wells                 Director                                                      March 31, 1999
-------------------------------
Ronald C. Wells

</TABLE>


                                      -30-