<PAGE>
 
                        ILLINOIS COMMUNITY BANCORP, INC.



                                      1997

                                 ANNUAL REPORT
<PAGE>
 
Dear Stockholder:

It is with great pleasure that we present Illinois Community Bancorp, Inc.'s
Annual Report to Shareholders for the fiscal year ended June 30, 1997.

The overwhelming local public response to our initial stock offering in
September of 1995 has presented a challenge to your Board and Senior Management.
Specifically, optimal deployment of capital has become one of our primary area's
of strategic focus.  Toward this end, we undertook several significant
initiatives during fiscal year 1997.

First, we made every attempt to internally leverage the capital base through
growth in our loan portfolio with strong, safe and profitable loans.  Loans
receivable increased during the year by $9.1 million, or 25.4%.  The increase in
loans, representing the highest level of growth, other than last year, in our
history, was accomplished through expansion of our loan product line, added
management expertise in our lending staff, and aggressive direct marketing
efforts in our primary banking area.  Concurrently, our overall marketing
efforts resulted in an increase of $7.1 million in new deposit accounts, or a
19.5% increase over fiscal year end 1996.

Second, we remain committed to the local community bank concept and have made a
firm commitment to further establishing our presence and enhancing our
visibility in the community, and significantly improving the level of service to
our present and future customers.  In January, 1997, we opened our new Mid-
America Banking Facility.  The new 10,000 square foot facility has provided
customers a full range of banking services including loans, drive-up banking and
drive-up ATM services.  In June 1996, we completed an upgrade to our internal
data processing system.  The improvements will provide our customers better
quality account information, as well as providing a higher level of detailed
information for management, and increased efficiency of bank personnel.  In
August of 1996 we formed Illinois Leasing Corporation to provide leasing
services to our community as an alternative to normal banking operations.  The
Bank's Trust and Investment Management Center began operations in April of 1997.
The full service brokerage and investment management service allows the Bank to
serve additional needs of our customers, and provides an additional source of
non-interest income.

Earnings performance for fiscal 1997 represents a decrease of $424,000 compared
to fiscal 1996.  The reduced earnings were primarily attributable to an increase
in operating expenses including the one time "SAIF" special assessment signed
into law in September, 1996, to recapitalize the Savings Association Insurance
Fund.  This legislation required Illinois Community Bank, then Illinois
Guarantee Savings Bank, a "SAIF" insured savings institution, to pay a one-time
special assessment of 65.7 cents for every $100 of deposits.  Based on the
formula, our assessment was $207,632, which was realized entirely in the first
quarter of fiscal year 1997.  It is important to keep in mind that the special
assessment was fully anticipated by management of Illinois Community Bank and by
all SAIF insured institutions in the industry.  Increases in future earnings
will more than offset the negative impact on fiscal year earnings since the
deposit insurance premiums that Illinois Community Bank pay will now decline
from an average of 23.4 cents to 6.4 cents, per $100 of deposits, effective
January 1, 1997.  No later than January 1, 2000, deposit insurance premiums will
be reduced to 2.4 cents per $100 of deposits.  Also contributing to the increase
in annual operating expenses was: the January 21, 1997, opening and staffing of
our new, full-service, Mid-America Banking Facility; legal and administrative
costs associated with positive changes to corporate structure, including the
formation of a Bank Holding Company; a Regulatory Charter change to that of a
State Commercial Bank; and, the addition of expertise at the senior management
level.
<PAGE>
 
Letter to Stockholders
Page 2


June 30, 1997 ended a year of great accomplishment that had an obvious negative
impact on short-term profitability.  Senior Management remains very encouraged
by the overall asset growth, and quality and performance thereof.  Fee based
revenues continued to increase steadily during the year.  Although total
earnings were clouded by the one-time SAIF assessment, and other costs, it is
clear that ensuring the integrity of the deposit insurance system will greatly
enhance the bank's long term profitability, vitality and competitiveness.  In
addition, management believes operating efficiency ratios will continue to show
improvement in the coming year.

In conclusion, the Directors, Officers and Staff wish to thank all of you for
your support of Illinois Community Bancorp, Inc. over its first full year of
operations as a public company.  We will continue to adapt to change in our
industry, continue to promote employee involvement in the community, look
forward to fiscal 1998 with cautious optimism, and remain ever-committed to
maximizing the value of your investment in our Corporation.

Respectfully,

ILLINOIS COMMUNITY BANCORP, INC.



Douglas A. Pike                               Gerald E. Ludwig
President                                     Chairman of the Board
<PAGE>
 
                                    GENERAL

ILLINOIS COMMUNITY BANCORP, INC.

     Illinois Community Bancorp, Inc. (the "Company"), an Illinois corporation,
was organized by Illinois Guarantee Savings Bank, FSB ("Illinois Guarantee" or
the "Bank," as applicable) to be a savings institution holding company.  The
Company was organized at the direction of the Bank in June 1996 to acquire all
of the capital stock of the Bank upon the consummation of the reorganization of
the Bank into the holding company form of ownership, (the "Reorganization")
which was completed on September 27, 1996, and the Company's Common Stock became
registered under the Securities Exchange Act of 1934 on September 27, 1996.
During the current year the Company invested $530,000 in two newly formed
corporations.  This investment was funded by dividends from the Bank.  Illinois
Leasing Corporation (ILC) was formed to provide commercial leasing services and
Illinois Financial Corporation (IFC) was formed to provide additional financial
services to the Bank's customers.  The Company has no significant assets other
than capital stock in the Bank, ILC, and IFC and cash retained by the Company
following the reorganization.  The Company has registered with the Board of
Governors of the Federal Reserve System as a bank holding company.  The
Company's principal business is the business of the Bank, with insignificant
effect from ILC.

     The executive offices of the Company are located at 210 E. Fayette Avenue,
Effingham, Illinois 62401-3613 and the telephone number is (217) 347-7127.

ILLINOIS COMMUNITY BANK

     Illinois Community Bank ("Illinois Community" or the "Bank," as applicable)
is a state chartered commercial bank with its main office in Effingham,
Illinois.  The predecessor to the Bank, Illinois Guarantee, was founded on April
7, 1893 as an Illinois state-chartered savings and loan association, and its
deposits have been federally insured since 1959.  The institution has been a
member of the Federal Home Loan Bank ("FHLB") of Chicago since 1949.  In
February 1990, Illinois Guarantee converted from a state-chartered savings and
loan association to a federally chartered savings bank under its current name.
The Bank completed its conversion from a federally chartered mutual savings bank
to a federally chartered capital stock savings bank (the "Conversion") on
September 28, 1995 (the "Conversion Date") through the sale and issuance of
502,550 shares of Bank Common Stock at a price of $10.00 per share for gross
proceeds of $5,025,500 and proceeds, net of Conversion expenses, of $4,563,000.
Illinois Guarantee then converted to Illinois Community Bank on April 21, 1997.

     The Bank's main office is located at 210 E. Fayette Avenue, Effingham,
Illinois  62401-3613, and its telephone number is (217) 347-7127.  The Bank
considers its primary market area to be its home county of Effingham and the
contiguous counties.  The Bank serves its market area through its main office
and the new Mid-America branch, both in Effingham, Illinois.

     The business of the Bank primarily consists of attracting savings deposits
from the general public and investing such deposits in loans secured by single-
family residential real estate, investment securities, including U.S. Government
and Agency securities, interest-earning deposits, mortgage-backed securities and
local municipal securities.  The Bank also makes business and commercial loans
and leases, multi-family and commercial real estate loans, and consumer loans,
including automobile loans and deposit account loans.  The Bank emphasizes the
origination of residential real estate mortgage loans with adjustable interest
rates and fixed-rate loans qualified for sale in the secondary mortgage market,
and makes other investments which are responsive to changes in interest rates,
and which allow the Bank to more closely match the interest rates and maturities
of its assets and liabilities.

     The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to applicable limits for each depositor.  The FHLB of
Chicago, of which the Bank is a member, is one of the 12 district banks
comprising the FHLB System.  The Bank is subject to comprehensive examination,
supervision and regulation by the Illinois Office of Banks and Real Estate
("OBRE") and the FDIC.  Such regulation is intended primarily for the protection
of depositors.
<PAGE>
 
ILLINOIS LEASING CORPORATION

     Illinois Leasing Corporation (ILC) is a subsidiary incorporated to conduct
leasing activities outside of the banking activities of Illinois Community Bank.
ILC is wholly owned by the Company and was incorporated during the year ended
June 30, 1997.  The operations of ILC are currently insignificant in comparison
to the total operations of the Company.  During the year ended June 30, 1997,
ILC originated thirteen commercial leases, primarily operating leases, in the
total amount of $567,000.  The operations of ILC have been consolidated in those
of the Company.

ILLINOIS FINANCIAL CORPORATION

     Illinois Financial Corporation (IFC) is a subsidiary incorporated to
conduct financial services in the Bank's market area.  IFC is wholly owned by
the Company and was incorporated during the year ended June 30, 1997.  IFC did
not have any significant operational actives in the year ended June 30, 1997.

NEW BUSINESS STRATEGIES

     New management joined the Bank in 1995 and the managerial structure has
developed in accordance with new business strategies intended to increase
presence, new market segment penetration, and overall market share in its
primary market area of Effingham County, Illinois ("Primary Market Area").
These new strategies, under the guidance and implementation of the newly formed
management team, have increased lending activities, non-traditional banking
service activities, and sources of fee income.  New business development
strategies include (i) hiring of experienced commercial banking personnel
including a new Chief Credit Officer, Chief Administrative Officer, Controller,
and a Trust and Investment Management Officer; (ii) instituting a manager call
program encouraging direct contact with local businesses, property developers,
realtors, home builders, auto dealers and others; (iii) improving customer
service, educating staff, and developing a sales culture bankwide.  Illinois
Leasing Corporation, Inc., a subsidiary of the holding company, has provided
enhanced services in its first year of operation in the form of commercial
equipment leasing and alternatives to traditional commercial lending.  The
Bank's Trust and Investment Management Center began operations in April, 1997.
Full service brokerage and investment management services, offered at the bank
through our affiliate PRIMEVEST Financial Services, allows the Bank to better
serve our customers' overall long term investment and financial planning needs.

                               MARKET INFORMATION

     At the present time, the Company's common stock is listed and traded over-
the-counter through the National Daily Quotation System "Pink Sheets" published
by the National Quotation Bureau.  The high and low bid information for the
Company's common stock for the fiscal quarters since the Bank's initial public
offering was completed on September 28, 1995 is as follows:
<TABLE>
<CAPTION>
 
                                        Bid Price(1)
                                     -----------------
            For the Quarter Ended     High       Low
            ---------------------    ------     ------  
            <S>                      <C>     <C>
 
            December 31, 1995        $11.75     $10.00
            March 31, 1996            11.50      11.50
            June 30, 1996             12.50      11.50
            September 30, 1996        10.50      12.00
            December 31, 1996         12.50      12.00
            March 31, 1997            12.00      12.00
            June 30, 1997             12.62      12.50
--------------------
</TABLE>
(1) Based on bids received by Trident Securities, Inc. The quotations reflect
    inter-dealer prices without retail mark-up, mark-down, or commission, and
    may not represent actual transactions. Represents trading in the Bank's
    common stock, as became the Company's common stock was not outstanding until
    September 27, 1996.

          There is currently no active market for the Company's common stock and
it is not expected that an active market for the Company's common stock will
develop.  There were approximately 268 stockholders of record at September 1,
1997.  Through June 30, 1997, the Company had declared during the quarter ended
December 31, 1996 and paid in January of 1997 a cash dividend of $0.15 per share
and declared an additional dividend of $0.15 per share during the quarter ended
June 30, 1997, payable in July of 1997.

                                       2
<PAGE>
 
                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     The following summary of selected consolidated financial information and
other data does not purport to be complete and is qualified in its entirety by
reference to the detailed information and consolidated financial statements and
accompanying notes appearing elsewhere herein.
<TABLE>
<CAPTION>
 
FINANCIAL CONDITION DATA:
 
                                                      At June 30,
                                       -------------------------------------------
                                        1997     1996     1995     1994     1993
                                       -------  -------  -------  -------  -------
                                                  (Dollars in thousands)
<S>                                    <C>      <C>      <C>      <C>      <C> 
Total amount of:
 Assets..............................  $59,799  $46,421  $36,393  $35,195  $35,481
 Loans receivable, net...............   45,219   36,069   21,846   21,251   20,185
 Cash and investment securities (1)..    9,611    6,814   11,319   10,683   10,994
 Mortgage-backed securities (2)......    1,422    1,773    2,326    2,696    3,741
 Deposit and demand accounts.........   43,662   36,548   32,703   31,787   32,757
 Advances - FHLB.....................    7,958    1,608        0        0        0
 Other borrowings....................      316      356        0        0        0
 Stockholders equity (3).............    7,092    7,302    2,959    3,049    2,874
---------------------------------------------------------------------------------- 
Number of:
 Real estate loans...................      782      758      722      768      726
 Deposit and demand accounts.........    5,704    5,847    4,564    4,485    3,992
 Offices open........................        2        1        1        1        1
-------------
</TABLE>
(1) Includes available for sale securities (at estimated market values) of
    $6,503,000, $6,108,000 and $2,004,000 at June 30, 1997, 1996 and 1995.
(2) Includes available for sale mortgage-backed securities (at estimated market
    values) of $1,422,000 and  $1,773,000 at June 30, 1997 and 1996.
(3) Includes unrealized gains on securities and mortgaged-backed securities held
    as available for sale of $278,000, $142,000 and $121,000 at June 30, 1997,
    1996 and 1995.

