<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20552
                                  FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
Mark One

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the Fiscal Year Ended June 30, 1996

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from ____________ to _______________.


                        ILLINOIS COMMUNITY BANCORP, INC.
         ------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

          United States                                         Applied for
---------------------------------                            -----------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

210 E. Fayette Avenue, Effingham, Illinois                       62401-3613
--------------------------------------------                 -----------------
  (Address of principal executive offices)                        Zip Code

              Registrant's telephone number, including area code:
                                (217) 347-7127
                               -----------------

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

          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $1.00 per share
                    ---------------------------------------
                                (Title of Class)

      Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES   X    NO       (with Office of Thrift Supervision)
    -----     -----

      Transitional small business disclosure format (check one): YES  X  NO
                                                                     ---    --- 

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein.  [  ]

      State issuer's revenues for its most recent fiscal year (year ended 
June 30, 1996): $3.0 million.

The registrant's voting stock is listed on the National Daily Quotation System
"Pink Sheets" published by the National Quotation Bureau, Inc.  The aggregate
market value of the voting stock held by nonaffiliates of the registrant, based
on the $11.5 per share closing sales price of the registrant's common stock as
quoted on the "Pink Sheets" on September 24, 1996, was $4,607,774.  For purposes
of this calculation, it is assumed that directors and officers of the registrant
are affiliates.  As of September 20, 1996, the registrant had 502,550 shares of
common stock outstanding, of which 101,874 were held by affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

      1.  Portions of Annual Report to Stockholders for the Fiscal Year Ended
June 30, 1996.  (Parts I, II and IV)

      2.  Portions of Proxy Statement for the 1996 Annual Meeting of
Stockholders.  (Part III)

                            Exhibit Index on Page 40
<PAGE>
 
                                    PART I

Item 1.  Description of Business
--------------------------------

General

      The Company.  Illinois Community Bancorp, Inc. (the "Company"), an
Illinois corporation, was organized by Illinois Guarantee Savings Bank, FSB
("Illinois Guarantee" or the "Bank") 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. The Company has no significant assets other than capital
stock of the Bank and $100,000 retained by the Company following the
Reorganization. The Company is a unitary savings and loan holding company
subject to regulation by the OTS. The Company's principal business is the
business of the Bank and its subsidiary. For that reason, and because the
Reorganization was completed subsequent to the end of the 1996 fiscal year,
substantially all of the discussion in this Form 10-KSB relates to the
operations of the Bank and its subsidiary.

      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.

      The Bank.  Illinois Guarantee is a federally chartered stock savings bank
with its sole office in Effingham, Illinois. 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. Illinois Guarantee 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's office is located at 210 E. Fayette Avenue,
Effingham, Illinois 62401-3613, and its telephone number is (217) 347-7127.
Illinois Guarantee considers its primary market area to be its home county of
Effingham. Illinois Guarantee serves its market area through its sole office in
Effingham, Illinois. The Bank is planning to open a new branch office in
Effingham. See "New Business Strategies."

      The business of Illinois Guarantee 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. Illinois Guarantee
also makes multi-family and commercial real estate loans, and consumer loans,
including automobile loans and savings account loans. Illinois Guarantee
emphasizes the origination of residential real estate mortgage loans with
adjustable interest rates and fixed-rate loans with shorter terms (15 years or
less) and makes other investments which are responsive to changes in interest
rates, and which allow Illinois Guarantee 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. Certain changes
have been made, and are being considered relating to the insurance assessment
paid by the Bank for the issuance of the Bank's deposits by the FDIC. For more
information, see "Regulation -- Deposit Insurance." The FHLB of Chicago, of
which Illinois Guarantee 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 Office of Thrift Supervision ("OTS") and the FDIC. Such
regulation is intended primarily for the protection of depositors.

                                       1
<PAGE>
 
Changes in Key Management Personnel

      Effective April 18, 1995, President and Chief Executive Officer Donald J.
Wente resigned from his positions of employment with the Bank, and was replaced
by Chairman of the Board Gerald E. Ludwig, who was also appointed to serve as
Chief Executive Officer of the Bank. On June 20, 1995, the Board promoted Vice
President of Lending Douglas A. Pike to the positions of President and Chief
Operating Officer of the Bank. On June 12, 1995, the Bank hired Ronald R.
Schettler as Senior Vice President in charge of administration and investments.
In May 1996, the Bank hired John H. Leonard as Senior Vice President and Chief
Credit Officer.

New Business Strategies

      Since new management joined the Bank in mid 1995, the Bank has adopted
various new business strategies intended to increase its presence in its primary
market area of Effingham County, Illinois ("Primary Market Area"), thereby
increasing its lending activities and sources of income. These steps include (i)
hiring experienced banking personnel including a new chief credit officer (now
President Douglas Pike, who continues to engage in the Bank's lending
activities), a chief administrative officer and various other employees to
support the Bank's expanded operations; (ii) instituting a marketing program to
contact local realtors, builders, auto dealers and others in order to increase
the origination of one-to-four-family residential loans, construction loans and
permanent loans secured by multi-family and commercial real estate, and consumer
loans, including direct and indirect automobile loans, through arrangements with
local auto dealers; (iii) planning the opening of a new branch office (expected
to open in the fourth calendar quarter of 1996) in the northern section of its
Primary Market Area, an area of Effingham, Illinois which is experiencing growth
in commercial and retail activities, and is in close proximity to expanding
residential areas; (iv) installing automated teller machines ("ATMs") at its
main office and the new branch office, as well as other possible "stand alone"
locations; and (v) offering new products to its customers and potential
customers, including a credit and debit card program. The Company plans to form
two corporate subsidiaries to conduct leasing activities and financial services.

Market Area

      Illinois Guarantee's office is located in the city of Effingham, Effingham
County, Illinois. The Bank considers its Primary Market Area to be its home
county of Effingham. The population of Effingham County is 31,704 (based on the
1990 Census). Effingham is located in central Illinois, at the "crossroads" of
I-57 (major North-South interstate) and I-70 (major East-West interstate), being
97 miles east from St. Louis, Missouri, 141 miles west of Indianapolis, Indiana,
and 211 miles south of Chicago, Illinois. Employment in Effingham County is
reliant on the local manufacturing and distribution industries, with agriculture
and agribusiness serving as important elements of the economy. The major
employers in the Effingham area are Fedders USA, with approximately 1,200
employees, Crossroads Press, with 919 employees, Petty Company, with 690
employees and St. Anthony's Memorial Hospital, with 679 employees. Other major
employers include Three Z Printing, Consolidated Communications and Stevens
Industries, Inc.

Lending Activities

      General.  Illinois Guarantee emphasizes the origination of adjustable rate
loans and short term (15 years or less) fixed rate loans, in order to manage the
interest rate sensitivity of its interest-earning assets. The principal lending
activity of Illinois Guarantee is the origination of adjustable rate mortgage
loans for the purpose of financing the construction and acquisition of single-
family residential properties. Illinois Guarantee also originates construction
and permanent loans on multi-family and commercial real estate, as well as
automobile loans, home improvement loans and other consumer loans. At June 30,
1996, loans with adjustable rates or terms of five years or less totaled $19.9
million, or 54.53% of Illinois Guarantee's total loans.

      In February 1995, the Bank hired a new Vice President of Lending, Douglas
Pike, to expand and increase the Bank's lending activities. Mr. Pike was
appointed President of the Bank in June 1995, and continues to manage the Bank's
lending operations. Mr. Pike has been involved in commercial and consumer
lending, including automobile lending, since 1986 through his employment with
two commercial banks located in Effingham, Illinois. Mr. Pike has been active in
contacting local realtors, builders, auto dealers and others in order to
generate the origination of one-to-four-family residential loans, construction
loans and permanent loans on single-family, multi-

                                       2
<PAGE>
 
family and commercial real estate, and consumer loans including automobile
lending on an indirect basis, through relationships established with five local
auto dealers. These activities have resulted in increased loan originations for
the Bank, particularly the origination of construction and permanent loans on
one- to four-family and multi-family residential real estate.

      The Bank's five largest loans to one borrower, outstanding as of June 30,
1996, ranged from $790,000 to $468,000. See "Regulation -- Limits on Loans to
One Borrower."

      Loan Portfolio.  Set forth below is selected data relating to the
composition of Illinois Guarantee's loan portfolio by type of loan on the dates
indicated.

<TABLE>
<CAPTION>
                                                    At June 30,
                                         ----------------------------------
                                               1996              1995
                                         ----------------  ----------------
                                         Amount      %     Amount      %
                                         -------  -------  -------  -------
                                               (Dollars in thousands)

<S>                                      <C>      <C>      <C>      <C>
Real estate loans --              
  One- to four-family residential......  $22,952   63.18%  $16,982   76.64%
  Multi-family residential.............    1,036    2.85       392    1.77
  Agricultural.........................    1,839    5.06       600    2.71
  Commercial...........................    3,604    9.92     2,182    9.85
  Construction                    
    One to four residential............    1,015    2.79        40    0.18
    Multi-family.......................      292    0.80        --      --
                                         -------  ------   -------  ------
                                          30,738   84.60    20,196   91.15
                                         -------  ------   -------  ------
                                  
Commercial business....................    1,181    3.26       180    0.81
Consumer loans --                 
  Automobiles..........................    3,800   10.46     1,427    6.44
  Other................................      610    1.68       354    1.60
                                         -------  ------   -------  ------
                                           4,410   12.14     1,781    8.04
                                         -------  ------   -------  ------
                                  
Total..................................   36,329  100.00%   22,157  100.00%
                                                  ======            ======
                                  
Less:                             
  Loans in process.....................        6               118
  Deferred loan fees...................       27                18
  Allowance for loan losses............      227               175
                                         -------           -------
     Total, net........................  $36,069           $21,846
                                         =======           =======
 
</TABLE>

      During the year ended June 30, 1996, the Bank made seven loans in excess
of $250,000 for a total of $3.4 million. Three of these loans have adjustable
rates ranging from 8.25% to 9.50% with outstanding balances of $300,000 for a
multi-family dwelling and $1.2 million to commercial hotels. The remaining four
loans are fixed rate with terms of one year or less with an interest rate range
from 7.875% to 8.25% with outstanding balances of $1.3 million secured by land
and $563,000 of commercial construction loans.

      One- to Four-Family Residential Real Estate Lending.  The primary emphasis
of Illinois Guarantee's lending activity is the origination of conventional
mortgage loans on one- to four-family residential dwellings. Most loans are
originated in amounts up to $100,000 on single-family properties located in
Illinois Guarantee's primary market area of Effingham County. As of June 30,
1996, loans on one- to four-family residential properties accounted for 65.97%
of Illinois Guarantee's loan portfolio. Illinois Guarantee's mortgage loan
originations are for terms of from 10 years to up to 30 years, amortized on a
monthly basis with interest and principal due each month. Residential real
estate loans often remain outstanding for significantly shorter periods than
their contractual terms as borrowers may refinance or prepay loans at their
option, without penalty. Conventional residential mortgage loans granted by
Illinois Guarantee customarily contain "due-on-sale" clauses which permit
Illinois Guarantee to accelerate the indebtedness of the loan upon transfer of
ownership of the mortgaged property.

                                       3
<PAGE>
 
      Illinois Guarantee uses standard Federal Home Loan Mortgage Corporation
("FHLMC") documents, to allow for the sale of loans in the secondary mortgage
market. Illinois Guarantee's lending policies generally limit the maximum loan-
to-value ratio on mortgage loans secured by owner-occupied properties to 95% of
the lesser of the appraised value or purchase price of the property, with the
condition that private mortgage insurance is required on loans with a loan-to-
value ratio in excess of 80%. The majority of loans in Illinois Guarantee's loan
portfolio have loan-to-value ratios of 80% or less.

      Illinois Guarantee offers adjustable-rate mortgage loans with terms of up
to 30 years. Adjustable rate loans offered by Illinois Guarantee include loans
which reprice annually or provide for an initial three year term, and then
reprice annually. Adjustable rate loans provide for an interest rate which is
2.5% above the interest rate paid on U.S. Treasury securities of a corresponding
term. Illinois Guarantee offers initial discounted interest rates, but borrowers
are qualified based on the loan status following the first interest rate
adjustment.

      Illinois Guarantee retains all adjustable rate mortgages it originates,
which helps reduce Illinois Guarantee's exposure to changes in interest rates.
Illinois Guarantee's adjustable rate mortgages include caps on increases or
decreases of 2% per year, and 6% over the life of the loan. Illinois Guarantee's
adjustable rate mortgage loans contain on open-end provision which permits
Illinois Guarantee to lend additional amounts in later years, in the form of
home improvement loans, which are secured by the original first mortgage.