                                       3
<PAGE>
 
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
 
                                                       Year Ended June 30,
                                           -----------------------------------------------
                                            1997      1996      1995      1994      1993
                                           -------   -------   -------   -------   -------
                                                      (Dollars in thousands)
<S>                                        <C>       <C>       <C>       <C>       <C> 
Interest income..........................  $ 3,844   $ 3,017   $ 2,379   $ 2,177   $ 2,477
Interest expense.........................    2,234    (1,687)   (1,416)   (1,263)   (1,575)
                                           -------   -------   -------   -------   -------
Net interest income......................    1,610     1,330       963       914       902
Provision for loan losses................     (141)      (81)      (50)       --        --
                                           -------   -------   -------   -------   -------
Net interest income after provision
 for loan losses.........................    1,469     1,249       913       914       902
Non-interest income......................      161        59        38       119        54
Non-interest expense.....................   (2,023)   (1,019)     (883)     (550)     (591)
                                           -------   -------   -------   -------   -------
Income (loss) before provision for
 income tax..............................     (393)      289        68       483       365
Provision for (benefit from) income tax..     (147)      111         7       168       116
                                           -------   -------   -------   -------   -------
Net income (loss) before effects of
 change in accounting principle..........     (246)      178        61       315       249
Cumulative effect of change in
 accounting principle....................       --        --        --         4        --
                                           -------   -------   -------   -------   -------
Net income (loss)........................  $  (246)  $   178   $    61   $   319   $   249
                                           =======   =======   =======   =======   =======
</TABLE>

                                       4
<PAGE>
 
KEY RATIOS
<TABLE>
<CAPTION>
                                                          At or for the Year Ended June 30,
                                                          ---------------------------------
                                                           1997         1996         1995
                                                          -------      -------      -------
<S>                                                       <C>          <C>          <C> 
PERFORMANCE RATIOS:                                                              
 Return on assets (net income divided by average                                 
  total assets).........................................   (0.46)%        0.43%        0.17%
 Return on equity (net income divided by                                          
  average equity).......................................   (3.41)%        2.81%        2.07%
 Net yield on interest-earning assets                                             
  (net income as a percentage of average                                          
  interest-earning assets)..............................     3.23%        3.36%        2.79%
 Interest rate spread (combined weighted average                                  
  interest rate earned less combined weighted                                     
  average interest rate cost)...........................     2.64%        2.65%        2.40%
 Non-interest expense to average total assets...........     3.77%        2.45%        2.49%
                                                                                  
Asset quality ratios:                                                             
 Nonperforming assets to total assets at end of period..     0.37%        0.86%        0.29%
 Allowance for loan losses to non-performing loans......   199.43%       64.67%      265.15%
 Allowance for loan losses to total loans                                         
  receivable, net.......................................     0.77%        0.63%        0.79%
                                                                                  
Capital ratios:                                                                   
 Stockholders' equity to total assets at end of period..    11.86%       15.73%        8.13%
 Equity-to-Assets Ratio (average equity divided                                   
   by average total assets).............................    13.45%       15.21%        8.38%
 Average interest-earning assets to average                                       
   interest-bearing liabilities.........................   113.08%      116.64%      108.71%
                                                                                  
Per Share Data:                                                                   
                                                                                  
 Net income (loss) (1)..................................  $ (0.53)     $  0.30           --
 Pro forma net income (2)...............................       --         0.38           --
 Book value (3).........................................    14.11        14.53           --
-------------
</TABLE>
(1) Net income for June 30, 1996 is calculated using the period from October 1,
    1995 through June 30, 1996. The Bank converted to a stock savings bank on
    September 28, 1995 and the earnings from the date of conversion to September
    30, 1995 were considered insignificant on the per share calculation.
(2) Pro forma amount does not reflect pro forma effects of the stock conversion
    on September 28, 1995 since the beginning of the year.
(3) Book value includes the liquidation account of the mutual share holders as
    of the date of conversion.

                                       5
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

          The business of the Bank consists of attracting deposits from the
general public and using these funds to originate residential mortgage and home
equity loans, business loans, multi-family and commercial real estate loans,
automobile loans, and consumer loans.  To a lesser extent, the Bank invests in
interest-bearing deposits, U.S. Government and federal agency securities,
mortgage-backed securities and local municipal securities.  The Bank's
profitability depends primarily on its net interest income, which is the
difference between the interest income it earns on loans and investment
portfolio and its cost of funds, which consists mainly of interest paid on
deposits and Federal Home Loan Bank short term borrowings.  Net interest income
is affected by the relative amounts of interest-earning assets and interest
bearing liabilities, and the interest earned or paid on these balances.  When
interest-earning assets approximate or exceed interest-bearing liabilities, a
positive interest rate spread will generate net interest income.

          The Bank's profitability is also affected by the level of noninterest
income and expense.  Noninterest income consists primarily of loan fees and late
charges, recently supplemented by fees generated from the sale of qualified
mortgage loans to the secondary mortgage market, and by commissions generated
through Trust and Brokerage services.  Non-interest expense consists of salaries
and benefits, occupancy related expenses, deposit insurance premiums, and other
operating expenses.

          The operations of the Bank, and financial institutions in general, are
significantly influenced by general economic conditions and related monetary and
fiscal policies of financial institutions' regulatory agencies.  Deposit flows
and the cost of funds are influenced by rates on competing investments and
general market rates of interest.  Lending activities are affected by the demand
for financing real estate and other types of loans, which in turn is affected by
the interest rates at which such financing may be offered and other factors
affecting loan demand and the availability of funds.

ASSET/LIABILITY MANAGEMENT

          The principal operating objective of the Bank is the achievement of a
positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates.  Since the Bank's principal interest-earning assets
have substantially longer terms to maturity than its primary source of funds,
i.e., deposit liabilities, increases in general interest rates will generally
result in an increase in the Bank's cost of funds before the yield on its asset
portfolio adjusts upwards.  Savings institutions have generally sought to reduce
their exposure to adverse changes in interest rates by attempting to achieve a
closer match between the periods in which their interest-bearing liabilities and
interest-earning assets can be expected to reprice through the origination of
adjustable-rate mortgages and loans with shorter terms.

          The term "interest rate sensitivity" refers to those assets and
liabilities which mature and reprice periodically in response to fluctuations in
market rates and yields.  Thrift institutions have historically operated in a
mismatched position with interest-sensitive liabilities greatly exceeding
interest-sensitive assets in the short-term time periods.  As noted above, one
of the principal goals of the Bank's asset/liability program is to more closely
match the interest rate sensitivity characteristics of the asset and liability
portfolios.

          In order to properly manage interest rate risk, the Bank's management
monitors the difference between the Bank's maturing and repricing assets and
liabilities and develops and implements strategies to decrease the "negative
gap" between the two.  Management assesses the Bank's asset/liability mix,
recommends strategies to the Board of Directors that will enhance income while
managing the Bank's vulnerability to changes in interest rates, and reports to
the Board of Directors the results of the strategies used.

                                       6
<PAGE>
 
          Since the early 1980's, the Bank has stressed the origination of
adjustable rate mortgage loans.  At June 30, 1997, $16.8 million, or 36.85%, of
the Bank's total loans secured by real estate were adjustable rate mortgages.
In addition, the Bank had $363,000 in adjustable rate mortgage-backed securities
at June 30, 1997.

          In order to increase the interest rate sensitivity of its assets, the
Bank has also maintained a consistent level of short and intermediate-term
investment securities and other assets.  At June 30, 1997, the Bank had $1.6
million of investment securities including mortgage-backed securities and
interest-bearing deposits maturing within one year and $3.9 million maturing
within one to five years.  At June 30, 1997, the Bank also had $3.8 million in
investment securities including mortgage-backed securities maturing after five
years, of which $1.5 million represented the Bank's investment in an asset
management adjustable rate fund, which is an uninsured mutual fund, which
thereby carries greater risk than government insured investment securities.

          In the future, in managing its interest rate sensitivity, the Bank
intends to continue to stress the origination of adjustable-rate mortgages and
loans with shorter maturities, the purchase of adjustable rate mortgage-backed
securities and the maintenance of a consistent level of short-term securities.
In addition, the Bank has increased its origination of fixed-rate mortgage
loans, and then sell such loans in the secondary mortgage market to FHLMC.

INTEREST RATE SENSITIVITY ANALYSIS

          The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap."  An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period.  The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period.  A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets.  Generally, during a period of rising interest rates, a
negative gap would adversely affect net interest income while a positive gap
would result in an increase in net interest income, while conversely during a
period of falling interest rates, a negative gap would result in an increase in
net interest income and a positive gap would negatively affect net interest
income.

                                       7
<PAGE>
 
          The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1997 which are expected
to mature or reprice in each of the time periods shown/(1)/.
<TABLE>
<CAPTION>
                                                        Over One     Over Five
                                           One Year     Through       Through     Over Ten
                                            or Less    Five Years    Ten Years     Years        Total
                                           ---------  ------------  -----------  ----------  -----------
                                                                   (In thousands)
<S>                                        <C>        <C>           <C>          <C>         <C>   
Interest-earning assets:
  Real estate loans......................   $21,992      $  9,601      $ 2,987      $1,729      $36,309
  Commercial loans.......................     2,452           449           --          --        2,901
  Consumer and other.....................     2,925         3,460            6          --        6,391
  Investment securities (1)(2)...........     1,494         2,853        1,243       1,910        7,500
  Mortgage-backed securities.............       552           593          238          14        1,397
                                            -------      --------      -------      ------      -------
    Total................................    29,415        16,956        4,474       3,653       54,498
                                            -------      --------      -------      ------      -------
 
Interest-bearing liabilities:
  Deposits (3)...........................    19,249        19,377        2,617          --       41,243
  FHLB advances..........................     6,458         1,500           --          --        7,958
  Other..................................        40           160          116          --          316
                                            -------      --------      -------      ------      -------
    Total................................    25,747        21,037        2,733          --       49,517
                                            -------      --------      -------      ------      -------
 
Interest sensitivity GAP.................   $ 3,668      $ (4,081)     $ 1,741      $3,653      $ 4,981
                                            =======      ========      =======      ======      =======
Cumulative interest sensitivity GAP......   $ 3,668      $   (413)     $ 1,328      $4,981
                                            =======      ========      =======      ======
Ratio of interest-earning assets
  to interest-bearing liabilities........    114.25%        80.60%      163.70%         NA       110.06%
                                            =======      ========      =======      ======      =======
Ratio of cumulative GAP to total assets..      6.13%       (0.69)%        2.22%       8.33%        8.33%
                                            =======      ========      =======      ======      =======
____________________
</TABLE>
(1)  Investment securities are at amortized cost.
(2)  Investment securities include interest-bearing deposits and time deposits.
     Call dates on various securities have not been considered.
(3)  In calculating this table, the Bank has used the assumptions which follow:
     (i) the decay rate for passbook and demand accounts is considered to be
     0.00% for the first year, 80% in years two through five, and 20% in years
     six through ten; (ii) the decay rate for money market accounts is
     considered to be 50% for the first year and 50% for years two through
     three; and (iii) and no prepayment assumptions were used for loans.


   Management believes the current one-year gap of 6.13% presents a slight risk
to the net interest income margin should a decrease occur in the current level
of interest rates.  If interest rates increase, the Bank's positive one-year gap
should cause the net interest margin to increase.  A conservative rate-gap
policy provides a stable net interest income margin.  Accordingly, management
emphasizes a structured balance of rates spread by term to maturity and does not
anticipate a change in such objectives over the next year.

   The preceding table was prepared utilizing certain assumptions regarding
prepayment and decay rates which management of the Bank believes reflect
Illinois Community Bank's actual experience.  While management does not believe
that these assumptions will be materially different from Illinois Community
Bank's actual experience, the actual interest rate sensitivity of the Bank's
assets and liabilities could vary significantly from the information set forth
in the table due to market and other factors.

   Certain shortcomings are inherent in the method of analysis presented in the
table above.  Although certain assets and liabilities may have similar maturity
or periods of repricing they may react in different degrees to changes in the
market interest rates.  The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
rates on other types of assets and liabilities may lag behind changes in market
interest rates.  Certain assets, such as adjustable-rate mortgages, generally
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset.  In the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table.  Additionally, an increased credit risk
may result as the ability of many borrowers to service their debt may decrease
in the event of an interest rate increase.  Virtually all of the adjustable-rate
loans in the Bank's portfolio contain conditions which restrict the periodic
change in interest rate.

                                       8
<PAGE>
 
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

   The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid at the periods indicated.  Such yields and costs are derived by dividing
income or expense by the average monthly balance of assets or liabilities,
respectively, for the periods presented.  Management does not believe that the
use of monthly balances instead of daily balances has caused any material
difference in the information presented.  Interest earned on loan portfolios is
net of reserves for uncollected interest.
<TABLE>
<CAPTION>
 
                                                                Year Ended June 30,
                                               ----------------------------------------------------------
                                                          1997                           1996
                                               ---------------------------   ----------------------------
                                                                   Average                        Average
                                                                   Yield/                         Yield/
                                               Balance   Interest  Cost      Balance   Interest   Cost
                                               --------  --------  -------   --------  ---------  -------
                                                              (Dollars in thousands)
<S>                                            <C>       <C>       <C>       <C>       <C>        <C>
Interest-earning assets:
  Loan receivable, net.......................  $41,455     $3,347     8.07%     $28,603   $2,314   8.09%
  Investment securities......................    6,833        373     5.46        8,936      548   6.13
  Mortgage-backed securities.................    1,550        124     8.00        2,046      155   7.58
                                               -------     ------   ------      -------   ------   ----
    Total interest-earning assets............   49,838      3,844     7.71       39,585    3,017   7.62
                                                           ------   ------                ------   ----
Non-interest-earning assets..................    3,868                            2,018
                                               -------                          -------
     Total assets............................  $53,706                          $41,603
                                               =======                          =======
 
Interest-bearing liabilities:
  Deposits...................................  $38,322     $1,895     4.94%     $33,444   $1,652   4.93
  Advances FHLB..............................    5,412        311     5.75          205       12   5.83
  Other......................................      339         28     8.26          288       23   7.99
                                               -------     ------   ------      -------   ------   ----
    Total interest-bearing liabilities.......   44,073      2,234     5.07       33,937    1,687   4.97
                                                           ------   ------                ------   ----
Non-interest-bearing liabilities.............    2,411                            1,337
                                               -------                          -------
    Total liabilities........................   46,484                           35,274
    Common stock.............................        5                              387
    Paid-in capital..........................    4,693                            3,124
    Retained earnings........................    2,688                            2,949
    Valuation reserves.......................      177                              157
    ESOP plan shares.........................     (341)                            (288)
                                               -------                          -------
      Total liabilities and retained
        earnings.............................  $53,706                          $41,603
                                               =======                          =======
Net interest income..........................              $1,610                         $1,330
                                                           ======                         ======
Interest rate spread.........................                         2.64%                        2.65%
                                                                    ======                       ======
Net yield on interest-earning assets.........                         3.23%                        3.36%
                                                                    ======                       ======
Ratio of average interest-earning assets to
  average interest-bearing liabilities.......                       113.08%                      116.64%
                                                                    ======                       ======
</TABLE>

                                       9
<PAGE>
 
RATE/VOLUME ANALYSIS

          The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated.  For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate), (ii) changes in rates (change in
rate multiplied by old volume), and (iii) total change.  Changes in rate-volume
(changes in rate multiplied by changes in volume) are allocated proportionately
between changes in rate and changes in volume.
<TABLE>
<CAPTION>
 
                                                    Year Ended June 30,
                                             ---------------------------------
                                                 1997     vs.     1996
                                             ---------------------------------
                                                    Increase (Decrease)
                                                       Due to
                                             ---------------------------------
                                                               Rate/
                                             Volume    Rate   Volume    Total
                                             -------  ------  -------  -------
                                                      (In thousands)
<S>                                          <C>      <C>     <C>      <C>
  Interest Income:
    Loan portfolio, net....................  $1,040   $  (6)     $(1)  $1,033
    Mortgage-backed securities.............     (38)      9       (2)     (31)
    Investment securities..................    (129)    (60)      14     (175)
                                             ------   -----      ---   ------
      Total interest-earning assets........     873     (57)      11      827
                                             ------   -----      ---   ------
 
  Interest expense:
    Deposits...............................     240       3       --      243
       Advances - FHLB.....................     304      --       (5)     299
       Other...............................       4       1       --        5
                                             ------   -----      ---   ------
       Total interest-bearing liabilities..     548       4       (5)     547
                                             ------   -----      ---   ------
  Change in net interest income............  $  325   $ (61)     $16   $  280
                                             ======   =====      ===   ======
 
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND 1996

  The Company experienced growth during fiscal year 1997, as the Company's
assets increased by $13.4 million, or a 28.8%, from $46.4 million at June 30,
1996 to $59.8 million at June 30, 1997.  This growth can be attributed to the
implementation of business strategies of increasing market awareness.  The Bank
expects growth over the next one to three years of approximately 10% per year.
This growth rate could be significantly influenced by the new branch facility
which was completed in January of 1997.