      The Bank also originates second mortgage loans on owner-occupied, single
family and one- to four- family residential real estate. Such loans are subject
to the same loan-to-value ratios (when combined with existing loans), as any
other residential real estate loan, at adjustable rates, and over a term not to
exceed 15 years.

      The primary purpose for offering adjustable rate loans is to increase the
interest rate sensitivity of Illinois Guarantee's loan portfolio. However,
because the interest income earned on adjustable rate loans varies with
prevailing interest rates, cash flows from such loans are not as predictable as
cash flows from fixed-rate loans. Further, the annual and lifetime adjustment
limits on the Bank's adjustable rate mortgage loans have the effect of limiting
the sensitivity of those loans to changes in market interest rates and this is
particularly true with respect to loans with initially discounted interest rates
in the event of increases in market rates. The Bank's policy of offering
initially discounted interest rates results in the Bank initially earning
reduced income from such loans. Additionally, there are unquantifiable credit
risks resulting from potential increased costs to the borrower as a result of
repricing of adjustable rate mortgage loans. It is possible that during periods
of rising interest rates, the risk of default on adjustable rate mortgage loans
may increase due to the upward adjustment of interest cost to the borrower.

      During the year ended June 30, 1996, Illinois Guarantee originated $6.6
million, in adjustable rate mortgage loans and $4.3 million in fixed-rate
mortgage loans. Approximately 15.07% of all loan originations during the year
ended June 30, 1996 were refinancings of loans already in Illinois Guarantee's
loan portfolio. At June 30, 1996, Illinois Guarantee's loan portfolio included
$11.8 million in adjustable rate one-to four-family residential mortgage loans
or 32.62% of Illinois Guarantee's loan portfolio, and $11.2 million in fixed-
rate one- to four-family residential mortgage loans, or 30.56% of Illinois
Guarantee's loan portfolio.

      Multi-Family and Commercial Real Estate Loans.  At June 30, 1996, the
Bank's multi-family and commercial real estate loan portfolio consisted of $6.5
million, or 17.91% of total loans. The Bank originated $3.9 million in such
loans during the year ended June 30, 1996 and $363,000 in such loans during the
year ended June 30, 1995. The increase during the year ended June 30, 1996 was
due to business referrals to the Bank of borrowers known personally to members
of management of the Bank for the origination of five loans, all secured by real
estate, raw land or farm land in the Bank's primary market area. The Bank's
commercial real estate loans are secured by office buildings, small retail
establishments, small apartment buildings, raw land and farm land, all located
in Effingham County, Illinois. The Bank's largest loan had an outstanding
balance of $790,000 at June 30, 1996 and was secured by land.

                                       4
<PAGE>
 
      Multi-family and commercial real estate loans generally are originated in
amounts up to 80% of the appraised value of the property for terms of 10 to 20
years. Appraisals are performed by independent fee appraisers. The interest rate
on these loans generally is subject to adjustment on an annual bases and is
calculated by adding a 3.5% margin to the appropriate index (usually the weekly
average one-year U.S. Treasury Bill index).

      Commercial and agricultural real estate lending, as well as multi-family
residential real estate lending entails significant additional risks compared
with one- to four-family residential lending. For example, commercial real
estate loans and multi-family residential real estate loans typically involve
large loan balances to single borrowers or groups of related borrowers, the
payment experience on such loans typically is dependent on the successful
operation of the real estate project, and these risks can be significantly
impacted by supply and demand conditions in the market for commercial office,
retail and warehouse space or multi-family residential units. Agricultural real
estate loans involve a greater degree of risk as payments on such loans depend,
to a larger degree, on the results of operations of the related farm. Consistent
with these increased risks, during the economic slowdown in the late 1980s and
early 1990s the Bank experienced increases in its non-performing commercial real
estate loans and real estate acquired in settlement of such loans. As of June
30, 1996, one of the Bank's commercial real estate loans was not performing.
This loan was for $19,000 with management anticipating no loss on this loan.

      Construction Loans.  Illinois Guarantee, from time to time has engaged in
construction lending to qualified borrowers for construction of one- to four-
family residential, multi-family residential, and commercial properties. Such
loans have converted to permanent financing upon completion of construction.
These properties are located in the Bank's Primary Market Area. At June 30,
1996, the Bank had 13 construction loans outstanding with balances ranging from
$64,000 to $295,000 at that date. Borrowers seeking construction loans must
satisfy all credit requirements which would apply to the Bank's permanent
mortgage loan financing for the subject property.

      As part of the Bank's new business strategies, the Bank expects to be
active in the origination of both construction loans and the succeeding
permanent loans on single-family and multi-family residential real estate and
commercial real estate in the Bank's primary market area. The Bank's new
management has contacted various builders who have experience in constructing
and developing single-family and multi-family residential real estate (four to
eight unit apartment buildings) and commercial real estate in the Bank's Primary
Market Area.

      Construction financing generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate, the
Bank may be required to advance funds beyond the amount originally committed to
permit completion of the development. If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with collateral having a value which is insufficient to assure full repayment.
The Bank has sought to minimize this risk by limiting construction lending to
qualified borrowers (i.e., borrowers who satisfy all credit requirements and
whose loans satisfy all other underwriting standards which would apply to the
Bank's permanent mortgage loan financing for the subject property) in the Bank's
Primary Market Area. In engaging in lending for the construction of multi-family
residential properties, the Bank would be subject to each of these risks, as
well as the risks noted above for multi-family real estate lending.

      Commercial Business Loans.  The Bank originates a limited number of
commercial business loans to local retail establishments and other businesses.
These loans are generally secured by equipment. Such loans totaled $1.2 million
at June 30, 1996 and were performing at that date.

      Commercial business loans involve a greater degree of risk than other
types of lending as payments on such loans are often dependent on successful
operation of the business involved which may be subject to a greater extent to
adverse conditions in the economy. The Bank seeks to minimize this risk through
its underwriting guidelines,

                                       5
<PAGE>
 
which require that the loan be supported by adequate cash flow of the borrower,
profitability of the business and collateral. The maximum loan to value ratio on
a commercial business loan is 75%.

      Consumer Lending.  The Bank's consumer loans consist of savings account
loans, home improvement loans, automobile loans and other consumer loans,
including (from time to time) unsecured lines of credit. At June 30, 1996, the
consumer loan portfolio totaled $4.4 million, or 12.15%, of total loans.
Consumer loans are generally offered for terms of up to five years at fixed
interest rates. Management expects to continue to promote consumer loans as part
of its strategy to provide a wide range of personal financial services to its
customers and as a means to increase the yield on the Bank's loan portfolio.

      The Bank makes loans for automobiles, both new and used, directly to the
borrowers. The loans are generally limited to 80% of the purchase price or the
retail value listed by the National Automobile Dealers Association. The terms of
the loans are determined by the age and condition of the collateral. Collision
insurance policies are required on all these loans, unless the borrower has
substantial other assets and income. At June 30, 1996, the total amount of
automobile loans was $3.8 million. Automobile loans originated during the year
ended June 30, 1996 amounted to $3.9 million.

      As part of the Bank's new business strategies, the Bank may engage in
indirect lending on automobiles through arrangements with five automobile
dealers in Effingham, Illinois. Such loans would be for the purchase of used
automobiles, would have loan to value ratios of up to 100%, and would provide
for terms of up to five years. It is unclear as to how much loan origination
volume these loan arrangements will generate, although the Bank has adopted a
policy of limiting automobile loans to no more than 10% of the Bank's total loan
portfolio. During the year ended June 30, 1996, the Bank originated $3.4 million
in indirect loans on automobiles.

      The Bank also makes savings account loans up to 90% of the amount of the
depositor's savings account balance. The Bank makes other consumer loans, which
may or may not be secured. The term of the loans usually depends on the
collateral. Unsecured loans usually do not exceed $20,000, and have a term not
to exceed one year.

      The Bank intends to continue the origination of consumer loans, and as
indicated above, may increase its origination of such loans. Consumer loans tend
to be originated at higher interest rates than mortgage loans and for shorter
terms. However, consumer loans generally involve more risk than one- to four-
family residential real estate loans. Repossessed collateral for a defaulted
loan (especially for automobile loans) may not provide an adequate source of
repayment of the outstanding loan balance as a result of damage, loss or
depreciation (especially for automobiles), and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower. In
addition, loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Further, the application of various
state and federal laws, including federal and state bankruptcy and insolvency
law, may limit the amount which may be recovered. In underwriting consumer
loans, the Bank considers the borrower's credit history, an analysis of the
borrower's income and ability to repay the loan, and the value of the
collateral. The Bank's risks associated with consumer loans have been further
limited by the modest amount of consumer loans made by the Bank. Despite the
risks noted above, the Bank's level of consumer loan delinquencies generally has
been low. No assurance can be given, however, that the Bank's delinquency rate
on consumer loans will continue to remain low in the future, or that the Bank
will not incur future losses on these activities.

      Loan Commitments.  The Bank makes a 90-day loan commitment to borrowers.
At June 30, 1996, the Bank had 15 variable rate loan commitments for $968,000
and 9 fixed rate loan commitments for $624,000 outstanding for the origination
of one-to four-family residential real estate loans.

      Loan Solicitation and Processing.  Loan originations are derived from a
number of sources, including the Bank's existing customers, referrals, realtors,
advertising and "walk-in" customers at the Bank's office. The Bank does not use
loan brokers.

                                       6
<PAGE>
 
      Upon receipt of a loan application from a prospective borrower, a credit
report and verifications are ordered to verify specific information relating to
the loan applicant's employment, income and credit standing. For all mortgage
loans, an appraisal of real estate intended to secure the proposed loan is
obtained from an independent fee appraiser who has been approved by the Bank's
Board of Directors, or one of the Bank's directors who performs appraisals. Fire
and casualty and earthquake insurance are required on all loans secured by
improved real estate. Insurance on other collateral is required unless waived by
the loan committee. The Board of Directors of the Bank has the responsibility
and authority for the general supervision over the loan policies of the Bank.
The Board has established written lending policies for the Bank.

      Loan applications are accepted at the Bank's office.  The Bank's President
may approve secured loans up to $150,000 and unsecured loans up to $50,000. The
Bank's Loan Committee, which is composed of two non-employee directors and the
Bank's President, may approve all types of loans up to 5% of withdrawable
capital for secured loans and 2% of withdrawable capital for unsecured loans,
provided such loans conform to the Bank's lending policies. All other loans must
be approved by the full Board of Directors. In addition, the full Board of
Directors reviews on a monthly basis, all loans originated by the Bank.

      Interest Rates and Loan Fees.  In addition to earning interest on loans,
Illinois Guarantee also receives income from, among other sources, loan
origination fees, charges on certain deposits and fees related to late payments,
loan modifications and miscellaneous services related to loans. These fees do
not constitute a significant portion of Illinois Guarantee's income from
operations. Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area. The Bank
charges a 1% loan origination fee on new fixed-rate mortgage loans, and a fee of
$250 for adjustable rate loans. The origination fees, net of direct origination
costs, are deferred and amortized into income over the life of the loan. At June
30, 1996, the amount of deferred loan origination fees was $27,000.

                                       7
<PAGE>
 
      Loan Maturity Schedule.  The following table sets forth certain
information at June 30, 1996 regarding the dollar amount of loans maturing in
the Bank's portfolio based on their contractual terms to maturity. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.

<TABLE>
<CAPTION>
                                                                   
                                                       Due after  
                         Due during      Due After      5 years   
                          the year       1 through       after     
                           ending      5 years after    June 30,   
                        June 30, 1997  June 30, 1996      1996       Total
                        -------------  -------------  ------------  -------
                                      (In thousands)

<S>                     <C>            <C>            <C>           <C>
One- to four-family
 residential..........        $   212        $   969     $    --    $ 1,181
Multi-family,                                                     
 commercial real                                                  
  estate and                                                      
   agricultural.......            324          5,376      18,267     23,967
Commercial............          1,518          2,473       2,780      6,771
Consumer and other....            375          4,035          --      4,410
                              -------        -------     -------    -------
    Total.............        $ 2,429        $12,853     $21,047    $36,329
                              =======        =======     =======    =======
</TABLE>

      The next table sets forth at June 30, 1996, the dollar amount of all loans
due one year or more after June 30, 1996 which have predetermined interest rates
and have floating or adjustable interest rates.