  Loans receivable increased by $9.1 million, or 25.4%, during fiscal year 1997,
from $36.1 million at June 30, 1996 to $45.2 million at June 30, 1997.  The
increase in the Bank's loan portfolio were $2.2 million increase in one to four
family residential loans, $3.4 million increase in commercial and agricultural
real estate loans, $1.7 million in commercial loans, and a $0.7 million in
automobile loans.  The increase in these lending activities was due to the
implementation of business strategies of increasing market awareness.

  Cash and investment securities increased by $2.8 million, or 41.0%, during
fiscal year 1997 from $6.8 million at June 30, 1996 to $9.6 million at June 30,
1997.  The increase was due to the increase yields and liquidity needs.

  Mortgaged-backed securities decreased by $351,000, or 19.8%, during fiscal
year 1997 from $1.8 million at June 30, 1996 to $1.4 million at June 30, 1997.
The decrease was primarily the result of the paydown on principal.  Management
does not intend to purchase any additional mortgage-backed securities.

  Premise and equipment has increased by $1.5 million, or 117.3%, during fiscal
year 1997 from $1.3 million at June 30, 1996 to $2.7 million at June 30, 1997.
This increase is primarily from the completion of the branch facility.  The Bank
anticipates no substantial addition during the 1998 fiscal year.

                                       10
<PAGE>
 
  The Bank's deposits have grown $7.1 million, or 19.5%, during the last fiscal
year from $36.5 million to $43.7 million for the fiscal years ended June 30,
1996 and 1997, respectively.  This deposit growth is attributed to new deposits
and an increase in existing customer deposits.  The Bank attributes this growth
to the increased community awareness of the Bank from the stock conversion and
increase lending activity.  The Bank is anticipating a ten to fifteen percent
increase in deposits in the next year due to the community awareness and the
branch facility, however, there can be no assurance that such deposit growth
will be achieved.  This growth will assist in providing liquidity for the Bank's
lending activities.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

  Net Income.  The Company had a net loss for the year ended June 30, 1997 of
$246,000 compared to a net income of $178,000 for the year ended June 30, 1996.
This decrease of $424,000 was primarily due to an increase in provision for loan
losses of $60,000 and non-interest expense of $1.0 million which was offset by
an increase in net interest income of $280,000, non-interest income of $102,000,
and income tax benefit of $258,000.

  Net Interest Income.  Net interest income for the year ended June 30, 1997 was
$1.6 million compared to $1.3 million for the year ended June 30, 1996.  This
increase is from the interest rate spread, 2.64%, on the growth of interest
earning assets.  Interest bearing liabilities increased a similar amount during
1997.

  Interest Income.  Interest income increased by $827,000, or 27.4%, from $3.0
million for the year ended June 30, 1996 to $3.8 million for the year ended June
30, 1997.  This increase was the result of a $10.2 increase in the average
balance of interest bearing assets from $39.6 million in 1996 to $49.8 million
in 1997.  In addition, average yield on interest-earning assets increased by
0.09% from 7.62% for the year ended June 30, 1996 to 7.71% for the year ended
June 30, 1997.  The Bank attributes this improvement to increased market
awareness and implementation of business strategies.

  Interest Expense.  Interest expense increased $547,000, or 32.4%, from $1.7
million for the year ended June 30, 1996 to $2.2 million for the year ended June
30, 1997.  This increase was attributed to an increase in average interest-
bearing liabilities of $10.1 million, or 29.9%, from $33.9 million in 1996 to
$44.0 million in 1997.  In addition, the average cost on interest-bearing
liabilities increased by 0.10% from 4.97% for the year ended June 30, 1996 to
5.07% for the year ended June 30, 1997.  Deposit growth of $7.1, or 19.5%, from
$36.5 million for the year ended June 30, 1996 to June 30, 1997 was not
sufficient to fund interest-bearing assets increase for the same period.  The
Bank had to request additional advances of $6.4 million during the year ended
June 30, 1997 to fund the increase in the interest-bearing assets.  The average
cost of these advances was 0.81% greater than the average-cost of deposits.  The
Bank has money borrowed from another bank to fund the purchase of the ESOP
shares.  The other borrowed money amounted to $316,000 as of June 30, 1997 with
an average interest rate of 8.26% with interest expense of $28,000 for the year
ended June 30, 1997.

  Provision for Loan Losses.  The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy.  Such evaluation
considers numerous factors including general economic conditions, loan portfolio
composition, prior loan experience, the estimated fair value of the underlying
collateral and other factors that warrant recognition in providing for an
adequate loan loss allowance.  During the years ended June 30, 1997 and 1996 the
Bank's provision for loan losses was $141,000 and $81,000, respectively.  This
increase was due to an increase in the loan portfolio.

  At June 30, 1997, the Bank's allowance for loan losses was $351,000.  The
breakdown of general loss allowances and specific loss allowances is made for
regulatory accounting purposes only.  General loan loss allowances are added
back to capital to the extent permitted in computing risk-based capital.  At
June 30, 1996, approximately $302,000 of the general allowance was eligible to
be counted as risk-based capital.  Both general and specific loss allowances are
charged to expense.  The consolidated financial statements of the Bank are
prepared in accordance with

                                       11
<PAGE>
 
GAAP and, accordingly, provisions for loan losses are based on management's
assessment of the factors set forth above.  The Bank regularly reviews its loan
portfolio, including problem loans, to determine whether any loans require
classification and/or the establishment of appropriate reserves.  Management
believes it has established its existing allowance for loan losses in accordance
with GAAP, however, future reserves may be necessary if economic conditions or
other circumstances differ substantially from the assumptions used in making the
initial determination.  Additional loan loss provisions may be necessary, as
lending activities increase.

  Non-Interest Income.  Non-interest income increased by $102,000, or 172.9%,
from $59,000 for the year ended June 30, 1996 to $161,000 for the year ended
June 30, 1997.  The increase in non-interest income was due primarily to
increase of $42,000 in deposit account fees, $18,000 in ATM fees, $25,000 of
fees and late charges on loans, and rental income from the branch of $7,000.
Fees for the demand accounts and loan can be attributed to increase in these
account, ATM service fees were implemented in 1997, and rental income was from
the opening of the branch in 1997.

  Non-Interest Expense.  Non-interest expense increased $1.0 million, or 98.5%,
from $1.0 million for the year ended June 30, 1996 to $2.0 million for the year
ended June 30, 1997.  This increase in non-interest expense was due primarily
from an increase of $401,000 in compensation and employee benefits, $138,000 in
occupancy and equipment expense, $142,000 in professional fees, and $185,000 in
deposit insurance expense.  Compensation and employee benefits increase was due
primarily from increased cost of the branch facility and management recognition
plan expenses, and the accrual of an expense from a legal settlement relating to
a former employee.  Occupancy and equipment expense increase was primarily from
the opening of the branch facility.  Professional fees increase was primarily
from increased cost of being a publically held corporation and accrual of legal
fees for litigation.  The Bank's deposit insurance increase this year was from a
one-time SAIF special assessment of $208,000 which was partially offset by
reduced SAIF deposit insurance rates.

  Nonperforming Assets.  At June 30, 1997, the Bank had $221,000 in
nonperforming assets compared to $400,000 at June 30, 1996.  As of June 30,
1997, the Bank had $45,000 of real estate held for sale compared to $49,000 at
June 30, 1996.  The real estate held for sale consisted of unimproved building
lots.  One lot was sold during the year ended June 30, 1997.

  Provision for Income Taxes.  For the year ended June 30, 1997, the Bank
recorded a benefit from income taxes of an effective rate of 37.3% from the
operating loss for the year.  For the year ended June 30, 1996, the Bank
recorded a provision for income taxes at an effective rate of 38.4%.

LIQUIDITY AND CAPITAL RESOURCES

  The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgage-backed securities, maturities of investments
and interest-bearing deposits, and funds provided from operations.  While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition.  The Bank uses its liquidity resources
principally to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.
Liquidity management is both a daily and long-term function of management.  If
the Bank requires funds beyond its ability to generate internally, the Bank
believes it could borrow additional funds from the FHLB.  The Bank had to
request additional advances of $6.4 million from the FHLB during the year ended
June 30, 1997.

  The primary investing activity of the Bank is the origination of loans.
During the year ended June 30, 1997, purchases of investment securities totaled
$3.5 million while loan originations totaled $18.9 million.  These investments
were funded primarily from loan and mortgage-backed security repayments of $8.0
million, sales of loans to FHLMC and participation of loans of $1.9 million, and
investment security maturities of $2.0 million.

                                       12
<PAGE>
 
  At June 30, 1997, the Bank had $2.6 million in outstanding commitments to
originate fixed rate loans and $2.2 million of unused lines of credit.  The Bank
anticipates that it may not have sufficient funds available to meet its current
loan origination commitments and additional advances from FHLB may be requested.
Certificates of deposit which are scheduled to mature in one year or less
totaled $16.1 million at June 30, 1997.  Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Bank.

  At June 30, 1997, the Bank exceeded all of its regulatory capital
requirements.

IMPACT OF INFLATION AND CHANGING PRICES

  The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation.  The impact of inflation is reflected in the increased cost of
the Company's operations.  Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary.  As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

  Accounting for ESOP.  The Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AcSEC") has issued
Statement of Position ("SOP 93-6") on "Employers' Accounting for Employee Stock
Ownership Plans" ("ESOP").  SOP 93-6, among other things, changes the measure of
compensation expense recorded by employers from the cost of ESOP shares to the
fair value of ESOP shares.  To the extent that fair value of the Company's ESOP
shares differs from the cost of such shares, compensation expense must be
recorded in the Company's financial statements for the fair value of ESOP shares
allocated to participants for a reporting period.  SOP  93-6 was adopted by the
Company during fiscal 1995, without material financial statement effect.

  Disclosure of Certain Significant Risks and Uncertainties.  In December 1994,
the AICPA issued SOP 94-6, "Disclosure of Certain Significant Risks and
Uncertainties," which requires entities to disclose specified information,
including a description of certain risks and uncertainties.  SOP 94-6 requires
four new disclosures related to: (1) the nature of an entities operations, (2) a
statement about the use of estimates in the financial statements, (3)
uncertainties concerning estimates that affect financial statement amounts if it
is reasonably possible that the estimates that will change within a year and
that change could be material to the financial statements, and (4) risks related
to concentrations in volume of business, sources of supply, revenue or market or
geographic area if those concentrations expose the entity to risk of a
disruption in operations within a year.  The first two disclosures will always
be necessary whereas the disclosure about certain significant estimates and
vulnerability from concentrations apply if criteria specified in SOP 94-6 are
met.  SOP 94-6 is effective for fiscal years ending after December 15, 1995.
SOP 94-6 was adopted by the Company during fiscal year end 1997, without
material financial statement effect.

  Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of.  In March 1995, the FASB issued SFAS No.  121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."  SFAS No.  121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of.  The statement does not apply to financial
instruments, long-term customer relationships of a financial institution (core
deposits), mortgage and other servicing rights and deferred tax assets.  SFAS
No.  121 requires the review of long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances include,
for example, a significant decrease in market value of an asset, a significant
change in use of an asset, an adverse change in a legal factor that could effect
the value of an asset.  If such an event occurs and it is determined that the
carrying value of the asset may not be recoverable, an impairment loss

                                       13
<PAGE>
 
should be recognized as measured by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  Fair value can be determined by
a current transaction, quoted market prices or present value of estimated
expected future cash flows discounted at the appropriate rate.  The statement is
effective for fiscal years beginning after December 15, 1995.  The Company
adopted this statement July 1, 1996 without any material impact on its results
of operations or financial position.

  Accounting for Mortgage Servicing.  In May 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights."  SFAS No. 122 requires that the
Company recognizes as separate assets rights to service mortgage loans for
others, regardless of how those servicing rights were acquired.  An institution
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells those loans with servicing rights
retained would allocate some of the cost of the loans to the mortgage servicing
rights.  SFAS No. 122 also requires that an enterprise allocate the cost of
purchasing or originating the mortgage loans between the mortgage servicing
rights and the loans when mortgage loans are securitized, if it is practicable
to estimate the fair value of mortgage servicing rights.  Additionally, SFAS No.
122 requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment.  Impairment would be measured
based on fair value.  SFAS No. 122 is to be applied prospectively to the
Company's fiscal year beginning July 1, 1996, to transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of all
capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired.  Retroactive application is prohibited.
Management adopted SFAS No. 122 on July 1, 1996, as required, without material
effect on the Company's consolidated financial position or results of
operations.

  Accounting for Stock-Based Compensation.  In October 1994, the FASB issued
SFAS No. 123 entitled "Accounting for Stock Based Compensation."  SFAS No. 123
establishes a fair value based method of accounting for stock-based compensation
paid to employees.  SFAS No. 123 recognizes the fair value of an award of stock
or stock options on the grant date and is effective for transactions occurring
after December 1995.  Companies are allowed to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net earnings and,
if presented, earnings per share, as if SFAS No. 123 had been adopted.
Management has determined that the Company will continue to account for stock-
based compensation pursuant to Accounting Principles Board Opinion No. 25, and
therefore adoption of SFAS No. 123 will not have a material effect on the
Company's consolidated financial condition or results of operations.

  Accounting for Transfers of Financial Assets.  In June 1996, the FASB issued
SFAS No. 125, "Accounting for Transfers of Financial Assets, Servicing Rights,
and Extinguishment of Liabilities," that provides accounting guidance on
transfers of financial assets, servicing of financial assets, and extinguishment
of liabilities.  SFAS No. 125 introduces an approach to accounting for transfers
of financial assets that provides a means of dealing with more complex
transactions in which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special purpose entities in
the transaction, or otherwise has continuing involvement with the transferred
assets.  The new accounting method, the financial components approach, provides
that the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values.  SFAS No. 125
provides criteria for determining whether control of assets has been
relinquished and whether a sale has occurred.  If the transfer does not qualify
as a sale, it is accounted for as a secured borrowing.  Transactions subject to
the provisions of SFAS No. 125 include, among others, transfers involving
repurchase agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.

  An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity).  A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value.  Servicing
assets and liabilities are amortized in proportion to and over the period of
estimated net servicing income or net servicing loss and are subject to
subsequent assessments for impairment based on fair value.

                                       14
<PAGE>
 
  SFAS No. 125 provides that a liability is removed from the balance sheet only
if the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.

  SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and is to be
applied prospectively.  Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Company's consolidated financial position or results of
operations.

  Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities.  In December of 1996, the FASB issued SFAS No. 127, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which defers the effective date of SFAS No.  125 for one year.