<TABLE>
<CAPTION>
                                                Predetermined    Floating or
                                                    Rate       Adjustable Rates
                                                -------------  ----------------
                                                       (In thousands)           
                                           
<S>                                             <C>            <C>
            One- to four-family residential...    $     738         $     443
            Multi-family, commercial real         
             estate and agricultural..........       12,198            11,769
            Commercial........................        3,097             3,674
            Consumer and other................        4,410                --
                                                    -------           -------
               Total..........................    $  20,443         $  15,886
                                                    =======           =======
</TABLE>

                                       8
<PAGE>
 
      Originations, Purchases and Sales of Loans. The following table sets forth
information with respect to originations and sales of loans during the periods
indicated.

<TABLE>
<CAPTION>
                                        Year Ended June 30,
                                       ---------------------
                                       1996             1995
                                       ----             ----  
                                          (In thousands)
<S>                                    <C>         <C>
Loans originated:          
  Real estate loans:       
    One- to four-family..............   $  10,985  $ 3,249
    Multi-family.....................         285       --
    Commercial.......................       3,629      363
  Commercial business................       1,874      220
  Consumer loans and other...........       3,948    2,059
                                        ---------  -------
    Total loans originated...........   $  20,721  $ 5,891
                                        =========  =======
                           
Loans purchased......................
                                        ---------  -------
  Participation loan.................   $ 500,000  $    --
                                        =========  =======
                           
Loans sold:                
  Whole loans........................   $      --  $    51
  Participation loans................          --       --
                                        ---------  -------
     Total loans sold................   $      --  $    51
                                        =========  =======
</TABLE>

      Historically, Illinois Guarantee has sold less than 10% of the loans it
has originated. In January 1995, the Bank sold $51,000 in education loans to the
Student Loan Marketing Association. The Bank may sell loans in whole or a
portion of the loan if it exceeds its legal lending limit. In recent years,
Illinois Guarantee has not purchased any whole loans and has no plans to do so
in the future. However, Illinois Guarantee may in the future, originate fixed-
rate residential mortgage loans and then sell such loans in the secondary
mortgage market to FHLMC.

      Non-Performing Assets, Asset Classification and Allowances for Losses. 
Loans are reviewed on a regular basis and are placed on a non-accrual status
when, in the opinion of management, the collection of principal and interest are
doubtful.

      Real estate acquired by the Bank as a result of foreclosure is classified
as real estate owned until such time as it is sold. When such property is
acquired, it is recorded at the lower of the unpaid principal balance or its
fair value. Any required write-down of the loan to its fair value is charged to
the allowance for loan losses.

                                       9
<PAGE>
 
      The following table sets forth information with respect to Illinois
Guarantee's non-performing assets at the dates indicated. Illinois Guarantee did
not have any restructured loans within the meaning of SFAS No. 15 at the
indicated dates.

<TABLE>
<CAPTION>
                                                                At June 30,
                                                            --------------------
                                                             1996          1995
                                                            ------        ------
                                                               (In thousands)

<S>                                                         <C>           <C>
      Loans accounted for on a non-accrual basis:(1)
       Real Estate:
        Residential.......................................  $  23         $  42
        Commercial........................................     19            --
       Consumer and other.................................     --            --
                                                            -----         -----
         Total............................................  $  42         $  42
                                                            =====         =====

      Accruing loans which are contractually past
       due 90 days or more: (1)
       Real estate:
        Residential.......................................  $ 262         $  29
        Commercial........................................     45            24
       Consumer and other.................................      2            --
                                                            -----         -----
         Total............................................  $ 309         $  53
                                                            =====         =====
      
         Total of non-accrual and 90 days past due loans..  $ 351         $  95
                                                            =====         =====

      Percentage of total loans...........................   0.96%         0.43%
                                                            =====         =====

      Other non-performing assets (2).....................  $  49         $  49
                                                            =====         =====
</TABLE>
      ----------------
      (1)    Non-accrual status denotes loans on which, in the opinion of
             management, the collection of additional interest is unlikely.
             Payments received on a non-accrual loan are applied to the
             outstanding principal balance. The Bank reserves interest on all
             loans 90 days past due, for which, in the opinion of management,
             the collection of this interest is questionable. When payments are
             received on these loans, the payments are applied to reserved
             interest first with any excess applied to principal.
      (2)    Other non-performing assets represents property acquired by the
             Bank through foreclosure or repossession or accounted for as a
             foreclosure in substance. This property is carried at the lower of
             its fair market value or the principal balances of the related
             loan, is classified as real estate held for sale and is not
             included in the Bank's capital calculations.

      At June 30, 1996, the Bank had $42,000 in non-accrual loans, and $309,000
in accruing loans 90 days or more past due. Other non-performing assets at June
30, 1996 represents undeveloped lots held for sale, valued at a total of
$49,000, which the Bank held, pending improvement in the local real estate
market.

      During the year ended June 30, 1996, gross interest income of $3,000 would
have been recorded on loans accounted for on a non-accrual basis if the loans
had been current throughout these periods.

      At June 30, 1996, loans which were not classified as non-accrual, 90 days
past due or restructured but where known information about possible credit
problems of borrowers caused management to have serious concerns as to

                                       10
<PAGE>
 
the ability of the borrowers to comply with present loan repayment terms and may
result in disclosure as non-accrual, 90 days past due or restructured amounted
to $338,000.

      Federal regulations require each savings association to classify its asset
quality on a regular basis. In addition, in connection with examinations of such
savings associations, federal examiners have authority to identify problem
assets and, if appropriate, classify them. An asset is classified substandard if
it is determined to be inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. As a
general rule, the Bank will classify a loan as substandard if the Bank can no
longer rely on the borrower's income as the primary source for repayment of the
indebtedness and must look to secondary sources such as guarantors or
collateral. An asset is classified as doubtful if full collection is highly
questionable or improbable. An asset is classified as loss if it is considered
uncollectible, even if a partial recovery could be expected in the future. The
regulations also provide for a special mention designation, described as assets
which do not currently expose a savings association to a sufficient degree of
risk to warrant classification but do possess credit deficiencies or potential
weaknesses deserving management's close attention. Assets classified as
substandard or doubtful require a savings association to establish general
allowances for loan losses. If an asset or portion thereof is classified loss, a
savings association must either establish specific allowances for loan losses in
the amount of the portion of the asset classified as loss, or charge-off such
amount. Federal examiners may disagree with a savings association's
classifications and amounts reserved. If a savings association does not agree
with an examiner's classification of an asset, it may appeal this determination
to the OTS District Director. At June 30, 1996, the Bank had $99,000 in assets
classified as substandard, no assets classified as doubtful and $8,000 in assets
classified as loss.

      Included in these totals at June 30, 1996 and classified as "substandard,"
all in the Bank's market area, were three loans on single-family residences
totaling $131,000, one loan on commercial properties totaling $19,000 classified
due to delinquency or past credit history, and no consumer loans. Also included
in this total and classified as "substandard," were the lots held by the Bank as
real estate held for sale at June 30, 1996 in the amount of $49,000. The Bank
determined to hold this property as "real estate owned", pending improvement in
the local real estate market. Management considered all of the above items in
calculating the Bank's allowance for loan losses. Assets classified as "loss"
consisted of one consumer loan.

      In originating loans, Illinois Guarantee recognizes that credit losses
will occur and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. It is management's policy to maintain an
adequate general allowance for loan losses based on, among other things, the
Bank's and the industry's historical loan loss experience, evaluation of
economic conditions and regular reviews of delinquencies and loan portfolio
quality. Further, after properties are acquired following loan defaults,
additional losses may occur with respect to such properties while the Bank is
holding them for sale. The Bank increases its allowances for loan losses and
losses on real estate owned by charging provisions for possible losses against
the Bank's income. Specific reserves also are recognized against specific assets
when warranted. The Bank added additional provisions for loan losses of $81,000
and $50,000, respectively, during the years ended June 30, 1996 and 1995, due to
the new business strategies of multi-family, commercial real estate and consumer
lending being pursued by the Bank, which types of lending carry increased risks
for the Bank in comparison to one- to four-family residential lending.

      As a result of the declines in regional real estate market values and the
significant losses experienced by many financial institutions, there has been a
greater level of scrutiny by regulatory authorities of the loan portfolios of
financial institutions undertaken as part of the examination of the institution
by federal or state regulators. Results of recent examinations indicate that
these regulators may be applying more conservative criteria in evaluating real
estate market values, requiring significantly increased provisions for potential
loan losses. While Illinois Guarantee believes it has established its existing
allowances for loan losses in accordance with generally accepted accounting
principles, there can be no assurance that regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to significantly increase its
allowance for loan losses, thereby negatively affecting the Bank's financial
condition and earnings.

                                       11
<PAGE>
 
      The following table analyzes activity in Illinois Guarantee's allowance
for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                     At June 30,
                                                --------------------
                                                 1996          1995
                                                ------        ------
                                                   (In thousands)

<S>                                             <C>           <C>
      Balance at beginning of period..........  $  175        $  125
                                                ------        ------
 
      Loans charged-off:
       Commercial - unsecured.................      19            --
        Consumer..............................      10            --
 
      Loans charged-off.......................      29            --
                                                ------        ------
 
      Provision for loan losses...............      81            50
                                                ------        ------
      Balance at end of period................  $  227        $  175
                                                ======        ======
 
      Ratio of net charge-offs to average
       loans outstanding during the period....    0.10%           --%
                                                ======        ======
</TABLE>

      Illinois Guarantee evaluates the allowance for loan losses on a regular
basis. At June 30, 1996, the allowance was 0.63% of total loans, compared to
0.79% of total loans at June 30, 1995. In lieu of the Bank's increased
originations of multi-family and commercial real estate loans, and consumer
loans, the Bank expects that its provisions for loan losses will increase in
future periods to account for the additional risks inherent in these types of
lending.

      The following table sets forth a breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. These
allocations are not necessarily indicative of future losses and do not restrict
the use of the allowance to absorb losses in any loan category.

<TABLE>
<CAPTION>
                                                      June 30,
                                     ----------------------------------------- 
                                             1996                  1995
                                     --------------------  ------------------- 
                                               Percent               Percent
                                               of Loans              of Loans
                                             in Category           in Category
                                               to Total              to Total
                                     Amount     Loans      Amount     Loans
                                     ------  ------------  ------  -----------
<S>                                  <C>     <C>           <C>     <C>
 
Real estate - mortgage:
  Residential.....................    $ 44        66.00%    $ 41        78.59%
  Commercial......................      22        15.00       12        12.56
  Construction....................      --         3.60       --           --
Commercial business...............      10         3.25       12         0.81
Consumer..........................      20        12.15       40         8.04
Unallocated.......................     131           --       70           --
                                      ----       ------     ----       ------
    Total allowance for loan 
      losses......................    $227       100.00%    $175       100.00%
                                      ====       ======     ====       ======
</TABLE>

                                       12
<PAGE>
 
Investment Activities

      General.  Illinois Guarantee is required under federal regulations to
maintain a minimum amount of liquid assets equal to 5.0% of the net withdrawable
savings and current borrowings. It has generally been the Bank's policy to
maintain a liquidity portfolio in excess of regulatory requirements. At June 30,
1996, the Bank's liquidity ratio was 14.38%. Liquidity levels may be increased
or decreased depending upon the yields on investment alternatives, management's
judgment as to the attractiveness of the yields then available in relation to
other opportunities, management's expectations of the level of yield that will
be available in the future and management's projections as to the short-term
demand for funds to be used in Illinois Guarantee's loan origination and other
activities.

      The general objectives of the Bank's investment policy are to assure the
safe and sound investment of the assets of the Bank, to provide sufficient
liquidity to meet operating and funding needs, and to comply with regulatory
liquidity requirements. All securities and investments are recorded on the books
of the Bank in accordance with generally accepted accounting principles. All
purchases of securities and investments conform to the Bank's interest rate risk
policy. The type of investments allowed under the investment policy are only
those which qualify as liquid investments under current regulations. The Bank's
mutual fund investment represents an interest in a money market fund and an
adjustable rate mortgage loan fund, neither of which are insured. Bank
investments also include the demand, overnight and certificate of deposit
accounts at the FHLB of Chicago. Investments may be made in certificates of
deposit and savings accounts in other financial institutions insured by the FDIC
so long as the total investment with accrued interest does not exceed the
$100,000 insurance limit per each institution. Other investments allowed consist
of direct U.S. Government obligations and other government agencies that have
the full faith and credit backing of the U.S. Government. At June 30, 1996, the
investments qualifying as liquid investments consisted of interest-earning
deposits in other financial institutions and stock in the FHLB of Chicago and
U.S. Government Agency securities and certain mortgage-backed securities.

      Investments.  The following table sets forth the carrying value of the
Bank's investment securities portfolio, short-term investments, and FHLB of
Chicago stock at the dates indicated.

<TABLE>
<CAPTION>
                                                                  At June 30,
                                                             -------------------
                                                              1996         1995
                                                             ------       ------
                                                                 (In thousands)
 
      <S>                                                    <C>         <C>
      AVAILABLE FOR SALE (1)
      Investment securities:
        U.S. Government and Agency securities...............  $  2,956    $     --
        State and municipal obligations.....................       204          --
        Mutual funds........................................     2,477       1,584
        Equities............................................       257         206
      FHLB stock............................................       214         214
                                                              --------    --------
          Total available for sale investments..............  $  6,108    $  2,004
                                                              ========    ========
 
      HELD TO MATURITY
      Investment securities:
        U.S. Government and Agency securities...............  $   --       $5,232
        State and municipal obligations.....................      --          513
        Other...............................................     299           --
      Interest-bearing deposits and certificates of
       deposit..............................................     140        3,155
                                                              ------       ------
          Total held to maturity investments................  $  439       $8,900
                                                              ======       ======
</TABLE>
 
      ----------------
      (1)   The Bank transferred securities to available for sale as of 
            December 31, 1995. For more discussion on this, see Notes A and B of
            Notes to Consolidated Financial Statements.

                                       13
<PAGE>
 
      The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's investment securities at June
30, 1996.


<TABLE>
<CAPTION>                                                                                  More than Ten
                              One Year or Less   One to Five Years   Five to Ten Years         Years
                             ------------------  ------------------  ------------------  ------------------

                             Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average
                              Value     Yield     Value     Yield     Value     Yield     Value     Yield
                             --------  --------  --------  --------  --------  --------  --------  --------
                                                         (Dollars in thousands)
<S>                          <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Available for Sale (1, 2)
Investment securities:
  U.S. Government and
   Agency securities.......  $  2,576     6.24%  $    400     6.16%  $     --       --%  $     --       --%
  State and municipal
   obligations (2).........        12     6.10        178     4.48         17     4.74         --       --

  Mutual funds.............        --       --         --       --         --       --      2,489     5.59
  Equities.................        --       --         --       --         --       --        226     8.27
                             --------            --------            --------            --------
   Total...................  $  2,588     6.24%  $    578     5.64%  $     17     4.74%  $  2,715     5.81%
                             ========            ========            ========            ========

<CAPTION>
                                Total Investment Portfolio
                                --------------------------
                                Carrying  Market  Average
                                 Value    Value    Yield
                                --------  ------  --------
                                  (Dollars in thousands)

<S>                             <C>       <C>     <C>
Available for Sale (1, 2)
Investment securities:
  U.S. Government and
   Agency securities.......     $  2,976  $  2,956   6.23%
  State and municipal
   obligations (2).........          207       204   4.59

  Mutual funds.............        2,489     2,477   3.59
  Equities.................          226       471   8.27
                                --------  --------
   Total...................     $  5,898  $  6,108   5.98%
                                ========  ========
</TABLE>
 
--------------------
(1)    This schedule uses contractual maturity dates. Some of the securities
       have call date options.
(2)    For financial reporting these securities are valued at estimated fair
       market value.

                                       14
<PAGE>
 
      The only investment classified as held to maturity as of June 30, 1996 is
an interest in a limited partnership, Boston Capital Corporation Tax Credit Fund
V. The Bank purchased a one unit investment in this Fund of Class A limited
partnership interests. The one unit cost was $788,000 with the first installment
paid with the purchase. The Bank paid $299,000 on February 1, 1996. The balance
is due as follows:

<TABLE>
<CAPTION>
                                     Amount
                                    (1,000's)
                                    ---------

<S>                                 <C>
      July 1, 1996                   $    99
      October 1, 1996                    130
      April 1, 1997                      165
      October 1, 1997                     95
                                     -------
                                     $   489
                                     =======
</TABLE>

      It is the intent of the partnership to invest in qualified affordable
housing programs to generate Federal Housing Tax Credits. The Bank 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, therefore the Bank has not reflected any
effect in the income statement and has carried the investment at cost for the
year ended June 30, 1996.

      The Bank had $140,000 in interest bearing deposits at June 30, 1996 at a
rate of 5.32%.

      Mortgage-Backed Securities.  Illinois Guarantee invests excess funds in
mortgage-backed securities, as well as other investments and may increase its
investment in this type of security in the future. At June 30, 1996, the total
investment in mortgage-backed securities was $1.8 million, with $392,000 in
adjustable rate securities, $1.4 million in fixed-rate securities and an average
yield of 7.59%. The Bank invests in mortgage-backed securities originated by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the FHLMC.

      Prepayments in the Bank's mortgage-backed securities portfolio may be
affected by declining and rising interest rate environments. In a low and
falling interest rate environment, prepayments would be expected to increase. In
such an event, the Bank's fixed-rate securities subscribed for at a premium
price could result in actual yields to the Bank that are lower than anticipated
yields. The Bank's floating rate securities would be expected to generate lower
yields as a result of the effect of falling interest rates on the indexes for
determining payment of interest. Additionally, the increased principal payments
received may be subject to reinvestment at lower rates. Conversely, in a period
of rising rates, prepayments would be expected to decrease, which would make
less principal available for reinvestment at higher rates. In a rising rate
environment, floating rate instruments would generate higher yields to the
extent that the indexes for determining payment of interest did not exceed the
life-time interest rate caps on the Bank's mortgage-backed securities.

      The Bank has historically invested in mortgage-backed securities as an
alternative investment to supplement its lending efforts and maintain compliance
with certain regulatory requirements. See "Regulation--Qualified Thrift Lender
Test." Further, under the OTS risk-based capital requirements, GNMA mortgage-
backed securities have a zero percent risk weight, and FNMA, FHLMC and AA-rated
private mortgage-backed securities have a risk weight of 20%, in contrast to the
50% risk weight carried by one- to four-family performing residential loans. See
"Regulation--Regulatory Capital Requirements." Mortgage-backed securities may
also be used as collateral for borrowings and through repayments, as a source of
liquidity. The Bank transferred all the mortgage-backed securities from held to
maturity to available for sale in December 1995.

      The Bank purchases securities through any registered broker or dealer and
requires that the securities be delivered to the safekeeping agent of the
Savings & Community Bankers Trust Company before the funds are

                                       15
<PAGE>
 
transferred to the broker or dealer. Illinois Guarantee purchases investment
securities pursuant to an investment policy established by the Board of
Directors pursuant to OTS Thrift Bulletin 52.

      The following table sets forth the carrying value of the Bank's mortgage-
backed securities at the dates indicated.


<TABLE>
<CAPTION>
                                         At June 30,
                                       ----------------
                                        1996      1995
                                       ------    ------
                                        (In thousands)
<S>                                    <C>      <C>
                  
            GNMA.....................  $   945  $ 1,053
            FNMA.....................      252      260
            FHLMC....................      576    1,013
                                       -------  -------
                                       $ 1,773  $ 2,326
                                       =======  =======
</TABLE>

                                       16
<PAGE>
 
      The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's mortgage-backed securities at
June 30, 1996.




<TABLE>
<CAPTION>
                   One Year or Less   One to Five Years   Five to Ten Years   More than Ten Years   Total Investment Portfolio
                  ------------------  ------------------  ------------------  --------------------  ---------------------------
                  Carrying  Average   Carrying  Average   Carrying  Average   Carrying    Average   Carrying   Market  Average
                   Value     Yield     Value     Yield     Value     Yield      Value      Yield      Value    Value    Yield
                  --------  --------  --------  --------  --------  --------  ---------  ---------  ---------  ------  --------
                                                             (Dollars in thousands)

<S>               <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>        <C>        <C>     <C>
GNMA...........    $   83     8.28%    $  282     8.31%    $  458     8.47%     $  110      8.85%    $   933   $   945     8.45%
FNMA...........         8     7.15         27     7.15         46     7.15         168      7.15         249       252     7.15
FHLMC..........       122     5.77        258     5.96         95     7.74         109      7.04         584       576     6.41
                   ------              ------              ------               ------               -------   -------
    Total......    $  213     6.80%    $  567     7.19%    $  599     8.25%     $  387      7.60%    $ 1,766   $ 1,773     7.59
                   ======              ======              ======               ======               =======   =======
</TABLE>

                                       17
<PAGE>
 
Deposit Activity and Other Sources of Funds

      General.  Deposits are the primary source of Illinois Guarantee's funds
for lending and other investment purposes. In addition to deposits, Illinois
Guarantee derives funds from principal repayments and interest payments on loans
and investments as well as other sources arising from operations in the
production of net earnings. Loan prepayments and interest payments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources, or on a longer term basis for general
business purposes.

      Deposits.  Deposits are attracted principally from within Illinois
Guarantee's primary market area through the offering of a broad selection of
deposit instruments, including passbook savings, NOW accounts, money market
accounts and certificates of deposit. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate.

      The Bank's policies are designed primarily to attract deposits from local
residents rather than to solicit deposits from areas outside of its primary
market. The Bank does not accept deposits from brokers due to the volatility and
rate sensitivity of such deposits. Interest rates paid, maturity terms, service
fees and withdrawal penalties are established by the Bank on a periodic basis.
Determination of rates and terms are predicated upon funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and federal
regulations.

      For more information on the Bank's deposit accounts, see Note G of Notes
to Consolidated Financial Statements.

      The following table sets forth the Bank's certificates of deposit accounts
classified by actual rates at the dates indicated.

<TABLE>
<CAPTION>
                                                     At June 30,
                                                   ----------------
                                                    1996     1995
                                                   -------  -------
                                                    (In thousands)
                                           
<S>                                                <C>      <C>
2 - 3.99%........................................  $     8  $   378
4 - 5.99%........................................   24,599   17,516
6 - 7.99%........................................    2,384    7,049
8 - 9.99%........................................       42      152
                                                   -------  -------
                                                   $27,033  $25,095
                                                   =======  =======
</TABLE>


      The following table sets forth the amount and maturities of certificates
of deposit accounts in actual rate categories at June 30, 1996.

<TABLE>
<CAPTION>
                                       Amount Due
                    ------------------------------------------------
                    Less Than                         After
Rate                One Year   1-2 Years  2-3 Years  3 Years   Total
----                ---------  ---------  ---------  -------   -----
                                     (In thousands)
 
<S>                 <C>        <C>        <C>        <C>      <C>
3 - 3.99%.........   $      8   $     --   $     --  $    --  $      8
4 - 4.99%.........      4,579         12         --       --     4,591
5 - 5.99%.........     14,141      4,522      1,172      173    20,008
6 - 6.99%.........        199        411        914      818     2,342
7 - 7.99%.........         42         --         --       --        42
8 - 8.99%.........         --         --         --       --        --
9 - 9.99%.........         --         42         --       --        42
                     --------   --------   --------  -------  --------
                     $ 18,969   $  4,987   $  2,086  $   991  $ 27,033
                     ========   ========   ========  =======  ========
</TABLE>

                                       18
<PAGE>
 
      The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity at June 30, 1996.

<TABLE>
<CAPTION>
                                                     Certificates
               Maturity Period                        of Deposit
               ---------------                       ------------
                                                    (In thousands)

              <S>                                      <C>
               Three months or less................     $   202
               Over three through six months.......         685
               Over six through twelve months......         678
               Over twelve months..................         722
                                                        -------
                Total..............................     $ 2,287
                                                        =======
</TABLE>

      The following table sets forth the average balances and interest rates
based on monthly balances for transaction accounts and certificates of deposit
for the periods indicated.

<TABLE>
<CAPTION>
                                    Year Ended June 30,
                        --------------------------------------------
                                1996                   1995
                        --------------------   ---------------------
                        Interest-              Interest-
                        Bearing                Bearing
                        Demand        Time     Demand        Time
                        Deposits    Deposits   Deposits    Deposits
                        --------    --------   --------    ---------
                                               (Dollars in thousands)

<S>                     <C>         <C>        <C>         <C>
Average balance........   $7,685    $25,679      $7,481     $24,214
Average rate...........    3.74%      5.35%       3.02%       4.91%
</TABLE>

      The following table sets forth the change in dollar amount of interest-
bearing deposits in the various types of accounts offered by the Bank between
the dates indicated (in thousands).