  Earnings Per Share.  In February of 1997, the FASB issued SFAS No. 128,
"Earnings Per Share," that specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly held
common stock.  SFAS is effective for financial statements ending after December
15, 1997.  The Company does not anticipate implementation of SFAS No.  128 will
have a material effect on its earning per share computation.

  Disclosure of Information About Capital Structure.  In February of 1997, the
FASB issued SFAS No.  129, "Disclosure of Information about Capital Structure,"
that specifies standards for disclosing information about an entity's capital
structure.  SFAS is effective for financial statements ending after December 15,
1997.  The Company does not anticipate implementation of SFAS No.  129 will have
any disclosure effect on its financial statements.

  Reporting Comprehensive Income.  In June of 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements.  This statement requires classification of items
of other comprehensive income by their nature in the financial statements and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid in capital in the equity section of the
statement of financial position.  This statement is effective for fiscal years
beginning after December 31, 1997.  The Company will implement SFAS No. 130 for
their year ended June 30, 1999.

  Disclosures about Segments of an Enterprise and Related Information.  In June
of 1997, the FASB issued SFAS No.  131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments in annual financial statements and requires
that those businesses report selective information about operating segments in
interim financial reports to shareholders.  It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers.  This statement is effective for fiscal years beginning after
December 31, 1997.  The Company will implement SFAS No. 131 for their year ended
June 30, 1999.

OTHER DEVELOPMENTS -- BIF-SAIF PREMIUM DISPARITY; DEPOSIT INSURANCE ASSESSMENT

  The Bank's savings deposits are insured by the Savings Association Insurance
Fund ("SAIF"), which is administered by the FDIC.  The assessment rate currently
ranges from 0.23% of deposits for well capitalized institutions to 0.31% of
deposits for undercapitalized institutions.

  The FDIC also administers the Bank Insurance Fund ("BIF"), which has the same
designated reserve ratio as the SAIF.  The FDIC amended the BIF risk-based
assessment schedule which lowered the deposit insurance assessment rate for most
commercial banks and other depository institutions with deposits insured by the
BIF to a range of from 0.31% of insured deposits for undercapitalized BIF-
insured institutions to a statutory minimum of $2,000 annually for well-
capitalized institutions, which constitute over 90% of BIF-insured institutions.
These revisions to the BIF assessment rate schedule created a substantial
disparity in the deposit insurance premiums paid by BIF and SAIF

                                       15
<PAGE>
 
members and placed SAIF-insured savings institutions such as the Bank at a
significant competitive disadvantage to BIF-insured institutions.

  To alleviate this disparity, the U.S. Department of Treasury, the FDIC and the
U.S. Congress provided for a one-time assessment of 65.7 basis points be imposed
on all SAIF-insured deposits to cause the SAIF to reach its designated reserve
ratio.

  The payment of this special assessment severely and negatively impact the
Bank's results of operations for year ended June 30, 1997, resulting in an
expense of $208,000 special assessment imposed and the SAIF is recapitalized.
It will have the effect of reducing the Bank's insurance premiums in the future,
thereby creating equal competition between BIF-insured and SAIF-insured
institutions.

                                       16
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
 
                                                     Page
<S>                                                  <C>
 
Independent Auditors' Report.........................  18
 
Consolidated Financial Statements
    Consolidated Statements of Financial Condition...  19
    Consolidated Statements of Income................  20
    Consolidated Statements of Stockholders' Equity..  21
    Consolidated Statements of Cash Flows............  22
    Notes to Consolidated Financial Statements.......  24
</TABLE>

                                       17
<PAGE>
 
         [LETTERHEAD OF LARSSON, WOODYARD & HENSON, LLP APPEARS HERE]

                         Independent Auditors' Report



To the Board of Directors
Illinois Community Bancorp, Inc.
 and Subsidiaries
Effingham, Illinois

We have audited the accompanying consolidated statements of financial
condition of Illinois Community Bancorp, Inc. and Subsidiaries as of June 30,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years then ended June
30, 1997, 1996 and 1995.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Illinois Community Bancorp, Inc. and Subsidiaries as of June 30, 1997 and
1996 and the results of their operations and their cash flows for each of the
years then ended June 30, 1997, 1996 and 1995 in conformity with generally
accepted accounting principles.


/s/ LARSSON, WOODYARD & HENSON, LLP

July 25, 1997

                                       18
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                            June 30, 1997 and 1996
<TABLE>
<CAPTION>
                                                                   June 30,
                                                               ----------------
                                                                 1997     1996
                                                               -------  -------
ASSETS                                                             (1,000's)
                                                               ----------------
<S>                                                            <C>      <C>   
Cash and Cash Equivalents:
 Cash                                                          $ 1,708  $   267
 Interest bearing deposits                                         767    1,129
                                                               -------  -------
   Total Cash and Cash Equivalents                               2,475    1,396
 
Securities available for sale, amortized cost of $7,497 and
 $6,675 at June 30, 1997 and 1996, respectively                  7,925    6,892
Securities held to maturity, estimated market value of
 $633 and $299 at June 30, 1997 and 1996, respectively             633      299
Loans receivable, net                                           45,219   36,069
Accrued interest receivable                                        453      309
Premises and equipment, net                                      2,742    1,262
Real estate held for sale                                           45       49
Prepaid income taxes                                               121        0
Organization expense                                                71        0
Other assets                                                       115      145
                                                               -------  -------
 
         Total Assets                                          $59,799  $46,421
                                                               =======  =======
 
    LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deposits                                                       $43,662  $36,548
Advances from Federal Home Loan Bank                             7,958    1,608
Other borrowings                                                   316      356
Advances from borrowers for taxes and insurance                     79       91
Accrued interest payable                                           154      103
Accrued income taxes                                                 0       41
Accrued expenses                                                   180       19
Accrued dividends                                                   75        0
Deferred income taxes                                               97       16
Other liabilities                                                  186      337
                                                               -------  -------
    Total Liabilities                                           52,707   39,119
                                                               -------  -------
 
Commitments and Contingencies
 
Stockholders' Equity
 Common stock, $.01 par value; authorized 4,000,000 shares
  502,550 shares issued and outstanding                        $     5  $   503
 Paid-in capital                                                 4,693    4,066
 Retained earnings                                               2,432    2,947
 Unrealized gain on securities held available for sale             278      142
 Unearned employee stock ownership plan                           (316)    (356)
                                                               -------  -------
   Total Stockholders' Equity                                    7,092    7,302
                                                               -------  -------
 
   Total Liabilities and Stockholders' Equity                  $59,799  $46,421
                                                               =======  =======
</TABLE>
         See accompanying notes to consolidated financial statements.

                                       19
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME
               For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
 
                                                  Year Ended June 30,
                                                -----------------------
                                                 1997    1996     1995
                                                ------  ------   ------
                                                         (1,000's)
                                                -----------------------
<S>                                             <C>     <C>      <C> 
Interest income:
 Interest on loans                              $3,347  $2,314   $1,581
 Interest and dividends on securities              497     703      798
                                                ------  ------   ------
   Total interest income                         3,844   3,017    2,379
                                                ------  ------   ------
 
Interest expense:
 Interest on deposits                            1,895   1,652    1,416
 Interest on Federal Home Loan Bank advances       311      12        0
 Interest on other borrowings                       28      23        0
                                                ------  ------   ------
   Total interest expense                        2,234   1,687    1,416
                                                ------  ------   ------
 
   Net interest income                           1,610   1,330      963
 
Provision for loan losses                          141      81       50
                                                ------  ------   ------
 
   Net interest income after provision
    for loan losses                              1,469   1,249      913
                                                ------  ------   ------
 
Non-interest income:
 Realized gain on sale of securities                 0       2        0
 Gain on sale of premises                            0      11        0
 Other fees                                        107      38       22
 Insurance commissions                               5       5        8
 Other                                              49       3        8
                                                ------  ------   ------
                                                   161      59       38
                                                ------  ------   ------
 
Non-interest expense:
 Compensation and employee benefits                914     513      554
 Occupancy and equipment                           247     109       63
 Data processing                                   112      81       69
 Audit, legal and other professional               193      51       26
 SAIF deposit insurance                            273      88       85
 Advertising                                        40      39       30
 Other                                             244     138       56
                                                ------  ------   ------
                                                 2,023   1,019      883
                                                ------  ------   ------
 
  Income (loss) before income taxes               (393)    289       68
 
Provision for (benefit from) income taxes         (147)    111        7
                                                ------  ------   ------
 
  Net income (loss)                             ($ 246) $  178   $   61
                                                ======  ======   ======
 
Earnings (loss) per share                       ($0.53) $ 0.30      N/A
                                                ======  ======   ======
 
Proforma earnings per share                         NA  $ 0.38      N/A
                                                ======  ======   ======
</TABLE>
         See accompanying notes to consolidated financial statements.

                                       20
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                                             Unrealized
                                                                                 Unearned     Gain on
                                                                                 Employee    Securities
                                                                                  Stock      Available
                                           Common      Paid-in      Retained    Ownership      For
                                            Stock      Capital      Earnings       Plan        Sale         Total
                                         ----------   ----------   ----------   ----------   ----------   ----------
                                                                                 (1,000's)
                                         ---------------------------------------------------------------------------
<S>                                      <C>          <C>          <C>          <C>          <C>          <C> 
Balance at June 30, 1994                 $        0   $        0   $    2,777   $        0   $       97   $    2,874
                                                                                            
Net income                                        0            0           61            0            0           61
                                                                                            
Change in unrealized gain                                                                   
 on securities available for sale                 0            0            0            0           24           24
                                         ----------   ----------   ----------   ----------   ----------   ----------
                                                                                            
Balance at June 30, 1995                          0            0        2,838            0          121        2,959
                                                                                            
Issuance of common                                                                          
 shares                                         503        4,060            0         (402)           0        4,161
                                                                                            
Cash dividends                                    0            0          (69)           0            0          (69)
                                                                                            
Net income                                        0            0          178            0            0          178
                                                                                            
Change in unrealized gain on                                                                
 securities available for sale                    0            0            0            0           21           21
                                                                                            
ESOP shares earned                                0            6            0           46            0           52
                                         ----------   ----------   ----------   ----------   ----------   ----------
                                                                                            
Balance at June 30, 1996                        503        4,066        2,947         (356)         142        7,302
                                                                                            
Holding company formation and                                                               
 stock exchange with bank                      (498)         601         (103)           0            0            0
                                                                                            
Cash and declared dividends                       0            0         (149)           0            0         (149)
                                                                                            
Net loss                                          0           17         (263)           0            0         (246)
                                                                                            
Change in unrealized gain on                                                                
 securities available for sale                    0            0            0            0          136          136
                                                                                            
ESOP shares earned                                0            9            0           40            0           49
                                         ----------   ----------   ----------   ----------   ----------   ----------

Balance at June 30, 1997                 $        5   $    4,693   $    2,432   $     (316)  $      278   $    7,092
                                         ==========   ==========   ==========   ==========   ==========   ========== 
</TABLE>

                                       21
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
 
                                                                                       Years Ended June 30,
                                                                              ------------------------------------
                                                                                  1997        1996         1995
                                                                              ----------   ----------   ----------
                                                                                            (1,000's)
                                                                              ------------------------------------
<S>                                                                           <C>          <C>          <C> 
 Operating activities:
   Net income (loss)                                                          $     (246)  $      178   $       61
   Adjustments to reconcile net income (loss) to net
    cash (used in) provided by operating activities
     Provision for depreciation                                                      130           55           21
     Provision for loan losses                                                       141           81           50
     Amortization of organization expenses                                             8            0            0
     Amortization of investment value                                                 16            0            0
     Net amortization and accretion of securities                                      1            3            2
     Increase in accrued interest receivable                                        (144)         (46)         (25)
     Increase in prepaid income taxes                                               (102)           0            0
     Increase in organization expense                                                (79)           0            0   
     Decrease (increase) in other assets                                              30           59         (170)
     Increase (decrease) in accrued interest payable                                  51          (30)          86
     (Decrease) increase in accrued income taxes                                     (60)         112          (71)
     Increase in accrued expenses                                                    161            0            0
     Increase in accrued dividends                                                    75            0            0   
     Increase (decrease) in deferred income taxes                                     81          (16)         (65)
     (Decrease) increase in other liabilities                                       (151)          68          228
     Federal Home Loan Bank stock dividends                                            0            0           (3)
     Stock dividends on securities                                                   (89)        (142)         (91)
     Realized gain on sale of investments                                              0           (2)           0
     Gain on sale of facility                                                          0          (11)           0
     Gain on sale of real estate held for sale                                        (5)           0            0   
     ESOP benefit expense                                                             10           12            0
                                                                              ----------   ----------   ----------

      Net cash (used in) provided by operating activities                           (172)         321           23
                                                                              ----------   ----------   ----------
Investing activities:
  Proceeds from securities held to maturity                                            0        3,070        6,243
  Proceeds from matured securities available for sale                              2,012        2,675            0
  Proceeds from sale of securities available for sale                                  0          502            0
  Purchase of securities held to maturity                                           (350)        (379)      (7,510)
  Purchase of securities available for sale                                       (3,191)      (1,156)           0
  Increase in loans receivable                                                   (11,159)     (13,804)        (696)
  Purchase of mortgage loans                                                           0         (500)           0
  Repayment of mortgage-backed securities                                            369          323          370
  Sale of originated loans                                                         1,868            0           51
  Proceeds from sale of facility                                                       0           13            0
  Proceeds from sale of real estate held for sale                                      9            0            0
  Purchase of premises and equipment                                              (1,610)      (1,002)         (92)
                                                                              ----------   ----------   ----------

      Net cash used in investing activities                                      (12,052)     (10,258)      (1,634)
                                                                              ----------   ----------   ----------

 
</TABLE>

                                       22
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
 
                                                                                     Years Ended June 30, 
                                                                             -------------------------------------
                                                                              1997           1996           1995
                                                                             -------        ------         -------
                                                                                           (1,000's)      
                                                                             -------------------------------------
                                                                                                          
<S>                                                                          <C>            <C>             <C>
Financing activities:                                                                                     
 Net increase in deposits                                                    $ 7,114        $3,845          $  916
 Advances from Federal Home Loan Bank                                          6,350         1,608               0
 Decrease in advances from borrowers                                                                      
  for taxes and insurance                                                        (12)         (198)             (4)
 Proceeds from Employee Stock Ownership Plan loan                                  0           402               0
 Repayment of Employee  Stock Ownership Plan loan                                (40)          (46)              0
 Allocated shares of ESOP  stock                                                  40            46               0
 Proceeds from issuance of common stock                                            0         4,563               0
 Purchase of employee  stock ownership plan stock                                  0          (402)              0
 Cash dividends                                                                 (149)          (75)              0
                                                                                                          
                                                                                                          
                                                                                                          
    Net cash provided by financing activities                                 13,303         9,743             912
                                                                             -------        ------          ------
                                                                                                          
    Increase (decrease) in cash and cash equivalents                           1,079          (194)           (699)
                                                                                                          
Cash and cash equivalents at beginning of year                                 1,396         1,590           2,289
                                                                             -------        ------          ------
                                                                                                          
Cash and cash equivalents at end of year                                     $ 2,475        $1,396          $1,590
                                                                             =======        ======          ======
                                                                                                          
Supplemental disclosures:                                                                                 
  Additional cash flows information:                                                                      
   Cash paid for:                                                                                         
    Interest on deposits, advances and other borrowings                      $ 2,183        $1,717          $1,330
    Income taxes                                                             $    10        $   15             204
                                                                                                          
Schedule of noncash investing activities:                                                                 
  Stock dividends were distributed by the                                                                 
   Federal Home Loan Bank of Chicago                                         $     0        $    0          $    3
  Investment securities transferred to available for sale                    $     0        $6,364          $    0
  Unrealized gain on securities available for sale                           $   211        $   30          $   37
  Deferred taxes on unrealized gain on securities available for sale         $    75        $    9          $   13
  Dividends declared but unpaid                                              $    75        $    0          $    0
 
</TABLE>

                                       23
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A.  Summary of Significant Accounting Policies

Description of the Business

On April 7, 1994, the board of directors of the Bank adopted a plan of
conversion whereby the Bank would convert to a federal stock savings bank. The
conversion was completed on September 28, 1995 with the issuance of 502,550
shares of the Bank's common stock at a price of $10.00 per share. Total proceeds
from the conversion of $4,563,000, net of costs relating to the conversion of
$462,500, have been recorded as common stock and additional paid-in capital. The
Bank articles of incorporation authorizes the issuance of up to 1,000,000 shares
of serial preferred stock, which may be issued with certain rights and
preferences. As of June 30, 1997 and 1996, no preferred stock has been issued.