<TABLE>
<CAPTION>
                                                    Increase
                            Balance at             (Decrease)  Balance at
                             June 30,      %       from June    June 30,      %
                               1996     Deposits    30, 1995     1995      Deposits
                            ----------  --------   ---------   ----------  --------
                                                   (Dollars in thousands)
 
<S>                         <C>         <C>        <C>         <C>         <C>
NOW, Super NOW and other
 transaction accounts.....  $   1,300      3.64%  $     924   $     376      1.17%
Money market deposit                                         
 accounts.................      2,431      6.81         166       2,265      7.03
Passbook savings..........      4,911     13.77         472       4,439     13.79
                                                             
Certificates:                                                
 6 months or less.........      7,740     21.70      (1,216)      8,956     27.81
 6 months through 1 year..      6,127     17.17         514       5,613     17.43
 1 year through 3 years...     10,226     28.67       1,123       9,103     28.27
 More than 3 years........      2,940      8.24       1,492       1,448      4.50
                            ---------    ------   ---------   ---------    ------
   Total..................  $  35,675    100.00   $   3,475   $  32,200    100.00%
                            =========    ======   =========   =========    ======
</TABLE>

                                       19
<PAGE>
 
      The following table sets forth deposit activities of the Bank for the
years indicated.

<TABLE>
<CAPTION>
                                                          Year Ended June 30,
                                                         ---------------------
                                                          1996           1995
                                                         ------         ------
                                                             (In thousands)

<S>                                                      <C>            <C>
Deposits...............................................  $58,051        $30,447
Withdrawals (1)........................................  (55,541)       (30,628)
                                                         -------        -------
                                                           2,510           (181)
Interest credited......................................    1,335          1,097
                                                         -------        -------
     Net increase (decrease) in savings deposits.......  $ 3,845        $   916
                                                         =======        =======
</TABLE>

      Management attributes the net increase in deposits for 1996 to increased
presence in the Bank's market area. The Bank has adopted new business strategies
to increase its presence which was also enhanced by the stock conversion in
September 1995. Included in gross deposits was $5.3 million in stock conversion
deposits. Management attributes the net decrease in deposits before interest
credited in the prior year primarily to the interest rates offered by the Bank
as compared to alternative investments.

      Borrowings.  Savings deposits historically have been the primary source of
funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from the
FHLB of Chicago to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB are secured by the Bank's stock
in the FHLB and a portion of the Bank's mortgage loans. The Bank had $1.6
million in advances from the FHLB as of June 30, 1996, which consisted of a one
year fixed rate advance maturing April 29, 1997 at 5.93% rate of interest,
payable monthly, in the amount of $790,000, a one year fixed rate advance
maturing May 16, 1997 at 5.98% rate of interest, payable monthly, in the amount
of $468,000 and a daily advance of $350,000 at 5.50% rate of interest which
adjust daily.

      The FHLB of Chicago functions as a central reserve bank providing credit
for savings institutions and certain other financial institutions. As a member,
Illinois Guarantee is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets (principally, securities which are
obligations of, or guaranteed by the United States) provided certain standards
related to creditworthiness have been met.

Subsidiary Activities

      As a federal savings institution, Illinois Guarantee is permitted to
invest an amount equal to 2.0% of its assets in subsidiaries with an additional
investment of 1.0% of assets where such investment serves primarily community,
inner-city and community development purposes. Under such limitations, as of
June 30, 1996, Illinois Guarantee was authorized to invest up to approximately
$1.1 million in the stock of or in loans to subsidiaries. In addition,
institutions meeting regulatory capital requirements and certain other tests may
invest up to 50% of their regulatory capital in conforming first mortgage loans
to subsidiaries.

      Illinois Guarantee has one service corporation, IGSL Service Corporation.
The primary purpose of the corporation is to provide credit insurance products
to existing Bank borrowers. The Bank's investment in this service corporation
was $42,000 at June 30, 1996, with no commitments for further investment, and
the service corporation generated $5,000 in net income for the Bank during the
year ended June 30, 1996.

      SAIF-insured savings institutions are required to give the FDIC and the
Director of the OTS 30 days' prior notice before establishing or acquiring a new
subsidiary, or commencing any new activity through an existing subsidiary. Both
the FDIC and the Director of the OTS have authority to order termination of
subsidiary activities determined to pose a risk to the safety or soundness of
the institution. In addition, capital requirements require

                                       20
<PAGE>
 
savings institutions to deduct the amount of their investments in and extensions
of credit to subsidiaries engaged in activities not permissible to national
banks from capital in determining regulatory capital compliance. The activities
of IGSL Service Corporation are permissible for national banks. See "Regulation
-- Regulatory Capital Requirements."

Competition

      Illinois Guarantee experiences substantial competition both in attracting
and retaining savings deposits and in the making of mortgage and other loans.
Direct competition for savings deposits primarily comes from commercial banks
and other savings institutions located in or near the Bank's primary market
area. Additional significant competition for savings deposits comes from credit
unions, money market funds and brokerage firms. The primary factors in competing
for loans are interest rates and loan origination fees and the range of services
offered by the various financial institutions. Competition for origination of
real estate loans normally comes from commercial banks, other thrift
institutions, mortgage bankers, mortgage brokers and insurance companies.
Management considers Illinois Guarantee's competitors in its market area to
consist of six commercial banks and one savings institution located outside of
its market area. Overall, management believes that Illinois Guarantee is the
smallest of the financial institutions competing for deposits and loans in its
market area.

      Illinois Guarantee is able to compete effectively in its primary market by
offering competitive interest rates and loan fees, providing a wide variety of
deposit products, and by emphasizing personal customer service. Management
believes that, as a result of the Bank's commitment to varied products and
personal service, the Bank has developed a solid base of core deposits and the
Bank's loan origination quality is among the leaders in the Bank's market area.


                                   REGULATION

Regulation of the Bank

      General.  The Bank is a federally chartered savings institution, a member
of the FHLB of Chicago and its deposits are insured by the FDIC through the
SAIF. The lending activities and other investments of Illinois Guarantee must
comply with various federal regulatory requirements. As a federal savings
institution, the Bank is subject to regulation and supervision by the OTS and
the FDIC and to OTS regulations governing such matters as capital standards,
mergers, establishment of branch offices, subsidiary investments and activities
and general investment authority. The OTS periodically examines the Bank for
compliance with various regulatory requirements. The FDIC also has the authority
to conduct special examinations of the Bank because its deposits are insured by
the SAIF. The Bank must file reports with OTS describing its activities and
financial condition. The Bank is also subject to certain reserve requirements
promulgated by the Federal Reserve Board. This supervision and regulation is
intended primarily for the protection of depositors. Certain of these regulatory
requirements are referred to below or discussed elsewhere herein.

      Supervisory Agreement.  At June 30, 1996, the Bank exceeded all of its
regulatory capital requirements. On October 7, 1992, the Bank entered into a
Supervisory Agreement (the "Agreement") with the OTS. The Agreement required the
Bank to: (i) adopt and implement a written consumer compliance program designed
to ensure that the Bank operates in compliance with all applicable consumer
protection laws, rules and regulations; (ii) correct certain truth in lending
disclosure violations, making reimbursements where necessary to provide
restitution to borrowers who received incorrect truth in lending disclosures as
to the interest rates charged, or to be charged on adjustable rate mortgage
loans; (iii) review the interest rate adjustments made on certain adjustable
rate mortgage loans to determine if they were correct, and if necessary review
all adjustable rate mortgage loan interest rate adjustments, making restitution
to borrowers, where necessary; and (iv) correct certain other technical
violations of the Real Estate Settlement Procedures Act, the Electronic Funds
Transfer Act and the Expedited Funds Availability Act. The Bank complied with
the terms of the Agreement, and made restitution to certain borrowers totaling
$41,000 in fiscal 1993. Subsequent to the completion of an OTS examination in
August 1994, the Bank requested a release

                                       21
<PAGE>
 
from the Agreement. Based upon continued compliance with its requirements, the
OTS terminated the Agreement on November 9, 1994.

      Regulatory Capital Requirements.  Under OTS regulations, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3.0% of adjusted total assets and a combination
of core and "supplementary" capital equal to 8.0% of "risk-weighted" assets. In
addition, the OTS has recently adopted regulations which impose certain
restrictions on savings institutions that have a total risk-based capital ratio
that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of
less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less
than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS
examination rating system). See "-- Prompt Corrective Regulatory Action." For
purposes of these regulations, Tier 1 capital has the same definition as core
capital. Core capital is defined as common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
minority interests in the equity accounts of fully consolidated subsidiaries,
certain nonwithdrawable accounts and pledged deposits and "qualifying
supervisory goodwill." Core capital is generally reduced by the amount of the
savings institution's intangible assets for which no market exists. Limited
exceptions to the rule requiring the deduction of intangible assets are provided
for mortgage servicing rights, purchased credit card relationships and
qualifying supervisory goodwill held by an eligible savings institution.
Tangible capital is given the same definition as core capital but does not
include qualifying supervisory goodwill and is reduced by the amount of all the
savings institution's intangible assets with only a limited exception for
subscribed for mortgage servicing rights and subscribed for credit card
relationships.

      Both core and tangible capital are further reduced by an amount equal to a
gradually increasing percentage of the savings institution's debt and equity
investments in subsidiaries engaged in activities not permissible for national
banks, other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and depository institutions or
holding companies therefor. At June 30, 1996, Illinois Guarantee had no such
investments.

      Adjusted total assets for purposes of the core and tangible capital
requirements are a savings institution's total assets as determined under
generally accepted accounting principles, adjusted for certain goodwill amounts,
and increased by a pro rated portion of the assets of subsidiaries in which the
savings institution holds a minority interest and which are not engaged in
activities for which the capital rules require the savings institution to net
its debt and equity investments in such subsidiaries against capital, as well as
a pro rated portion of the assets of other subsidiaries for which netting is not
fully required under the phase-in rules. Adjusted total assets are reduced by
the amount of assets that have been deducted from capital, the portion of the
savings institution's investments in subsidiaries that must be netted against
capital under the capital rules and, for purposes of the core capital
requirement, qualifying supervisory goodwill. At June 30, 1996, Illinois
Guarantee's adjusted total assets for purposes of the core and tangible capital
requirements, were $46.2 million.

      In determining compliance with the risk-based capital requirements, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided the amount of supplementary capital used
does not exceed the savings institution's core capital. Supplementary capital is
defined to include certain preferred stock issues, nonwithdrawable accounts and
pledged deposits that do not qualify as core capital, certain approved
subordinated debt, certain other capital instruments and a portion of the
savings institution's general loan and lease loss allowances. Total core and
supplementary capital are reduced by the amount of capital instruments held by
other depository institutions pursuant to reciprocal arrangements and by an
increasing percentage of the savings institution's high loan-to-value ratio land
loans and non-residential construction loans and equity investments other than
those deducted from core and tangible capital. As of June 30, 1996, Illinois
Guarantee had $49,000 in equity investments for which OTS regulations required a
phased deduction from total capital after July 1, 1990.

      The risk-based capital requirement is measured against risk-weighted
assets, which equal the sum of each asset and the credit-equivalent amount of
each off-balance-sheet item after being multiplied by an assigned risk weight.
Under the OTS risk-weighting system, cash and U.S. government securities backed
by the full faith and credit of the U.S. Government (such as mortgage-backed
securities issued by GNMA) are given a 0% risk weight.

                                       22
<PAGE>
 
     Mortgage-backed securities issued, or fully guaranteed as to principal and
     interest, by the FNMA or FHLMC are assigned a 20% risk weight.  One- to
     four-family first mortgages not more than 90 days past due with loan-to-
     value ratios under 80% and average annual occupancy rates of at least 80%
     and certain qualifying loans for the construction of one- to four-family
     residences pre-sold to home purchasers are assigned a risk weight of 50%.
     Consumer and residential construction loans are assigned a risk weight of
     100%.  As of June 30, 1996, Illinois Guarantee's risk-weighted assets were
     approximately $28.9 million.

             The table below provides information with respect to Illinois
     Guarantee's compliance with its regulatory capital requirements at June 30,
     1996.

<TABLE>
<CAPTION>
 
                                                                   Percent
                                                                     of
                                                      Amount       Assets(2)
                                                      ------       --------
                                                      (Dollars in thousands)
<S>                                                 <C>          <C>
 
     Tangible capital (1)...................         $ 7,111        15.41%
     Tangible capital requirement...........             692         1.50
                                                     -------        -----
       Excess...............................         $ 6,419        13.91%
                                                     =======     ========
 
     Tier 1/Core capital....................         $ 7,111        15.41%
     Tier 1/Core capital requirement (3)....           1,383         3.00
                                                    --------        -----
       Excess...............................         $ 5,728        12.41 %
                                                    ========     ========
 
     Tier 1 Risk-Based Capital..............         $ 7,111        24.61%
     Tier 1 Risk-Based Capital Requirement..           2,312         8.00
                                                    --------        -----
       Excess...............................         $ 4,799        16.61%
                                                    ========     ========
 
     Risk-based capital.....................         $ 7,338        25.57%
     Risk-based capital requirement (4).....           2,312         8.00
                                                    --------        -----
       Excess...............................         $ 5,026        17.57%
                                                    ========     ========
</TABLE>
    _____________
     (1)     Reconciliation from GAAP capital to tangible capital:
                                                               (In thousands)

             GAAP capital.......................................   $7,302
             Real estate held for investment....................      (49)
             Unrealized gains on available-for-sale securities..     (142)
                                                                   ------
                                                                   $7,111

     (2)     Based on adjusted total assets for purposes of the tangible capital
             and core capital requirements, and risk-weighted assets for purpose
             of the risk-based capital requirement.
     (3)     The core requirement applicable to the Bank may increase if the OTS
             amends its capital regulations, as it has proposed, in response to
             the more stringent leverage ratio recently adopted by the Office of
             the Comptroller of the Currency for national banks.
     (4)     Represents the total capital required at June 30, 1996.  Does not
             reflect any additional capital requirement as a result of the
             recently adopted OTS regulation regarding the interest rate risk
             component of capital.


             The OTS has proposed an amendment to its capital regulations
     establishing a minimum core capital ratio of 3.0% for savings institutions
     rated composite 1 under the OTS CAMEL examination rating system.  For all
     other savings institutions, the minimum core capital will be from 4.0% to
     5.0%.  In determining the amount of additional


                                       23
<PAGE>
 
     core capital, the OTS will assess both the quality of risk management
     systems and the level of overall risk in each individual savings
     institution through the supervisory process on a case-by-case basis.

          The risk-based capital standards of the OTS require institutions with
     more than a "normal" level of interest rate risk to maintain additional
     total capital.  A savings institution's interest rate risk is measured in
     terms of the sensitivity of its "net portfolio value" to changes in
     interest rates.  Net portfolio value is defined, generally, as the present
     value of expected cash inflows from existing assets and off-balance sheet
     contracts less the present value of expected cash outflows from existing
     liabilities.  A savings institution is considered to have a "normal" level
     of interest rate risk exposure if the decline in its net portfolio value
     after an immediate 200 basis point increase or decrease in market interest
     rates (whichever results in the greater decline) is less than 2.0% of the
     current estimated economic value of its assets.  A savings institution with
     a greater than normal interest rate risk is required to deduct from total
     capital, for purposes of calculating its risk-based capital requirement, an
     amount (the "interest rate risk component") equal to one-half the
     difference between the institution's measured interest rate risk and the
     normal level of interest rate risk, multiplied by the economic value of its
     total assets.

          The OTS calculates the sensitivity of a savings institution's net
     portfolio value based on data submitted by the institution in a schedule to
     its quarterly Thrift Financial Report and using the interest rate risk
     measurement model adopted by the OTS.  The amount of the interest rate risk
     component, if any, to be deducted from a savings institution's total
     capital is based on the institution's Thrift Financial Report filed two
     quarters earlier.  Savings institutions with less than $300 million in
     assets and a risk-based capital ratio above 12% are generally exempt from
     filing the interest rate risk schedule with their Thrift Financial Reports.
     However, the OTS requires any exempt savings institution that it determines
     may have a high level of interest rate risk exposure to file such schedule
     on a quarterly basis and may be subject to an additional capital
     requirement based upon its level of interest rate risk as compared to its
     peers.  The Bank does not have more than a normal level of interest rate
     risk under OTS rule and has not been required to increase its total capital
     as a result of such rule.

          In addition to requiring generally applicable capital standards for
     savings associations, the Director of OTS is authorized to establish the
     minimum level of capital for a savings institution at such amount or at
     such ratio of capital-to-assets as the Director of the OTS determines to be
     necessary or appropriate for such institution in light of the particular
     circumstances of the institution.  The Director of the OTS may treat the
     failure of any savings institution to maintain capital at or above such
     level as an unsafe or unsound practice and may issue a directive requiring
     any savings institution which fails to maintain capital at or above the
     minimum level required by the Director of the OTS to submit and adhere to a
     plan for increasing capital.  Such an order may be enforced in the same
     manner as an order issued by the FDIC.

          At June 30, 1996, Illinois Guarantee exceeded all regulatory minimum
     capital requirements.

          Liquidity Requirements.  The Bank is required under OTS regulations to
     maintain average daily balances of liquid assets (cash, deposits maintained
     pursuant to Federal Reserve Board reserve requirements, time and savings
     deposits in certain institutions, obligations of the United States and
     states and political subdivisions thereof, shares in certain mutual funds
     with certain restricted investment policies, highly rated corporate debt,
     and mortgage loans and mortgage-related securities with less than one year
     to maturity or subject to pre-arranged sale within one year) equal to the
     monthly average of not less than a specified percentage (currently 5%) of
     its net withdrawable savings deposits plus short-term borrowings.  The Bank
     is also required to maintain average daily balances of short-term liquid
     assets at a specified percentage (currently 1%) of the total of its net
     withdrawable savings accounts and borrowings payable in one year or less.
     Monetary penalties may be imposed for failure to meet liquidity
     requirements.  The average regulatory liquidity ratio of the Bank for the
     month of June 1996 was 14.38% with respect to liquid assets and 10.53% with
     respect to short-term liquid assets.

          Qualified Thrift Lender Test.  A savings institution that does not
     meet the Qualified Thrift Lender Test ("QTL Test") must either convert to a
     bank charter or comply with the following restrictions on its operations:
     (i) the institution may not engage in any new activity or make any new
     investment, directly or indirectly, unless such

                                       24
<PAGE>
 
     activity or investment is permissible for a national bank; (ii) the
     branching powers of the institution shall be restricted to those of a
     national bank; (iii) the institution shall not be eligible to obtain any
     advances from its FHLB; and (iv) payment of dividends by the institution
     shall be subject to the rules regarding payment of dividends by a national
     bank.  Upon the expiration of three years from the date the institution
     ceases to be a Qualified Thrift Lender, it must cease any activity, and not
     retain any investment not permissible for a national bank and immediately
     repay any outstanding FHLB advances (subject to safety and soundness
     considerations).

          To meet the QTL Test, an institution's "Qualified Thrift Investments"
     must represent 65% of "portfolio assets."   Under OTS regulations,
     portfolio assets are defined as total assets less intangibles, property
     used by a savings institution in its business and liquidity investments in
     an amount not exceeding 20% of assets.  Qualified Thrift Investments
     consist of (i) loans, equity positions or securities related to domestic,
     residential real estate or manufactured housing, and (ii) 50% of the dollar
     amount of residential mortgage loans subject to sale under certain
     conditions.  In addition, subject to a 20% of portfolio assets limit,
     savings institutions are able to treat as Qualified Thrift Investments 200%
     of their investments in loans to finance "starter homes" and loans for
     construction, development or improvement of housing and community service
     facilities, or for financing small businesses in "credit-needy" areas.  A
     savings institution must maintain its status as a QTL on a monthly basis in
     nine out of every 12 months.  A savings institution that fails to maintain
     Qualified Thrift Lender status is permitted to requalify once, and if it
     fails the QTL Test a second time, it will become immediately subject to all
     penalties as if all time limits on such penalties had expired.  Failure to
     qualify as a QTL results in a number of sanctions, including the imposition
     of certain operating restrictions imposed on national banks and a
     restriction on obtaining additional advances from the Federal Home Loan
     Bank System.  Upon failure to qualify as a QTL for two years, a savings
     institution must convert to a commercial bank.

          At June 30, 1996, Illinois Guarantee had in excess of 25.14% of assets
     invested in Qualified Thrift Investments as then defined.  It is expected
     that the Bank will continue to qualify as a Qualified Thrift Lender,
     although there can be no assurance that it will do so.

          Dividend Restrictions.  Under OTS regulations, the Bank may not pay
     dividends on its capital stock if its regulatory capital would thereby be
     reduced below the amount then required for the liquidation account
     established for the benefit of certain depositors of the Bank at the time
     of its conversion to stock form.  In addition, Illinois Guarantee, as a
     savings institution subsidiary of a savings and loan holding company, will
     be required by OTS regulations to provide at least 30 days prior notice to
     the OTS of any proposed declaration of dividends to the Company.

          OTS regulations impose additional limitations on the payment of
     dividends and other capital distributions (including stock repurchases and
     cash mergers) by the Bank.  Under these regulations, a savings institution
     that, immediately prior to, and on a pro forma basis after giving effect
     to, a proposed capital distribution, has total capital (as defined by OTS
     regulations) that is equal to or greater than the amount of its fully
     phased-in capital requirements (a "Tier 1 Association") is generally
     permitted, without OTS approval after notice, to make capital distributions
     during a calendar year in the amount equal to the greater of:  (i) 75% of
     its net income for the previous four quarters, or (ii) up to 100% of its
     net income to date during the calendar year plus an amount that would
     reduce by one-half the amount by which its capital-to-assets ratio exceeded
     regulatory requirements at the beginning of the calendar year.  A savings
     institution with total capital in excess of current minimum capital
     requirements but not in excess of the fully phased-in requirements (a "Tier
     2 Association") is permitted, after notice, to make capital distributions
     without OTS approval of up to 75% of its net income for the previous four
     quarters, less dividends already paid for such period.  A savings
     institution that fails to meet current minimum capital requirements (a
     "Tier 3 Association") is prohibited from making any capital distributions
     without the prior approval of the OTS.  Tier 1 Associations that have been
     notified by the OTS that they are in need[ of more than normal supervision
     will be treated as either a Tier 2 or Tier 3 Association.  At June 30,
     1996, the Bank qualified as a Tier 1 Association.

          All savings institutions, including the Bank, are prohibited from
     making any capital distributions if after making the distribution, they
     would have:  (i) a total risk-based capital ratio of less than 8.0%; (ii) a
     Tier 1 risk-

                                       25
<PAGE>
 
     based capital ratio of less than 4.0%; or (iii) a leverage ratio of less
     than 4.0%.  See "--Prompt Corrective Regulatory Action."  The OTS, after
     consultation with the FDIC, however, may permit an otherwise prohibited
     stock repurchase if made in connection with the issuance of additional
     shares in an equivalent amount and the repurchase will reduce the
     institution's financial obligations or otherwise improve the institution's
     financial condition.

          Deposit Insurance.  The Bank is required to pay assessments based on a
     percent of its insured deposits to the FDIC for insurance of its deposits
     by the Savings Association Insurance Fund ("SAIF").  Through December 31,
     1997, the assessment rate shall not be less than 0.23%.  After December 31,
     1997, the SAIF assessment rate will be a rate determined by the FDIC to be
     appropriate to increase the reserve ratio of the SAIF to 1.25% of insured
     deposits or such higher percentage of insured deposits that the FDIC
     determines to be appropriate but not less than 0.15%.

          Under the risk-based deposit insurance assessment system adopted by
     the FDIC, the assessment rate for an insured depository institution depends
     on the assessment risk classification assigned to the institution by the
     FDIC, which is determined by the institution's capital level and
     supervisory evaluations.   Based on the data reported to regulators for the
     date closest to the last day of the seventh month preceding the semi-annual
     assessment period, institutions are assigned to one of three capital groups
     -- well capitalized, adequately capitalized or undercapitalized -- using
     the same percentage criteria as under the prompt corrective action
     regulations.  See " -- Prompt Corrective Regulatory Action."  Within each
     capital group, institutions are assigned to one of three subgroups on the
     basis of supervisory evaluations by the institution's primary supervisory
     authority and such other information as the FDIC determines to be relevant
     to the institution's financial condition and the risk posed to the deposit
     insurance fund.  Subgroup A consists of financially sound institutions with
     only a few minor weaknesses.  Subgroup B consists of institutions that
     demonstrate weaknesses which, if not corrected, could result in significant
     deterioration of the institution and increased risk of loss to the deposit
     insurance fund.  Subgroup C consists of institutions that pose a
     substantial probability of loss to the deposit insurance fund unless
     effective corrective action is taken.  The assessment rate for SAIF-insured
     institutions ranges from 0.23% of deposits for well capitalized
     institutions in Subgroup A to 0.31% of deposits for undercapitalized
     institutions in Subgroup C.

          The FDIC also administers the Bank Insurance Fund ("BIF") which has
     the same designated reserve ratio as the SAIF (currently 1.25%).  In 1995,
     the FDIC amended the BIF risk-based assessment schedule and 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
     the statutory minimum of $2,000 for well-capitalized institutions, which
     constitute over 90% of BIF-insured institutions.  The FDIC has indicated
     that the assessment rate for SAIF-insured institutions will not fall below
     0.23% of insured deposits until approximately the year 2002.  The decrease
     in BIF assessments created a substantial disparity in the deposit insurance
     premiums paid by BIF and SAIF members and could place SAIF-insured savings
     institutions like the Bank, at a significant competitive disadvantage to
     BIF-insured institutions.