On April 21, 1997, Illinois Guarantee Savings Bank, FSB changed from a federal
stock savings bank to a state chartered bank.  The Bank also changed its name to
Illinois Community Bank.

Illinois Community Bancorp, Inc. ("Company") was organized by the Bank to be a
financial institution holding company. The Company was organized at the
direction of the Bank to acquire all of the capital stock of the Bank, on a one
to one exchange basis, upon the consummation of the reorganization of the Bank
into the holding company form of ownership, the reorganization was approved by
the shareholders of the Bank on July 23, 1996 and was completed on September 27,
1996. The Company was authorized to issue 4,000,000 shares of common stock,
$0.01 par value per share, and 1,000,000 of serial preferred stock, $0.01 par
value per share. The Company incurred $79,000 of organization cost during the
reorganization. Amortization of the organization cost, over five years, was
$8,000 for the year ended June 30, 1997.

After reorganization, the Company invested in two newly formed corporations.
These corporations are Illinois Leasing Corporation (ILC) and Illinois Financial
Corporation (IFC). Illinois Leasing Corporation was formed to provide leasing
services to the Bank's market area and Illinois Financial Corporation will
provide financial services in the future. These two corporations along with the
wholly owned subsidiary, Illinois Community Bank (the Bank) have been included
in the consolidated financial statements.

The Bank is a state bank operating offices located in Effingham County. The
principal business of the Bank historically consists of attracting deposits from
the general public and investing these deposits in loans secured by first
mortgages on single-family residences in the Bank's market area. The Bank's
Trust and Investment Management Center began operations in April, 1997. Full
service brokerage and investment management services, offered at the bank
through PRIMEVEST Financial Services, allows the Bank to serve customers'
investment and financial planning needs.

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries Illinois Community Bank, Illinois Leasing
Corporation, and Illinois Financial Corporation.  All material intercompany
transactions and accounts have been eliminated.

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles.  In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statement of consolidated financial condition and revenues and expenses for the
year.  Actual results could differ significantly from those estimates.  Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.  In
connection with the determination of the allowances for loan losses and
foreclosed real estate, management obtains independent appraisals for
significant properties.

                                       24
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A.  Summary of Significant Accounting Policies

Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers
all cash, daily interest demand deposits, federal funds sold, and interest
bearing deposits and securities having original maturities of three months or
less to be cash equivalents.

Securities Held to Maturity

Securities classified as held to maturity are those debt securities the Company
has the positive intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, which are recognized in interest income using the
interest method over the period to maturity.

Securities Available for Sale

Securities classified as available for sale are those debt and equity securities
that the Company intends to hold for an indefinite period of time, but not
necessarily to maturity and marketable equity securities.  Any decision to sell
a security classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix
of the Company's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.  Securities available for sale are
carried at fair value.  The difference between fair value and amortized cost,
adjusted for amortization of premium and accretion of discounts, which are
recognized in interest income using the interest method over their contractual
lives, results in an unrealized gain or loss.  Unrealized gains or losses are
reported as increases or decreases in stockholders' equity, net of the related
deferred tax effect.  Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in earnings.

Loans and Allowance for Loan Losses

Loans are considered a held to maturity asset and, accordingly, are carried at
historical cost.    Loans are stated at the amount of unpaid principal, reduced
by unearned discounts, allowances for loan losses, loans in process, loans
participated to other financial institutions, and deferred loan origination
fees.  Unearned discounts on nonmortgage installment loans are recognized as
income over the term of the loan by the interest method.  Interest on all other
mortgage and nonmortgage loans is calculated by using the simple interest method
on the unpaid principal outstanding.  Loan origination and commitment fees, as
well as certain direct origination costs, are deferred and amortized as a yield
adjustment over the lives of the related loans using the interest method when in
excess of loan origination cost.  Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.  An allowance for loan
losses has been established for loans through a provision for loan losses
charged to operations.  Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
probable losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience.  The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay.

Management believes that the allowance for loan losses is adequate.  While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions.  In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses.  Such agencies may require the Company to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.  Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash flows.  The
allowance is increased by a provision for loan losses, which is charged to
expense, and reduced by charge-offs, net of recoveries.  Changes in the
allowance relating to impaired loans are charged or credited to the provision
for loan losses.

                                       25
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note A.  Summary of Significant Accounting Policies

Loans and Allowance for Loan Losses

The determination to discontinue the accrual of interest is based on a review of
each loan.  Generally, the accrual of interest is discontinued on all loans
greater than 90 days past due, including a loan impaired under SFAS No. 114, as
to principal or interest, unless in management's opinion, collection of both
principal and interest is assured by way of collateralization, guaranties or
other security and the loan is in the process of collection.  Such interest is
either charged off or reserved through an allowance account.  If amounts are
received on loans for which the accrual of interest has been discontinued, a
determination is made as to whether payments received should be recorded as a
reduction of the principal balance or as interest income.  The loan is returned
to accrual status when, in management's judgment, the borrower has demonstrated
the ability to make periodic interest and principal payments on a timely basis.

Real Estate Held for Sale and Foreclosed Real Estate

Direct investments in real estate properties held for sale are carried at the
lower of cost, including cost of improvements and amenities subsequent to
acquisition, or net realizable value.  The real estate held for sale as of June
30, 1997 and 1996 consists of undeveloped lots which are considered as a real
estate equity investment because of the holding period.  One of these
undeveloped lots was sold March 18, 1997 at a sales price of $9,000, with a
recognized gain of $5,000.

Foreclosed real estate held for sale is carried at the lower of cost or
estimated fair market value, net of estimated selling costs.  Costs of holding
foreclosed property are charged to expense in the current period, except for
significant property improvements, which are capitalized to the extent that
carrying value does not exceed estimated fair market value.

Premises and Equipment

Land is carried at cost.  Buildings and furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation and amortization.  Buildings and
furniture, fixtures, and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets.  The estimated useful
lives are seven to forty years for buildings and improvements and five to twelve
years for equipment.

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.

                                       26
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note A.  Summary of Significant Accounting Policies

Earnings Per Share

Earnings per share calculation for the year ended June 30, 1997 has been based
on the net income and the weighted average number of shares outstanding of
468,478, as if the Company had been in existence since the beginning of the
year.  For purposes of this calculation, the number of shares purchased by the
ESOP Plan, which have not been allocated to the participant accounts, are not
assumed to be outstanding.

The Bank converted from a mutual savings bank to a stock savings bank on
September 28, 1995.  Earnings per share for 1996 were computed by dividing net
income of $140,000 from September 30, 1995 through June 30, 1996 by the weighted
average common stock shares outstanding of 464,377 for the period.  Earnings
from September 28, 1995 through September 30, 1995 were considered insignificant
on the earnings per share calculation.  Proforma earnings per share were
computed by dividing the net income of $178,000 for the year ended June 30, 1996
by the average shares outstanding, since the conversion to stock, of 464,377 for
the period.  The proforma earnings per shares calculation does not reflect the
proforma effects of the stock offering being received at the beginning of the
year.  Only allocated ESOP shares are considered in the calculation of earnings
per share.  Earnings per share amounts have not been presented for the year
ended June 30, 1995, which was prior to the stock conversion.

Off-Balance-Sheet Financial Instruments

In the ordinary course of business the Company has entered into off-balance-
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit and
standby letters of credit.  Such instruments are recorded in the consolidated
financial statements when they become payable.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements.  Estimates also affect the reported amounts of revenues
and expenses during the reporting period.  Actual results could differ from
those estimates.

Reclassifications

Amounts presented in prior year consolidated financial statements have been
reclassified to conform to the 1997 presentation.

                                       27
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note A.  Summary of Significant Accounting Policies

In August 1996, the FASB issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities using a financial-components approach
that focuses on control of the asset or liability. It requires that an entity
recognize only assets it controls and liabilities it has incurred and should
derecognize assets only when control has been surrendered and derecognize
liabilities only when they have been extinguished. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996, and is to be applied prospectively. The
Company plans to adopt this Statement on July 1, 1997 without any material
impact on its consolidated financial statements. In December of 1996, the FASB
issued SFAS No. 127, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," which defers the effective date of SFAS No.
125 for one year.

In February of 1997, the FASB issued SFAS No. 128, "Earnings Per Share," that
specifies the computation,  presentation, and disclosure requirements for
earnings per share for entities with publicly held common stock.  SFAS is
effective for financial statements ending after December 15, 1997.  The Company
does not anticipate implementation of SFAS No. 128 will have a material effect
on its earnings per share computation.

In February of 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," that specifies standards for disclosing information
about an entity's capital structure.  SFAS is effective for financial statements
ending after December 15, 1997.  The Company does not anticipate implementation
of SFAS No. 129 will have any disclosure effect on its financial statements.

In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.  This
statement requires classification of items of other comprehensive income by
their nature in the financial statements and display of the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid in capital in the equity section of the statement of financial position.
This statement is effective for fiscal years beginning after December 31, 1997
and the Company will implement this for its year ended June 30, 1999.

In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information about operating segments in annual financial statements and requires
that those businesses report selective information about operating segments in
interim financial reports to shareholders.  It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers.  This statement is effective for fiscal years beginning after
December 31, 1997.  This statement requires disclosure in information in the
financial statements and the Company will implement this for their year ended
June 30, 1999.

                                       28
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note B.  Securities

Securities available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
 
                                                            June 30, 1997
                                         ----------------------------------------------------
                                                          Gross         Gross     Approximate
                                           Amortized    Unrealized   Unrealized      Market
                                             Cost          Gains       Losses        Value
                                         ------------  -----------  -----------  ------------
                                                              (1,000's)
                                         ----------------------------------------------------
<S>                                      <C>           <C>          <C>          <C>
                                                                              
U.S. Treasury                            $        899  $         1  $         0  $        900
Obligations of other U.S. government                                            
 agencies                                       2,906            5           10         2,901
State and municipal obligations                   385            3            0           388
Asset Management Adjustable Rate Fund           1,500            0            3         1,497
Mortgage-backed securities                                                      
  FHLMC                                           406            6            7           405
  FNMA                                            238            3            0           241
  GNMA                                            753           23            0           776
FHLMC stock                                        12          407            0           419
FHLB stock, at cost                               398            0            0           398
                                         ------------  -----------  -----------  ------------
                                                                                
                                         $      7,497  $       448  $        20  $      7,925
                                         ============  ===========  ===========  ============ 
 

                                                          June 30, 1997
                                         ----------------------------------------------------
                                                           Gross        Gross     Approximate
                                           Amortized    Unrealized   Unrealized     Market
                                             Cost          Gains       Losses       Value
                                         ------------  -----------  -----------  ------------
                                                                (1,000's)
                                         ----------------------------------------------------
<S>                                      <C>           <C>          <C>          <C>
U.S. Treasury                            $      1,478  $         2  $         1  $      1,479
Obligations of other U.S. government                                            
 agencies                                       1,498            0           21         1,477
State and municipal obligations                   207            0            3           204
Asset Management Adjustable Rate Fund           1,500            0           12         1,488
Mortgage-backed securities                                                      
  FHLMC                                           584            3           11           576
  FNMA                                            249            3            0           252
  GNMA                                            933           17            5           945
FHLMC stock                                        12          245            0           257
FHLB stock, at cost                               214            0            0           214
                                         ------------  -----------  -----------  ------------
 
                                         $      6,675  $       270  $        53  $      6,892
                                         ============  ===========  ===========  ============ 
</TABLE>

                                       29
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note B.  Securities

   The amortized cost and approximate market value of securities available for
   sale at June 30, 1997 and 1996, by contractual maturity, are shown below.
   Expected maturities may differ from contractual maturities because securities
   may have a call provision.
<TABLE>
<CAPTION>
 
                                                  June 30, 1997           June 30, 1996
                                             ----------------------  ------------------------
                                                        Approximate               Approximate
                                             Amortized    Market      Amortized     Market
                                               Cost        Value        Cost        Value
                                             ---------  -----------   ---------   -----------
                                                                (1,000's)
                                             ------------------------------------------------
   <S>                                       <C>        <C>          <C>          <C>
 
   Due within one year                          $  813       $  811      $2,801        $2,782
   Due after one year through five years         3,926        3,949       1,145         1,144
   Due after five years through ten years          848          852         616           618
   Due after ten years                           1,910        2,313       2,113         2,348
                                                ------       ------      ------        ------
                                                                              
                                                $7,497       $7,925      $6,675        $6,892
                                                ======       ======      ======        ======
</TABLE>

   The Company exercised a one-time option to transfer all of its securities
   from held to maturity to available for sale. This transfer was done in
   December 1995 and the amortized cost and approximate market value at time of
   transfer was $6,364,000 and $6,424,000, respectively, which reduced
   stockholders' equity by $40,000, net of income tax.

   The only investment classified as held to maturity as of June 30, 1997 and
   1996 is an interest in a limited partnership, Boston Capital Corporation Tax
   Credit Fund V of $633,000 and $299,000, respectively. The Company purchased a
   one unit investment in this Fund of Class A limited partnership interest. The
   one unit cost was $788,000 with first installment paid with the purchase. The
   balance is due as follows:
<TABLE>
<CAPTION>
 
                       Amount
                      (1,000's)
                      ---------
   <S>                <C>
 
   April 1, 1997         $ 44
   October 1, 1997         95
                         ----
                    
                         $139
                         ====
</TABLE>

   It is the intent of the partnership to invest in qualified affordable housing
   programs to generate Federal Housing Tax Credits. The Company intends to
   account for this investment using the amortized cost method. This method
   requires amortizing the excess of the carrying value over its estimated
   residual value at the close of the tax credit realization. Annual
   amortization is proportional to the realization of the tax credits. The
   limited partnership files a tax return on a calendar basis. Based on the
   limited partnership 1996 tax year, the Bank was entitled to $25,000 of tax
   credits and record amortization of the investment carrying value of $16,000.
   The April 1, 1997 installment was partially funded per the request of the
   investment partnership.