          To alleviate this disparity, one proposal being considered by the U.S.
     Department of Treasury, the FDIC and the U.S. Congress provides a one-time
     assessment of approximately 65 basis points be imposed on all SAIF-insured
     deposits to cause the SAIF to reach its designated reserve ratio.  Once
     this occurs, the two funds would be merged into one fund.  There can be no
     assurance that this proposal or any other proposal will be implemented or
     that premiums for either fund will not be adjusted in the future by the
     FDIC or legislative action.

          The payment of a special assessment would severely and negatively
     impact the Bank's results of operations, resulting in a change of up to
     $340,000, after adjusting for tax benefits.  However, if such a special
     assessment is imposed and the SAIF is recapitalized, it could have the
     effect of reducing the Bank's insurance premiums in the future, thereby
     creating equal competition between BIF-insured and SAIF-insured
     institutions.

          The Bank is prohibited under current federal law from converting from
     SAIF to BIF insurance.  Under federal statute, the prohibition on
     conversion from SAIF to BIF insurance will continue until such time as the
     SAIF's

                                       26
<PAGE>
 
     ratio of reserves to insured deposits equals 1.25%.  Based on projections
     published by the FDIC, absent a special assessment, the SAIF reserve ratio
     is not expected to reach 1.25% for a number of years.

          The FDIC has adopted a regulation which provides that any insured
     depository institution with a ratio of Tier 1 capital to total assets of
     less than 2% will be deemed to be operating in an unsafe or unsound
     condition, which would constitute grounds for the initiation of termination
     of deposit insurance proceedings.  The FDIC, however, would not initiate
     termination of insurance proceedings if the depository institution has
     entered into and is in compliance with a written agreement with its primary
     regulator, and the FDIC is a party to the agreement, to increase its Tier 1
     capital to such level as the FDIC deems appropriate.  Tier 1 capital is
     defined as the sum of common stockholders' equity, noncumulative perpetual
     preferred stock (including any related surplus) and minority interests in
     consolidated subsidiaries, minus all intangible assets other than mortgage
     servicing rights and qualifying supervisory goodwill eligible for inclusion
     in core capital under OTS regulations and minus identified losses and
     investments in certain securities subsidiaries.  Insured depository
     institutions with Tier 1 capital equal to or greater than 2% of total
     assets may also be deemed to be operating in an unsafe or unsound condition
     notwithstanding such capital level.  The regulation further provides that
     in considering applications that must be submitted to it by savings
     institutions, the FDIC will take into account whether the savings
     institution is meeting with the Tier 1 capital requirement for state non-
     member banks of 4% of total assets for all but the most highly rated state
     non-member banks.

          Limits on Loans to One Borrower.  Savings institutions generally are
     subject to the lending limits applicable to national banks.  With certain
     limited exceptions, the maximum amount that a savings institution may lend
     to any borrower (including certain related entities of the borrower) at one
     time may not exceed 15% of the unimpaired capital and surplus of the
     savings institution, plus an additional 10% of unimpaired capital and
     surplus for loans fully secured by readily marketable collateral.  Savings
     institutions are additionally authorized to make loans to one borrower, for
     any purpose, in an amount not to exceed $500,000 or, by order of the
     Director of OTS, in an amount not to exceed the lesser of $30,000,000 or
     30% of unimpaired capital and surplus, to develop residential housing,
     provided:  (i) the purchase price of each single-family dwelling in the
     development does not exceed $500,000; (ii) the savings institution is in
     compliance with its fully phased-in capital requirements; (iii) the loans
     comply with applicable loan-to-value requirements; and (iv) the aggregate
     amount of loans made under this authority does not exceed 150% of
     unimpaired capital and surplus.  The lending limits generally do not apply
     to purchase money mortgage notes taken from the purchaser of real property
     acquired by the institution in satisfaction of debts previously contracted
     if no new funds are advanced to the borrower and the institution is not
     placed in a more detrimental position as a result of the sale.  Certain
     types of loans are excepted from the lending limits, including loans
     secured by savings deposits.

          At June 30, 1996, the maximum amount that Illinois Guarantee could
     have loaned to any one borrower without prior to OTS approval was $1.1
     million.  At such date, the largest aggregate amount of loans that Illinois
     Guarantee had outstanding to any one borrower and their related interests
     was $748,000.

          Transactions with Affiliates.  Transactions between a savings
     institution and any affiliate are governed by Sections 23A and 23B of the
     Federal Reserve Act.  An affiliate of a savings institution is any company
     or entity which controls, is controlled by or is under common control with
     the savings institution.  In a holding company context, the parent holding
     company of a savings institution (such as the Company) and any companies
     which are controlled by such parent holding company are affiliates of the
     savings institution.  Generally, Sections 23A and 23B (i) limit the extent
     to which the savings institution or its subsidiaries may engage in "covered
     transactions" with any one affiliate to an amount equal to 10% of such
     institution's capital stock and surplus, and contain an aggregate limit on
     all such transactions with all affiliates in an amount equal to 20% of such
     capital stock and surplus and (ii) require that all such transactions be on
     terms substantially the same, or at least as favorable, to the institution
     or subsidiary as those provided to a non-affiliate.  The term "covered
     transaction" includes the making of loans, purchase of assets, issuance of
     a guarantee and similar other types of transactions.  In addition to the
     restrictions imposed by Sections 23A and 23B, no savings institution may
     (i) loan or otherwise extend credit to an affiliate, except for any
     affiliate which engages only in activities which are permissible for bank
     holding companies, or (ii) purchase or invest in any

                                       27
<PAGE>
 
     stocks, bonds, debentures, notes or similar obligations of an affiliate,
     except for affiliates which are subsidiaries of the savings institution.

          Savings institutions are also subject to the restrictions contained in
     Section 22(h) of the Federal Reserve Act and the Federal Reserve's
     Regulation O thereunder on loans to executive officers, directors and
     principal stockholders.  Under Section 22(h), loans to a director,
     executive officer or greater than 10% stockholder of a savings institution
     and certain affiliated interests of such persons, may not exceed, together
     with all other outstanding loans to such person and affiliated interests,
     the institution's loans-to-one-borrower limit (generally equal to 15% of
     the institution's unimpaired capital and surplus) and all loans to such
     persons may not exceed the institution's unimpaired capital and unimpaired
     surplus.  Section 22(h) also prohibits loans, above amounts prescribed by
     the appropriate federal banking agency, to directors, executive officers
     and greater than 10% stockholders of a savings institution, and their
     respective affiliates, unless such loan is approved in advance by a
     majority of the board of directors of the institution with any "interested"
     director not participating in the voting.  The Regulation O prescribes the
     loan amount (which includes all other outstanding loans to such person), as
     to which such prior board of director approval is required, as being the
     greater of $25,000 or 5% of capital and surplus (up to $500,000).  Further,
     Section 22(h) requires that loans to directors, executive officers and
     principal stockholders be made on terms substantially the same as offered
     in comparable transactions to other persons.  Section 22(h) also prohibits
     a depository institution from paying the overdrafts of any of its executive
     officers or directors.

          Savings institutions are further subject to the requirements and
     restrictions of Section 22(g) of the Federal Reserve Act on loans to
     executive officers and the restrictions of 12 U.S.C. (S) 1972 on certain
     tying arrangements and extensions of credit by correspondent banks. Section
     22(g) of the Federal Reserve Act requires that loans to executive officers
     of depository institutions not be made on terms more favorable than those
     afforded to other borrowers, requires approval by the board of directors of
     the institution for extension of credit to executive officers of the
     institution, and imposes reporting requirements for and additional
     restrictions on the type, amount and terms of credits to such officers.
     Section 1972 (i) prohibits a depository institution from extending credit
     to or offering any other services, or fixing or varying the consideration
     for such extension of credit or service, on the condition that the customer
     obtain some additional service from the institution or certain of its
     affiliates or not obtain services of a competitor of the institution,
     subject to certain exceptions, and (ii) prohibits extensions of credit to
     executive officers, directors, and greater than 10% stockholders of a
     depository institution by any other institution which has a correspondent
     banking relationship with the institution, unless such extension of credit
     is on substantially the same terms as those prevailing at the time for
     comparable transactions with other persons and does not involve more than
     the normal risk of repayment or present other unfavorable features.

          Real Estate Lending Policies.  Under OTS regulations, savings
     associations must adopt and maintain written policies that establish
     appropriate limits and standards for extensions of credit that are secured
     by liens or interests in real estate or are made for the purpose of
     financing permanent improvements to real estate.  These policies must
     establish loan portfolio diversification standards, prudent underwriting
     standards, including loan-to-value limits, that are clear and measurable,
     loan administration procedures and documentation, approval and reporting
     requirements.  The real estate lending policies of savings institutions
     must reflect consideration of the Interagency Guidelines for Real Estate
     Lending Policies (the "Interagency Guidelines") that have been adopted by
     the federal banking agencies.

          The Interagency Guidelines, among other things, call upon depository
     institutions to establish internal loan-to-value limits for real estate
     loans that are not in excess of the following supervisory limits: (i) for
     loans secured by raw land, the supervisory loan-to-value limit is 65% of
     the value of the collateral; (ii) for land development loans (i.e., loans
     for the purpose of improving unimproved property prior to the erection of
     structures), the supervisory limit is 75%; (iii) for loans for the
     construction of commercial, multi-family or other nonresidential property,
     the supervisory limit is 80%; (iv) for loans for the construction of one-to
     four-family properties, the supervisory limit is 85%; and (v) for loans
     secured by other improved property (e.g., farmland, completed commercial
     property and other income-producing property including non-owner-occupied,
     one- to four-family property), the limit is 85%.  Although no supervisory
     loan-to-value limit has been established for owner-occupied, one- to four-
     family and home

                                       28
<PAGE>
 
     equity loans, the Interagency Guidelines state that for any such loan with
     a loan-to-value ratio that equals or exceeds 90% at origination, an
     institution should require appropriate credit enhancement in the form of
     either mortgage insurance or readily marketable collateral.

          The Interagency Guidelines state that it may be appropriate in
     individual cases to originate or purchase loans with loan-to-value ratios
     in excess of the supervisory loan-to-value limits, based on the support
     provided by other credit factors.  The aggregate amount of loans in excess
     of the supervisory loan-to-value limits, however, should not exceed 100% of
     total capital and the total of such loans secured by commercial,
     agricultural, multifamily and other non-one-to-four family residential
     properties should not exceed 30% of total capital.  The supervisory loan-
     to-value limits do not apply to certain categories of loans including loans
     insured or guaranteed by the U.S. Government and its agencies or by
     financially capable state, local or municipal governments or agencies,
     loans backed by the full faith and credit of a state government, loans that
     are to be sold promptly after origination without recourse to a financially
     responsible party, loans that are renewed, refinanced or restructured
     without the advancement of new funds, loans that are renewed, refinanced or
     restructured in connection with a workout, loans to facilitate sales of
     real estate acquired by the institution in the ordinary course of
     collecting a debt previously contracted and loans where the real estate is
     not the primary collateral.

          The Bank believes that its current lending policies conform to the
     Interagency Guidelines and does not anticipate that the Interagency
     Guidelines will have a material effect on its lending activities.

          Federal Home Loan Bank System.  The Bank is a member of the FHLB
     System, which consists of 12 district Federal Home Loan Banks subject to
     supervision and regulation by the Federal Housing Finance Board ("FHFB").
     The Federal Home Loan Banks provide a central credit facility primarily for
     member institutions.  As a member of the FHLB of Chicago, the Bank is
     required to acquire and hold shares of capital stock in the FHLB of Chicago
     in an amount at least equal to 1% of the aggregate unpaid principal of its
     home mortgage loans, home purchase contracts, and similar obligations at
     the end of each year, or 1/20 of its advances (borrowings) from the FHLB of
     Chicago, whichever is greater.  Illinois Guarantee was in compliance with
     this requirement with investment in FHLB of Chicago stock at June 30, 1996,
     of $214,000.  The FHLB of Chicago serves as a reserve or central bank for
     its member institutions within its assigned district.  It is funded
     primarily from proceeds derived from the sale of consolidated obligations
     of the FHLB System.  It offers advances to members in accordance with
     policies and procedures established by the FHFB and the Board of Directors
     of the FHLB of Chicago.  Long-term advances may only be made for the
     purpose of providing funds for residential housing finance.  The Bank had
     $1.6 million in advances outstanding from the FHLB of Chicago with $7,000
     of accrued interest payable as of June 30, 1996.  The advances consisted of
     a one year fixed rate advance maturing April 29, 1997 at 5.93% rate of
     interest, payable monthly, in the amount of $790,000, a one year fixed rate
     advance maturing May 16, 1997 at 5.98% rate of interest, payable monthly,
     in the amount of $468,000, and a daily advance of $350,000 at 5.50% rate of
     interest which can adjust daily.  The Bank received its first daily advance
     on June 18, 1996 for $200,000 and had additional borrowing on June 24, 1996
     for $350,000.