                                       30
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note B.  Securities

  The amortized cost and approximate market value of securities held to
  maturity at June 30, 1997 and 1996, by contractual maturity, are shown below.
  Expected maturities may differ from contractual maturities because securities
  may have a call provision.
  <TABLE>
  <CAPTION>
 
                                                      June 30, 1997                  June 30, 1996
                                            --------------------------------  ----------------------------
                                                                 Approximate                  Approximate
                                                 Amortized         Market       Amortized       Market
                                                   Cost             Value         Cost           Value
                                            -------------------  -----------  -------------  -------------
                                                                      (1,000's)
                                            --------------------------------------------------------------
  <S>                                       <C>                  <C>          <C>            <C>
  Due within one year                              $  0             $  0           $  0          $  0
  Due after one year                                              
   through five years                                 0                0              0             0
  Due after five years                                             
   through ten years                                  0                0              0             0
  Due after ten years                               633              633            299           299
                                                   ----             ----           ----          ----
 
                                                   $633             $633           $299          $299
                                                   ====             ====           ====          ====

  </TABLE> 
 
  Proceeds from sales of securities, gross gains and gross losses from such
  sales for the years ended June 30, 1997, 1996 and 1995 were as follows:
  <TABLE> 
  <CAPTION> 

                                                                         Year Ended June 30,
                                                                 -------------------------------------
                                                                   1997           1996           1995
                                                                  ------         ------         ------
                                                                                (1,000's)
                                                                 -------------------------------------
  <S>                                                            <C>          <C>            <C>
 
  Proceeds from sales                                                $   0          $ 502          $   0
                                                                     =====          =====          =====

  Gross gains                                                        $   0          $   2          $   0
  Gross losses                                                           0              0              0
                                                                     -----          -----          -----
 
                                                                     $   0          $   2          $   0
                                                                     =====          =====          =====
  </TABLE>

  Securities at June 30, 1997 and 1996, respectively, with carrying amounts of
  $500,000 and $501,000, and approximate market values of $499,219 and $502,000
  were pledged to secure public deposits and for other purposes as required or
  permitted by law.

                                       31
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note C.  Loans Receivable

Loans receivable consisted of the following:
<TABLE>
<CAPTION>
                                                      June 30,
                                                 -----------------
                                                   1997      1996
                                                 -------   -------
                                                     (1,000's)
                                                 -----------------
<S>                                              <C>       <C>
   Real estate loans:
     One to four family residential              $25,984   $22,952
     Multi-family residential                      1,293     1,036
     Agricultural                                    338     1,839
     Commercial                                    8,542     3,604
     Construction: One to four residential           152     1,015
     Multi-family residential                          0       292
                                                 -------   -------
                                                  36,309    30,738
   Other loans:
     Commercial business                           2,403     1,044
     Commercial leasing                              498       137
     Automobile                                    4,509     3,800
     Other                                         1,882       610
                                                 -------   -------
                                                  45,601    36,329
    Less:
     Loans in process                                  0         6
     Allowance for losses                            351       227
     Deferred loan fees                               31        27
                                                 -------   -------
 
                                                 $45,219   $36,069
                                                 =======   =======
</TABLE>

The Company participated in a commercial loan during the year ended June 30,
1997 with the original participation amount of $100,000.  The loan participation
balance at June 30, 1997 and 1996 was $346,000 and $297,000, respectively.
During the current year, the Bank originated and sold loans to FHLMC of
approximately $1,768,000 of single family residences at a premium of $18,000.
The balance of these loans, at June 30, 1997,  amounted to approximately
$1,539,000.  The balances for the participation loans and the loans sold to
FHLMC have been netted against total loans at June 30, 1997 and 1996.

During the current year, the Company formed Illinois Leasing Corporation with an
initial investment of $525,000.  The leasing corporation was formed to provide
leasing services, primarily commercial operating leases, in the Bank's market
area.  For the year ended June 30, 1997, Illinois Leasing Corporation originated
thirteen leases with an outstanding balance of $313,000 at June 30, 1997.

Changes in allowance for loan losses are as follows:
<TABLE>
<CAPTION>
                                                   June 30,
                                            ----------------------
                                             1997    1996    1995
                                            ------  ------  ------
                                                   (1,000's)
                                            ----------------------
<S>                                         <C>      <C>     <C>
                                                          
 Balance                                    $ 227    $ 175   $ 125
 Amount charged to provision                  141       81      50
 Recoveries                                     0        0       0
 Loans charged off                             17       29       0
                                            -----    -----   -----
                                                          
    Balance                                 $ 351    $ 227   $ 175
                                            =====    =====   =====
 
</TABLE>

                                       32
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note C.  Loans Receivable

   At June 30, 1997 and 1996, the Company had loans totalling $78,000 and
   $42,000, respectively, which were in nonaccrual status and $98,000 and
   $309,000, respectively, which were 90 days or more contractually delinquent
   and still accruing. Additional interest income that would have been recorded
   on non-accrual loans for the years ended June 30, 1997, 1996 and 1995 had
   they performed in accordance with their original terms throughout each year
   amounted to approximately $9,000, $3,000 and $0.

   At June 30, 1997 and 1996, the amount recorded on loans that were considered
   to be impaired under SFAS No. 114 was $78,000 and $42,000, respectively.
   There has been no specific allowance associated with these loans as
   determined in accordance with SFAS No. 114. The average recorded investment
   in impaired loans during the years ended June 30, 1997 and 1996 amounted to
   approximately $23,000 and $42,000, respectively, and recognized interest
   income of $4,000 and $0, respectively.

   Weighted average interest rates on loans, consisted of the following:
<TABLE>
<CAPTION>
 
                                                                  June 30,
                                                           ----------------------
                                                            1997     1996   1995
                                                           -------  ------  -----
   <S>                                                     <C>      <C>     <C>
 
   Mortgage loans                                            8.04%   7.65%  7.79%
   Other loans                                               8.71%   9.20%  8.78%
     Total loans                                             8.18%   8.07%  7.99%
</TABLE> 
 
Note D.  Accrued Interest Receivable
 
   Accrued interest receivable consisted of the following:
<TABLE> 
<CAPTION> 
 
                                                               June 30,
                                                           --------------- 
                                                            1997     1996   
                                                           ------   ------  
                                                              (1,000's)
                                                           ---------------
   <S>                                                     <C>      <C>      
   Loans                                                     $385     $240
   Securities                                                  68       69
                                                             ----     ----
                                                             $453     $309
                                                             ====     ====
</TABLE> 
 
Note E.  Premises and Equipment
 
   Premises and equipment consisted of the following:
<TABLE> 
<CAPTION> 
 
                                                               June 30,
                                                           --------------- 
                                                            1997     1996   
                                                           ------   ------  
                                                              (1,000's)
                                                           ---------------
   <S>                                                     <C>      <C>       
   Land                                                    $  450   $  445
   Office building                                          1,733      681
   Furniture and equipment                                  1,062      509
                                                           ------   ------
                                                            3,245    1,635
   Accumulated depreciation                                  (503)    (373)
                                                           ------   ------
 
                                                           $2,742   $1,262
                                                           ======   ======
 
</TABLE>

                                       33
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note E.  Premises and Equipment

  Depreciation included in the consolidated statements of income amounted to
  $130,000, $55,000 and $21,000 for the years ended June 30, 1997, 1996 and
  1995, respectively.

  The Company completed its new branch facility in January of 1997. Included in
  the buildings is $32,000 of capitalized interest from the 1997 building
  project. Amortization of capitalized interest, which is included in occupancy
  and equipment expense, amounted to $2,000 for the year ended June 30, 1997.
  Depreciation, which is included in the $130,000, amounted to $51,000 for the
  year ended June 30, 1997.

  In November of 1995, the Bank sold their Palestine, Illinois facility. The
  Palestine facility was closed in 1992. The Bank sold this facility for $13,000
  and realized a gain on the sale of $11,000.

Note F.  Deposit Analysis

  Deposits and weighted average interest rates are summarized as follows:
<TABLE>
<CAPTION>
                                                                    June 30,
                                                   -------------------------------------------
                                                            1997                    1996
                                                   -------------------     ------------------- 
                                                              Weighted                Weighted
                                                              Average                 Average
                                                    Amount      Rate        Amount      Rate
                                                   --------   --------     --------   -------- 
                                                    1,000's                 1,000's
                                                   --------                --------  
         <S>                                        <C>       <C>          <C>        <C>       

         Non-interest bearing                      $  2,419        .00%    $    873        .00%
         NOW accounts                                 2,076       4.14%       1,300       2.92%
         Money market                                 2,457       3.00%       2,431       4.04%
         Passbook                                    11,004       4.62%       4,911       3.56%
         Certificates                                25,706       5.52%      27,033       5.38%
                                                   --------                --------  

         Totals                                    $ 43,662       4.78%    $ 36,548       4.83%
                                                   ========                ========
</TABLE> 
         
  Certificates had the following remaining maturities:
<TABLE> 
<CAPTION>          
                                                                  June 30, 1997
                                                   -------------------------------------------
                                                                 One         Two       After
                                                   Less Than   to Two      to Three    Three
    Rate                                           One Year     Years       Years      Years     Totals
    ----                                           --------   --------     --------   --------   --------    
                                                                           1,000's
                                                   ------------------------------------------------------
  <S>                                              <C>        <C>         <C>         <C>        <C> 
  2 -  3.99%                                       $    100   $      0    $       0   $     21   $    121
  4 -  5.99%                                         15,666      4,720          869        671     21,926
  6 -  7.99%                                            248      1,473        1,408        488      3,617
  8 -  9.99%                                             42          0            0          0         42
                                                   --------   --------     --------   --------   -------- 

                                                   $ 16,056   $  6,193     $  2,277   $  1,180   $ 25,706
                                                   ========   ========     ========   ========   ========

</TABLE>

                                       34
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note F.  Deposit Analysis
<TABLE>
<CAPTION>
                                                                     June 30, 1996
                                                 ---------------------------------------------------------
                                                                One         Two        After
                                                 Less Than     to Two     to Three     Three
   Rate                                           One Year     Years       Years       Years      Totals
   ----                                          ---------   ---------   ---------   ---------   ---------  
                                                                           1,000's
                                                 ---------------------------------------------------------
  <S>                                            <C>         <C>         <C>         <C>         <C> 
  2 -  3.99%                                     $       8   $       0   $       0   $       0   $       8
  4 -  5.99%                                        18,720       4,534       1,172         173      24,599
  6 -  7.99%                                           241         411         914         818       2,384
  8 -  9.99%                                             0          42           0           0          42
                                                 ---------   ---------   ---------   ---------   ---------  

                                                 $  18,969   $   4,987    $  2,086   $     991   $  27,033
                                                 =========   =========    ========   =========   =========  
</TABLE> 
 
Interest expense on deposits is summarized as follows:
<TABLE> 
<CAPTION>                                                                       Years Ended June 30,
                                                                         ---------------------------------
                                                                            1997       1996        1995
                                                                         ---------   ---------   ---------  
                                                                                     (1,000's)
                                                                         ---------------------------------
  <S>                                                                    <C>         <C>         <C>  
  Passbook                                                               $     230   $     158   $     152
  Demand deposits                                                              159         130          74
  Certificates                                                               1,506       1,364       1,190
                                                                         ---------   ---------   ---------
  
                                                                         $   1,895   $   1,652   $   1,416
                                                                         =========   =========   =========
</TABLE>

  For financial statement purposes, the Company records interest expense on
  deposits net of early withdrawal penalties which amounted to $0, $5,000 and
  $5,000 for the years ended June 30, 1997, 1996 and 1995, respectively.

  At June 30, 1997 and 1996, the Company had $2,423,000 and $2,287,000,
  respectively, of deposit accounts with balances of $100,000 or more. The
  Company did not have brokered deposits at June 30, 1997 or 1996. Deposits in
  excess of $100,000 are not federally insured.

  The Company has pledged mortgage-backed certificates and securities, when
  requested by depositors, for deposits of $100,000 or more.

Note G.  Federal Home Loan Bank Advances

  The Company entered into a FHLB advance agreements on December 19, 1995. This
  agreement covered terms for FHLB advances and collateral requirements. The
  advances are secured by FHLB stock and a portion of qualified mortgage loans
  of the Company. The Company had $7,958,000 and $1,608,000 in advances with
  $35,000 and $7,000 of accrued interest payable as of June 30, 1997 and 1996,
  respectively.

  At June 30, 1997, the advances consisted of the following:

      Fixed rate advance maturing February 21, 2000 at 5.48% rate of interest,
      payable monthly, in the amount of $1,500,000.

      Fixed rate advance maturing July 15, 1997 at 5.72% rate of interest,
      payable monthly, in the amount of $1,468,000.

      Daily advance at June 30, 1997 of $4,990,000 at 6.74% rate of interest
      which can adjust daily.

                                       35
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note G.  Federal Home Loan Bank Advances

  At June 30, 1997, the advances consisted of the following:
 
       Fixed rate advance maturing February 21, 2000 at 5.48% rate of interest,
       payable monthly, in the amount of $1,500,000.

       Fixed rate advance maturing July 15, 1997 at 5.72% rate of interest,
       payable monthly, in the amount of $1,468,000.

       Daily advance at June 30, 1997 of $4,990,000 at 6.74% rate of interest
       which can adjust daily.

  At June 30, 1996, the advances consisted of the following:

       One year fixed rate advance maturing April 29, 1997 at 5.93% rate of
       interest, payable monthly, in the amount of $790,000.

       One year fixed rate advance maturing May 16, 1997 at 5.98% rate of
       interest, payable monthly, in the amount of $468,000.

       Daily advance of $350,000 at 5.50% rate of interest which can adjust
       daily. The Bank received its first advance on June 18, 1996 for $200,000
       and had an additional borrowing on June 24, 1996 to $350,000.

  The average outstanding balance on the advances was $5,412,000 and $205,000,
  with weighted average interest rate of 5.75% and 5.83% for the years ended
  June 30, 1997 and 1996, respectively. Interest expense on the advances
  amounted to $311,000, $12,000, and $0 for the years ended June 30, 1997, 1996,
  and 1995, respectively.

Note H.  Regulatory Matters

  The Company is regulated by the Board of Governors of the Federal Reserve
  System ("FRB") and is subject to securities registration and public reporting
  regulations of the Securities and Exchange Commission. The Bank is regulated
  by the Federal Deposit Insurance Corporation ("FDIC") and the Illinois
  Commissioner of Banks and Real Estate (the "Commissioner").

  The Bank is subject to the capital requirements of the FDIC and the
  Commissioner. The FDIC requires the Bank to maintain minimum ratios of Tier 1
  capital to total risk-weighted assets and total capital to risk-weighted
  assets of 4% and 8%, respectively. Tier 1 capital consists of total
  shareholders' equity calculated in accordance with generally accepted
  accounting principles less intangible assets, and total capital is comprised
  of Tier 1 capital plus certain adjustments, the only one of which is
  applicable to the Bank is the allowance for possible loan losses. Risk-
  weighted assets refer to the on- and off-balance sheet exposures of the Bank
  adjusted for relative risk levels using formulas set forth in FDIC
  regulations. The Bank is also subject to a FDIC leverage capital requirement,
  which calls for a minimum ratio of Tier 1 capital (as defined above) to
  quarterly average total assets of 3% to 5%, depending on the institution's
  composite ratings as determined by its regulators.


                                       36
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note H.  Regulatory Matters

   At June 30, 1997 and 1996, the Bank was in compliance with all of the
   aforementioned capital requirements as summarized below.
   <TABLE>
   <CAPTION>
                                                                                                               At June 30,
                                                                                                        -------------------------
                                                                                                           1997          1996
                                                                                                        -----------   -----------
                                                                                                                (1,000's)
                                                                                                        -------------------------
   <S>                                                                                                  <C>           <C> 
   Tier I Capital:
     Common stockholders' equity                                                                        $     6,499   $     7,302
     Unrealized holding loss (gain) on securities
      available for sale                                                                                       (278)         (142)
     Real estate held for sale                                                                                  (45)          (49)
                                                                                                        -----------   -----------
        Total Tier I capital                                                                            $     6,176   $     7,111
                                                                                                        ===========   ===========
   Tier II Capital:
     Total Tier I capital                                                                               $     6,176   $     7,111
     Qualifying allowance for loan losses                                                                       302           227
                                                                                                        -----------   -----------
        Total capital                                                                                   $     6,478   $     7,338
                                                                                                        ===========   ===========
   Risk-weighted assets                                                                                 $    39,244   $    28,894
   Fourth quarter average assets                                                                        $    57,520   $    41,603

</TABLE> 

<TABLE> 
<CAPTION> 
                                                                                                          To be Well Capitalized
                                                                                                             under the Prompt
                                                                              For Capital                   Corrective Action
                                                   Actual                   Adequacy Purposes                  Provisions
                                         -------------------------     ---------------------------     ---------------------------
                                           Amount         Ratio          Amount           Ratio           Amount          Ratio
                                         -----------   -----------     -----------     -----------     -----------     -----------
<S>                                      <C>           <C>             <C>             <C>             <C>             <C> 
As of June 30, 1997:                                                                                
 Total Risk-Based Capital                                                                           
  (to Risk-Weighted Assets)              $     6,478         16.51%    $     3,140     >       8.0%    $     3,924     >       10.0%
 Tier I Capital                                                                        -                               -    
  (to Risk-Weighted Assets)                    6,176         15.74%          1,570     >       4.0%          2,355     >        6.0%
 Tier I Capital                                                                        -                               -    
  (to Average Assets)                          6,176         10.74%          2,301     >       4.0%          2,876     >        5.0%
As of June 30, 1996:                                                                   -                               -    
 Total Risk-Based Capital                                                                                                   
  (to Risk-Weighted Assets)                    7,338         24.40%          2,312     >       8.0%          2,889     >       10.0%
 Tier I Capital                                                                        -                               -    
  (to Risk-Weighted Assets)                    7,111         24.61%          1,156     >       4.0%          1,734     >        6.0%
 Tier I Capital                                                                        -                               -    
  (to Average Assets)                          7,111         17.10%          1,664     >       4.0%          2,080     >        5.0%
                                                                                       -                               -    
</TABLE>   

At the time of the conversion of the Bank to a stock organization, a special
liquidation account was established for the benefit of eligible account holders
and the supplemental eligible account holders in an amount equal to the net
worth of the Bank.  The special liquidation account will be maintained for the
benefit of eligible account holders and the supplemental eligible accounts
holders who continue to maintain their accounts in the Bank after the conversion
on September 27, 1995.  In the event of a complete liquidation, each eligible
and the supplemental eligible accounts holders will be entitled to receive a
liquidation distribution from the liquidation account in an amount proportionate
to the current adjusted qualifying balances for accounts then held.  With the
reorganization completed on September 27, 1996, this liquidation account became
part of stockholders' equity for the Company under the same terms and conditions
as if the reorganization had not occurred.  The Company may not declare or pay
cash dividends on or repurchase any of its common stock if stockholders' equity
would be reduced below applicable regulatory capital requirements or below the
special liquidation account.

                                       37
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note H.  Regulatory Matters

   Subject to applicable law, the Boards of Directors of the Company and the
   Bank may each provide for the payment of dividends. Future declarations of
   cash dividends, if any, by the Company may depend upon dividend payments by
   the Bank to the Company. Subject to regulations of the Commissioner, the Bank
   may not declare or pay a cash dividend if its stockholder's equity would
   thereby be reduced below either the aggregate amount then required for the
   liquidation account or the minimum regulary capital requirements imposed by
   federal and state regulations. The Bank may not declare or pay a cash
   dividend to the Company in excess of 100% of its net income to date, less
   dividends paid, during the current calendar year plus the two preceding
   year's net income less any dividends paid or declared during the two period
   years without prior regulatory approval.

   Retained earnings at June 30, 1997 includes approximately $181,000 for which
   federal income tax has not been provided, which is adjusted annually. The
   Bank is allowed a special bad debt deduction limited generally to 8 percent
   of otherwise taxable income and subject to certain limitations based on
   aggregate loans and savings account balances at the end of the year. If the
   amounts that qualify as deductions for federal income tax purposes are later
   used for purposes other than for bad debt losses, they will be subject to
   federal income tax at the then current corporate rate. The unrecorded
   deferred tax liability on the above amount is approximately $62,000.

Note I.  Income Tax

   The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
 
                            Years Ended June 30,
                          ------------------------
                           1997     1996     1995
                          ------   ------   ------
                                 (1,000's)
                          ------------------------
<S>                       <C>      <C>      <C>
 Currently: Federal        ($155)    $ 96     $ 86
            State              0        0        0
 Deferred:  Federal            8        5      (73)
            State              0       10       (6)
                           -----     ----     ----
 
                           ($147)    $111     $  7
                           =====     ====     ====
</TABLE>

Income tax expense (benefit) for the years ended June 30, 1997, 1996, and 1995
has been provided at an effective rate of approximately (37.32%), 38.40% and
10.29%, respectively.  An analysis of such expense for the three years setting
forth the reasons for the variations from the federal statutory rates is as
follows:
<TABLE>
<CAPTION>
                                                              Years Ended June 30,
                                                            ------------------------
                                                             1997     1996     1995
                                                            ------   ------   ------
                                                                   (1,000's)
                                                            ------------------------
    <S>                                                     <C>      <C>      <C>
    Computed tax at statutory rates                          ($134)    $ 99      $12
    Increase (decrease) in tax expense resulting from:
       Tax credits                                             (25)       0        0
       Tax exempt income - net                                  (3)      (4)      (5)
       Other                                                    15       16        0
                                                             -----     ----      --- 
 
    Income tax expense (benefit)                             ($147)    $111      $ 7
                                                             =====     ====      ===
</TABLE>

                                       38
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note I.  Income Tax

  The tax effects of temporary differences that give rise to the deferred tax
  assets and deferred tax liabilities at June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                              June 30,
                                         -----------------
                                          1997      1996
                                         -------   -------
                                              (1,000's)
                                         -----------------
      <S>                                <C>       <C>
      Deferred tax assets:                        
       Allowance for loan losses         $    32   $     6
       Deferred loan fees                      6        11
       Severance agreement                    30        80
       Other                                   1         1
                                         -------   -------
                                              69        98
                                         -------   -------
      Deferred tax liabilities:                   
        Unrealized gains on                       
         securities available for sale       149        76
        FHLB stock                             9        17
        Premises and equipment                 8        18
        Allowance for loan losses              0         0
        Other                                  0         3
                                         -------   -------
                                             166       114
                                         -------   -------
                                                  
          Net deferred tax liabilities   $    97   $    16
                                         =======   =======
</TABLE>
  No valuation allowance was required for deferred tax assets at June 30, 1997
  or 1996.

Note J.  Employee Benefit Plans

  The Company had a profit sharing plan and defined contribution pension plan
  that covered substantially all employees. Contributions to the profit sharing
  plan were at the discretion of the Board of Directors. Contributions to the
  defined contribution pension plan are based on a percentage of eligible
  compensation. Pension cost for both plans included current service costs,
  which were accrued and funded on a current basis. Pension expense for both
  plans charged to operations for the years ended June 30, 1995 was $29,000.
  These plans were terminated during 1996.

  The Company established a director retirement plan, which was effective
  January 1, 1995, that covers all nonemployee directors. Under this plan, each
  director will receive a retirement benefit for ten years, following retirement
  from the Board, based on the product of the benefit percentage, vesting
  percentage, and $500. Each participant will earn a 5% benefit percentage per
  each year served. Vesting percentage is 33 1/3% per year served after the date
  of conversion. Benefit and vesting percentages will be accelerated to 100% for
  board members with 10 years of service and who have reached age 70, death,
  disability, or change in control. Upon death of a participant of this plan, a
  lump sum payment of 50% of the present value of the plan benefit shall be paid
  to the surviving spouse or estate. Expense for this plan amounted to $25,000
  for the year ended June 30 1997.

  During 1996, the Company entered into three year employment contracts with
  three members of management establishing a base compensation amount and
  benefits available to these employees. These contracts include a provision for
  termination, without just cause following, a change in control. If termination
  occurs within twelve months following a change in control, the employee will
  receive 2.99 times the base compensation.

  During the current year, the Company has established a 401(k) retirement
  savings plan for the fiscal year beginning July 1, 1997. The plan includes all
  employees that meet the plan requirements of hours of service and age
  limitations. The plan contains a matching provision of 50% of the
  participant's eligible compensation which does not exceed 4% of compensation.
  The plan contains a five year vesting schedule after the initial service year.
  The plan includes all prior years of service with the Company for vesting
  purposes.


                                       39
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note K.  Economic Dependency

  The Company is a nondiscriminatory lender in its market area as defined by the
  Bank's community reinvestment policy. The Company is a full service bank in
  Effingham County. The Company has no economic dependency other than the
  general market area. Concentration of credit risk has been disclosed in Note C
  concerning lending portfolio.

Note L.  Commitments and Contingencies

  In the ordinary course of business, the Company has various outstanding
  commitments and contingent liabilities that are not reflected in the
  accompanying consolidated financial statements. In addition, the Company is a
  defendant in certain claims and legal actions arising in the ordinary course
  of business. In the opinion of management, after consultation with legal
  counsel, the ultimate disposition of these matters is not expected to have a
  material effect on the consolidated financial statements of the Company. For
  the year ended June 30, 1997, the Company accrued $50,000 for settlement of a
  legal matter with a former employee.

  The Company had outstanding firm commitments to originate mortgage loans as
  follows:
  <TABLE>
  <CAPTION>
 
                                                           June 30,
                                                        --------------
                                                         1997    1996
                                                        ------  ------
                                                          (1,000's)
                                                        --------------
        <S>                                             <C>     <C>
        Fixed rate                                      $2,555  $  624
        Variable rate                                        0     968
                                                        ------  ------

                                                        $2,555  $1,592
                                                        ======  ======
  </TABLE>

  Interest rate ranges for fixed rate loan commitments at June 30, 1997 and 1996
  ranged from 7.75% to 9.50%. Interest rate ranges for variable rate loan
  commitments at June 30, 1996 were 6.50% to 7.75%. As of June 30, 1997 and
  1996, the Company had unused lines of credit in the amount of $2,166,000 and
  $8,000, respectively.

  There were no outstanding commitments to purchase or sell securities at June
  30, 1997 and 1996.

  The Company is a party to financial instruments with off-balance-sheet risk in
  the normal course of business to meet the financing needs of its customers.
  These financial instruments include commitments to extend credit. These
  instruments involve, to varying degrees, elements of credit and interest rate
  risk in excess of the amounts recognized in the consolidated statements of
  financial condition.

  The Company's exposure to credit loss in the event of nonperformance by the
  other party to the financial instruments for commitments to extend credit is
  represented by the contractual notional amount of these instruments. The
  Company uses the same credit policies in making commitments and conditional
  obligations as it does for on-balance-sheet instruments.

  Commitments to extend credit are agreements to lend to a customer as long as
  there is no violation of any condition established in the contract.
  Commitments generally have fixed expiration dates or other termination clauses
  and may require payment of a fee. Since many of the commitments are expected
  to expire without being drawn upon, the total commitment amounts do not
  necessarily represent future cash requirements. The Company evaluates each
  customer's creditworthiness on a case-by-case basis. The amount and type of
  collateral obtained, if deemed necessary by the Company upon extension of
  credit, varies and is based on management's credit evaluation of the
  counterparty.

  In September, 1996, the FDIC imposed the one-time assessment on all SAIF
  insured deposits as of March 31, 1995. The Bank has included the FDIC
  assessment in the amount of $207,632 as SAIF deposit insurance in the
  consolidated statements of income for the year ended June 30, 1997.


                                       40
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note M.  Related Parties

  The Bank has entered into transactions with its directors, key management and
  their affiliates (Related Parties). Such transactions were made in the
  ordinary course of business on substantially the same terms and conditions,
  including interest rates and collateral, as those prevailing at the same time
  for comparable transactions with other customers, and did not, in the opinion
  of management, involve more than normal credit risk or present other
  unfavorable features. A summary of loans to related parties is as follows:
  <TABLE>
  <CAPTION>
                                                           June 30,
                                                      ------------------
                                                        1997      1996
                                                      --------  -------- 
                                                           (1,000's)
                                                      ------------------
    <S>                                               <C>       <C>
 
    Balance                                           $    171  $    160
    New loans                                               61        54
    Repayment                                              (31)      (43)
                                                      --------  -------- 
 
    Balance                                           $    201  $    171
                                                      ========  ========
   </TABLE>
 
Note N.  Employee Stock Ownership Plan (ESOP)

  In connection with the conversion to the stock form of ownership, the Board of
  Directors established an employee stock ownership plan (ESOP) for the
  exclusive benefit of participating employees. Employees age 21 or older who
  have completed one year of service are eligible to participate. Upon the
  issuance of the common stock, the ESOP acquired 40,204 shares of $1 par value
  common stock at the subscription price of $10.00 per share. The Company makes
  contributions to the ESOP equal to the ESOP's debt service less dividends
  received by the ESOP. All dividends received by the ESOP are used to pay debt
  service. The ESOP shares initially were pledged as collateral for its debt. As
  the debt is repaid, shares are released from collateral and allocated to
  active employees, based on the proportion of debt service paid in the year.
  The Company accounts for its ESOP in accordance with the AICPA's Statement of
  Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and the
  shares are released from collateral, the Company reports compensation expense
  equal to the current market price of the shares released, and the shares
  become outstanding for earnings-per-share calculations. Dividends on allocated
  shares are recorded as a reduction of retained earnings; dividends on
  unallocated ESOP shares are recorded as a reduction of debt or accrued
  interest. ESOP compensation expense was $50,000, $52,000 and $0 for the
  respective years ended June 30, 1997, 1996 and 1995.

  The ESOP shares were as follows:
  <TABLE>
  <CAPTION>
                                                           June 30,
                                                      -------------------
                                                        1997       1996
                                                      --------   --------
                                                            (1,000's)
                                                      -------------------
      <S>                                             <C>        <C>
                                                   
      Allocated shares                                   8,643      4,623
      Shares released for allocation                         0          0
      Unallocated shares                                31,561     35,581
                                                      --------   --------
      Total ESOP shares                                 40,204     40,204
                                                      ========   ========
      Fair value of unallocated shares                $387,000   $427,000
                                                      ========   ========
  </TABLE>

  The ESOP plan shares were purchased by the Bank with the loan proceeds from
  the Stewardson National Bank. This loan is secured by the ESOP plan shares
  with quarterly principal payments of $10,000 and accrued interest. The note is
  for ten years with interest rate of prime plus 1%.

                                       41
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note N.  Employee Stock Ownership Plan (ESOP)

   Following are maturities of the long-term debt:
<TABLE>
<CAPTION>
                                  Amount
                                 ---------
                                 (1,000's)
                                 ---------
          <S>                    <C>
    
          1998                        $ 40
          1999                          40
          2000                          40
          2001                          40
          After June 30, 2001          156
                                      ----
 
                                      $316
                                      ====
</TABLE>

   The balance of the loan was $316,000 and $356,000 with an interest rate of
   8.50% and 8.00% at June 30, 1997 and 1996, respectively. Average outstanding
   balance was $339,000 and $288,000 with a weighted average interest rate of
   8.26% and 7.99% for the respective years ended June 30, 1997 and 1996.
   Interest expense was $28,000, $23,000 and $0 for the respective years ended
   June 30, 1997, 1996 and 1995.

Note O.  Severance Agreement

   On June 16, 1995, the Company and the past Chief Executive Officer (CEO)
   entered into a separation agreement. This agreement included the CEO
   retaining the company car, cash payments for the first three years of the
   agreement of $64,000 and the next seven years of $14,000 on an annual basis.
   These payments are to be made monthly, starting in July of 1995, except for
   the first year in which $20,000 was paid in June of 1995. Health benefits
   included in the agreement were that the Company would pay the group health,
   medical, and life insurance benefits for the CEO that are currently provided
   to the Company's employees. These benefits would cease when the CEO attains
   age 65. The Company's cost of this termination agreement amounted to a net
   present value of $226,000, at an 8% discount rate, as of June 30, 1995. This
   amount is included in other liabilities and in compensation expense at June
   30, 1995. As of June 30, 1997 and 1996, this amount was $135,000 and
   $192,000, respectively. Compensation expense has been reduced by $57,000,
   $34,000 and $0 for the respective years ended June 30, 1997, 1996 and 1995.

Note P.  Stock Options

   The board of directors adopted a stock option and incentive plan which was
   approved by the stockholders at the annual meeting on July 23, 1996. The
   Stock Option and Incentive Plan allows the Company to grant incentive or
   nonqualified stock options to Directors and key employees for an aggregate of
   50,225 shares of the Company's common stock, with an exercise price equal to
   market value of $12.25 per share at the date of the award. The options to
   purchase shares expires ten years after the grant. Effective with the
   approval of this plan, options for 49,225 shares of common stock were awarded
   to key employees and Directors. The options vest at 20% per year with
   immediate vesting in the case of death, disability, or change in control. At
   the Company's sole discretion, they may from time to time grant Stock
   Appreciation Rights "SARs" to employees either in conjunction with, or
   independently of, any options granted under the plan. SARs granted in tandem
   with an ISO must have similar terms and price ass the ISO. Exercise of either
   the SARs or ISO will cancel the other. SARs not in tandem with the ISO, is
   exercised, will entitle the optionee to receive all or a percent of the
   difference between the market value of the Company's shares at the time of
   exercise and market value of the shares at the time of the grant. The
   exercise price as to the ISO and SARs may not be less than market on the date
   of the grant. The first grant date for the ISO shares will be July 23, 1997,
   accordingly there has been no shares exercised or expired for the year ended
   June 30, 1997.

                                       42
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note P. Stock Options

   The Company adopted Statement of Financial Accounting Standards No. 123
   ("SFAS 123"), "Accounting for Stock-Based Compensation", on July 23, 1996.
   SFAS 123 encourages companies to account for stock compensation awards based
   on their fair value at the date the awards are granted. The resulting
   compensation cost would be shown as an expense on the income statement.
   Companies may choose to continue to measure compensation for stock-based
   plans using the intrinsic method of accounting prescribed by APB Opinion No.
   25 ("APB 25"), "Accounting for Stock Issued to Employees." Entities electing
   to continue the accounting prescribed in APB 25 will be required to disclose
   in the notes to the financial statements what net income and earnings per
   share would have been if the fair value-based method of accounting defined in
   SFAS No. 123 had been applied. The Company elected to continue to measure
   compensation cost using APB 25. The proforma net loss and net loss per share
   amounts were not material to the Company in 1997.

Note Q.  Management Recognition Plan

   The Company approved the establishment of the Management Recognition Plan
   "MRP" with the objectives to enable the Company to attract and retain
   personnel of experience and ability in key positions of responsibility. The
   stockholders approved the MRP at the annual meeting on July 23, 1996. Those
   eligible to receive benefits under the MRP will be on a discretionary basis
   and the MRP is a non-qualified plan that will be managed through a separate
   trust. The Company will contribute sufficient funds to the MRP for the
   purchase of up to 20,102 shares of common stock. Automatic grants will be
   made to the nonemployee directors, with two years continuous service prior to
   the effective plan date, of the lesser of 5% of the plan shares per Director
   or 30% of the plan shares in the aggregate. Nonemployee directors who join
   the Board within the two year period before the effective date or after the
   effective date shall receive up to 2% of the plan shares. These awards will
   vest 20% on each anniversary date except in the case of participant's death
   or disability where all shares awarded will vest immediately. The Company
   intends to expense the MRP awards over the years during which the shares are
   payable, based on the market value of the common stock at the time of the
   grant. The Company, on July 8, 1997, purchased 13,400 shares of its stock for
   $169,000. These shares will be used to fund the MRP. Compensation expense
   related to the MRP was $52,000 for the year ended June 30, 1997.

Note R.  Fair Value of Financial Instruments

   The estimated fair value amounts have been determined by the Company using
   available market information and appropriate valuation methodologies.
   However, considerable judgment is required to interpret market data to
   develop the estimates of fair value. Accordingly, the estimates presented
   herein are not necessarily indicative of the amounts the Company could
   realize in a current market exchange. The use of different market assumptions
   and/or estimation methodologies may have a material effect on the estimated
   fair value amounts.

   For cash and cash equivalents, Federal Home Loan Bank stock and accrued
   interest receivable, the carrying value is a reasonable estimate of fair
   value. The fair value of investment securities is based on quoted market
   prices,, dealer quotes and prices obtained from independent pricing services.
   The fair value of loans receivable is estimated based on present values using
   the Bank's current pricing structures to approximate current entry-value
   interest rates considering anticipated prepayment speeds, maturity and credit
   risks.

   The fair value of demand deposit accounts, NOW accounts, savings accounts and
   money market deposits, and fixed-maturity certificates of deposit is
   estimated using the rates currently offered for deposits of similar remaining
   maturities at the reporting date. The fair value of FHLB advances and other
   borrowings are estimated using rates currently available for debt with
   similar terms and remaining maturities. For advance payments by borrowers for
   taxes and insurance and accrued interest payable the carrying value is a
   reasonable estimate of fair value. Commitments are generally made at
   prevailing interest rates at the time of funding and, therefore, there is no
   difference between the contract amount and fair value.

                                      43
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note R.  Fair Value of Financial Instruments

   The fair value estimates presented herein are based on pertinent information
   available to management as of June 30, 1997 and 1996. Although management is
   not aware of any factors that would significantly affect the estimated fair
   value amounts, such amounts have not been comprehensively revalued for
   purposes of these financial statements since the reporting date and,
   therefore, current estimates of fair value may differ significantly from the
   amounts presented herein.

   The estimated fair value of the Company's financial instruments were are as
follows:
<TABLE>
<CAPTION>
                                                                    June 30,
                                                      ------------------------------------
                                                             1997               1996
                                                      -----------------  -----------------
                                                      Carrying   Fair    Carrying   Fair
                                                       Amount    Value    Amount    Value
                                                      --------  -------  --------  -------
                                                                     1,000's
                                                      ------------------------------------
<S>                                                   <C>       <C>      <C>       <C>
                ASSETS
 Cash and interest bearing deposits                    $ 2,475  $ 2,475   $ 1,396  $ 1,396
 Securities available for sale                           7,925    7,925     6,892    6,892
 Securities held to maturity                               633      633       299      299
 Loans receivable, net                                  45,219   45,306    36,069   36,266
 Accrued interest receivable                               453      453       309      309
 
              LIABILITIES
 Deposits                                               43,662   42,764    36,548   36,545
 FHLB advances and other borrowings                      8,274    8,241     1,964    1,951
 Advances from borrowers for taxes
  and insurance                                             79       79        91       91
 Accrued interest payable                                  154      154       103      103
 Commitments                                                 0    2,555         0    1,592
</TABLE>

Note S.  Parent Company Only Financial Information

   The following condensed statement of financial condition, as of June 30,
   1997, and condensed statement of income and cash flows for the period from
   July 23, 1996 (date of formation) to June 30, 1997, for Community Financial
   Corp. should be read in conjunction with the consolidated financial
   statements and the notes herein.

                  CONDENSED STATEMENT OF FINANCIAL CONDITION
                                 June 30, 1997
<TABLE>
<CAPTION>
                                                   (1,000's)
                                                   ---------
<S>                                                <C>
               ASSETS

Cash and cash equivalent                              $   91
Investment in Illinois Community Bank                  6,499
Investment in Illinois Leasing Corporation               530
Investment in Illinois Financial Corporation               5
Other Assets                                              94
                                                      ------
 
    Total Assets                                      $7,219
                                                      ======
 
   LIABILITIES AND STOCKHOLDERS' EQUITY
 
Accrued expenses                                      $   52
Dividend declared                                         75
Stockholders' equity                                   7,092
                                                      ------
 
     Total Liabilities and Stockholders' Equity       $7,219
                                                      ======
</TABLE>

                                      44
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note S.  Parent Company Only Financial Information

                         CONDENSED STATEMENT OF INCOME
              For the Period from July 23, 1996 to June 30, 1997
                        
<TABLE>
<CAPTION>
                                                     (1,000's)
                                                     ---------
<S>                                                  <C>
INCOME:
  Interest income                                         $  1
                                                          ----
    Total income                                             1
                                                          ----
 
EXPENSES:
  Employee benefits                                         52
  Professional fees                                          4
  Other                                                      8
                                                          ----
    Total expense                                           64
                                                          ----
 
LOSS BEFORE INCOME TAX BENEFIT AND EQUITY IN
  UNDISTRIBUTED EARNINGS OF SUBSIDIARIES                   (63)
 
INCOME TAX BENEFIT                                         (21)
                                                          ----
 
LOSS BEFORE EQUITY IN UNDISTRIBUTED
  EARNINGS OF SUBSIDIARIES                                 (42)
 
EQUITY OF UNDISTRIBUTED EARNINGS OF SUBSIDIARIES:
  Illinois Community Bank                                 (209)
  Illinois Leasing Corporation                               5
  Illinois Financial Corporation                             0
                                                          ----
 
      Net Loss                                           ($246)
                                                          ====
 
</TABLE>

                                      45
<PAGE>
 
               ILLINOIS COMMUNITY BANCORP, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note S.  Parent Company Only Financial Information

                       CONDENSED STATEMENT OF CASH FLOWS
              For the Period from July 23, 1996 to June 30, 1997
<TABLE>
<CAPTION>
                                                                (1,000's)
                                                                ---------
OPERATING ACTIVITIES:
<S>                                                             <C>
  Net loss                                                          ($246)
  Amortization of organization cost                                     8
  Dividends receivable from Illinois Community Bank                   780
  Adjustments to reconcile net loss to net cash provided
    by operating activities:
       Equity in undistributed net loss of subsidiaries               204
       Increase in other assets                                       (23)
       Increase in accrued expenses                                    52
                                                                     ----
         Net cash provided by operating activities                    775
                                                                     ----
 
INVESTING ACTIVITIES:
  Investment in Illinois Leasing Corporation                         (525)
  Investment in Illinois Financial Corporation                         (5)
  Organization cost incurred                                          (79)
                                                                     ----
         Net cash used in investing activities                       (609)
                                                                     ----
 
FINANCING ACTIVITIES:
  Dividends paid                                                      (75)
                                                                     ----
         Net cash used in financing activities                        (75)
                                                                     ----
 
NET INCREASE IN CASH                                                   91
 
Cash beginning of period                                                0
                                                                     ----
 
Cash end of Period                                                   $ 91
                                                                     ====
 
</TABLE>

                                      46
<PAGE>
 
                              BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S>                                      <C>                         <C>
GERALD E. LUDWIG                         MILTON HINKLE               ERNEST E. GARBE
Chairman of the Board                    Retired                     Retired
 
DOUGLAS A. PIKE                          FREDERICK C. SCHAEFER       GARRETT M. ANDES, II
President and Chief Executive Officer    Ticket Agent for Greyhound  Self-employed
 
RONALD R. SCHETTLER                      SCOTT KABBES                MICHAEL F. SEHY
Senior Vice President                    President                   Self-employed
                                         Eaglesoft, Inc.
</TABLE> 
 
 
                              EXECUTIVE OFFICERS

GERALD E. LUDWIG                           RONALD R. SCHETTLER
Chairman of the Board                      Senior Vice President and Secretary

DOUGLAS A. PIKE                            JOHN H. LEONARD
President and Chief Executive              Senior Vice President and Chief
Officer                                    Credit Officer

DONNIE U. DUEKER
Vice President and Trust Officer


 
                               OFFICE LOCATIONS
 
       Main Office                             Mid-America Office
       210 E. Fayette Avenue                   1300 Keller Drive
       Effingham, Illinois 62401-3613          Effingham, Illinois 62401
 

 
                              GENERAL INFORMATION


INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Larsson Woodyard & Henson LLP
702 E. Court Street
Paris, Illinois  61944

SPECIAL COUNSEL
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W.  Suite 700
Washington, D.C.  20036

ANNUAL MEETING
The Annual Meeting of Shareholders will be held on November 18, 1997 at 2:00
p..m. at the Ramada Inn on Keller Drive, Effingham, Illinois

TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey  07016
(908) 272-8511

SHAREHOLDER INQUIRIES AND AVAILABILITY OF 10-KSB REPORT

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
JUNE 30, 1997 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED WITHOUT CHARGE TO SHAREHOLDERS AS OF THE RECORD DATE FOR THE 1997
ANNUAL MEETING UPON WRITTEN REQUEST TO INVESTOR RELATIONS, ILLINOIS COMMUNITY
BANCORP, INC., 210 E. FAYETTE AVENUE, EFFINGHAM, ILLINOIS 62401-3613

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