          Federal Reserve System.  Pursuant to regulations of the Federal
     Reserve Board, all FDIC-insured depository institutions must maintain
     average daily reserves against their net transaction accounts.  This
     percentage is subject to adjustment by the Federal Reserve Board.  No
     reserves are required to be maintained on the first $4.3 million of
     transaction accounts, reserves equal to 3% must be maintained on the next
     $52.0 million of transaction accounts, and a reserve of 10% must be
     maintained against all remaining transaction accounts.  These reserve
     requirements are subject to adjustment by the Federal Reserve Board.
     Because required reserves must be maintained in the form of vault cash or
     in a noninterest bearing account at a Federal Reserve Bank, the effect of
     the reserve requirement is to reduce the amount of the institution's
     interest-earning assets.  As of June 30, 1996, the Bank met its reserve
     requirements.

                                       29
<PAGE>
 
     Prompt Corrective Regulatory Action

          General.   Under the Federal Deposit Insurance Corporation Improvement
     Act of 1991 ("FDICIA") federal banking regulators are required to take
     prompt corrective action if an insured depository institution fails to
     satisfy certain minimum capital requirements, including a leverage limit, a
     risk-based capital requirement, and any other measure of capital deemed
     appropriate by the federal banking regulators for measuring the capital
     adequacy of an insured depository institution.  All institutions,
     regardless of their capital levels, are restricted from making any capital
     distribution or paying any management fees that would cause the institution
     to fail to satisfy the minimum levels for any of its capital requirements.
     An institution that fails to meet the minimum level for any relevant
     capital measure (an "undercapitalized institution") may be: (i) subject to
     increased monitoring by the appropriate federal banking regulator; (ii)
     required to submit an acceptable capital restoration plan within 45 days;
     (iii) subject to asset growth limits; and (iv) required to obtain prior
     regulatory approval for acquisitions, branching and new lines of
     businesses.  The capital restoration plan must include a guarantee by the
     institution's holding company that the institution will comply with the
     plan until it has been adequately capitalized on average for four
     consecutive quarters, under which the holding company would be liable up to
     the lesser of 5% of the institution's total assets or the amount necessary
     to bring the institution into capital compliance as of the date it failed
     to comply with its capital restoration plan.  A "significantly
     undercapitalized" institution, as well as any undercapitalized institution
     that does not submit an acceptable capital restoration plan, may be subject
     to regulatory demands for recapitalization, broader application of
     restrictions on transactions with affiliates, limitations on interest rates
     paid on deposits, asset growth and other activities and possible
     replacement of directors and officers, and restrictions on capital
     distributions by any bank holding company controlling the institution.  Any
     company controlling the institution could also be required to divest the
     institution or the institution could be required to divest subsidiaries.
     The senior executive officers of a significantly undercapitalized
     institution may not receive bonuses or increases in compensation without
     prior approval and the institution is prohibited from making payments of
     principal or interest on its subordinated debt.  In their discretion, the
     federal banking regulators may also impose the foregoing sanctions on an
     undercapitalized institution if the regulators determine that such actions
     are necessary to carry out the purposes of the prompt corrective action
     provisions.  If an institution's ratio of tangible capital to total assets
     falls below a "critical capital level," the institution will be subject to
     conservatorship or receivership within 90 days unless periodic
     determinations are made that forbearance from such action would better
     protect the deposit insurance fund.  Unless appropriate findings and
     certifications are made by the appropriate federal bank regulatory
     agencies, a critically undercapitalized institution must be placed in
     receivership if it remains critically undercapitalized on average during
     the calendar quarter beginning 270 days after the date it became critically
     undercapitalized.

          The federal banking regulators have adopted regulations implementing
     the prompt corrective action provisions of FDICIA.  Under such regulations,
     the federal banking regulators will generally measure a depository
     institution's capital adequacy on the basis of its total risk-based capital
     ratio (the ratio of its total capital to risk-weighted assets), Tier 1
     risk-based capital ratio (the ratio of its core capital to risk-weighted
     assets) and leverage ratio (the ratio of its core capital to adjusted total
     assets).  Under the regulations, a depository institution that is not
     subject to an order or written directive by its primary federal regulator
     to meet or maintain a specific capital level is deemed "well-capitalized"
     if it also has: (i) a total risk-based capital ratio of 10% or greater;
     (ii) a Tier 1 risk-based capital ratio of 6% or greater; and (iii) a
     leverage ratio of 5% or greater.  An "adequately capitalized" depository
     institution is an institution that does not meet the definition of well-
     capitalized and has: (i) a total risk-based capital ratio of 8% or greater;
     (ii) a Tier 1 risk-based capital ratio of 4% or greater; and (iii) a
     leverage ratio of 4% or greater (or 3% or greater if the institution has a
     composite 1 CAMEL rating).  An "undercapitalized institution" is a
     depository institution that has (i) a total risk-based capital ratio less
     than 8%; or (ii) a Tier 1 risk-based capital ratio of less than 4%; or
     (iii) a leverage ratio of less than 4% (or 3% if the institution has a
     composite 1 CAMEL rating).  A "significantly undercapitalized" institution
     is defined as a depository institution that has: (i) a total risk-based
     capital ratio of less than 6%; or (ii) a Tier 1 risk-based capital ratio of
     less than 3%; or (iii) a leverage ratio of less than 3%.  A "critically
     undercapitalized" depository institution is defined as a depository
     institution that has a ratio of "tangible equity" to total assets that is
     equal to or less than 2%.  "Tangible equity" is defined as core capital
     plus the institution's outstanding cumulative perpetual preferred stock
     (and related surplus) less all intangibles other than qualifying
     supervisory goodwill and certain mortgage servicing rights.  The
     appropriate federal banking agency may reclassify a well capitalized
     depository institution as adequately capitalized and may require an
     adequately capitalized

                                       30
<PAGE>
 
     or undercapitalized institution to comply with the supervisory actions
     applicable to institutions in the next lower capital category (but may not
     reclassify a significantly undercapitalized institution as critically
     undercapitalized) if the OTS determines, after notice and an opportunity
     for a hearing, that the depository institution is in an unsafe or unsound
     condition or if the OTS determines that the institution has received and
     not corrected a less-than-satisfactory rating for any CAMEL rating
     category.  As of June 30, 1996, the Bank was classified as "well-
     capitalized" under the prompt corrective action regulations.

          Safety and Soundness Guidelines.  Under FDICIA, as amended by the
     Riegle Community Development and Regulatory Improvement Act of 1994 (the
     "CDRI Act"), each Federal banking agency is required to establish safety
     and soundness standards for institutions under its authority.  On July 10,
     1995, the federal banking agencies, including the OTS and Federal Reserve
     Board, released Interagency Guidelines Establishing Standards for Safety
     and Soundness and published a final rule establishing deadlines for
     submission and review of safety and soundness compliance plans.  The final
     rule and the guidelines went into effect on August 9, 1995.  The guidelines
     require depository institutions to maintain internal controls and
     information systems and internal audit systems that are appropriate for the
     size, nature and scope of the institution's business.  The guidelines also
     establish certain basic standards for loan documentation, credit
     underwriting, interest rate risk exposure, and asset growth.  The
     guidelines further provide that depository institutions should maintain
     safeguards to prevent the payment of compensation, fees and benefits that
     are excessive or that could lead to material financial loss, and should
     take into account factors such as comparable compensation practices at
     comparable institutions.  If the appropriate federal banking agency
     determines that a depository institution is not in compliance with the
     safety and soundness guidelines, it may require the institution to submit
     an acceptable plan to achieve compliance with the guidelines.  A depository
     institution must submit an acceptable compliance plan to its primary
     federal regulator within 30 days of receipt of a request for such a plan.
     Failure to submit or implement a compliance plan may subject the
     institution to regulatory sanctions.  Management believes that the Bank
     already meets substantially all the standards adopted in the interagency
     guidelines, and therefore does not believe that implementation of these
     regulatory standards will materially affect the Bank's operations.

          Additionally under FDICIA, as amended by the CDRI Act, the federal
     banking agencies are required to establish standards relating to the asset
     quality and earnings that the agencies determine to be appropriate.  On
     July 10, 1995, the federal banking agencies, including the OTS and Federal
     Reserve Board, issued proposed guidelines relating to asset quality and
     earnings.  Under the proposed guidelines, an FDIC insured depository
     institution should maintain systems, commensurate with its size and the
     nature and scope of its operations, to identify problem assets and prevent
     deterioration in those assets as well as to evaluate and monitor earnings
     and ensure that earnings are sufficient to maintain adequate capital and
     reserves.  Management believes that the asset quality and earnings
     standards, in the form proposed by the banking agencies, would not have a
     material effect on the Bank's operations.

     Regulation of the Company

          General.  The Company is a unitary savings and loan holding company
     within the meaning of the Home Owners' Loan Act.  As such, the Company is
     registered with the OTS and subject to OTS regulations, examinations,
     supervision and reporting requirements.  As a subsidiary of a savings and
     loan holding company, the Bank is subject to certain restrictions in its
     dealing with the Company and affiliates thereof.  The Company is required
     to file certain reports with, and otherwise comply with the rules and
     regulations of, the Securities Exchange Commission ("SEC") under federal
     securities laws.

          Activities Restrictions.  The Board of Directors of the Company
     presently intends to operate the Company as a unitary savings and loan
     holding company.  There are generally no restrictions on the activities of
     a unitary savings and loan holding company.  However, if the Director of
     OTS determines that there is reasonable cause to believe that the
     continuation by a savings and loan holding company of an activity
     constitutes a serious risk to the financial safety, soundness, or stability
     of its subsidiary savings institution, the Director of OTS may impose such
     restrictions as deemed necessary to address such risk and limiting: (i)
     payment of dividends by the savings institution, (ii) transactions between
     the savings institution and its affiliates, and (iii) any activities of the
     savings institution that might create a serious risk that the liabilities
     of the holding company and its affiliates may be imposed on the savings

                                       31
<PAGE>
 
     institution.  Notwithstanding the above rules as to permissible business
     activities of unitary savings and loan holding companies, if the savings
     institution subsidiary of such a holding company fails to meet the QTL
     Test, then such unitary holding company shall also presently become subject
     to the activities restrictions applicable to multiple holding companies and
     unless the savings institution requalifies as a Qualified Thrift Lender
     within one year thereafter, register as, and become subject to, the
     restrictions applicable to a bank holding company.  See " --Qualified
     Thrift Lender Test."

          If the Company were to acquire control of another savings institution,
     other than through merger or other business combination with the Bank, the
     Company would thereupon become a multiple savings and loan holding company.
     Except where such acquisition is pursuant to the authority to approve
     emergency thrift acquisitions and where each subsidiary savings institution
     meets the QTL Test, the activities of the Company and any of its
     subsidiaries (other than the Bank or other subsidiary savings institutions)
     would thereafter be subject to further restrictions.  Among other things,
     no multiple savings and loan holding company or subsidiary thereof which is
     not a savings institution shall commence or continue for a limited period
     of time after becoming a multiple savings and loan holding company or
     subsidiary thereof, any business activity, upon prior notice to, and no
     objection by, the OTS, other than: (i) furnishing or performing management
     services for a subsidiary savings institution, (ii) conducting an insurance
     agency or escrow business, (iii) holding, managing, or liquidating assets
     owned by or acquired from a subsidiary savings institution, (iv) holding or
     managing properties used or occupied by a subsidiary savings institution,
     (v) acting as trustee under deeds of trust, (vi) those activities
     authorized by regulation as of March 5, 1987 to be engaged in by multiple
     holding companies, or (vii) those activities authorized by the Federal
     Reserve Board as permissible for bank holding companies, unless the
     Director of OTS by regulation prohibits or limits such activities for
     savings and loan holding companies.  Those activities described in (vii)
     above must also be approved by the Director of OTS prior to being engaged
     in by a multiple holding company.

          Restrictions on Acquisitions.  Savings and loan holding companies are
     prohibited from acquiring, without prior approval of the Director of OTS,
     (i) control of any other savings institution or savings and loan holding
     company or substantially all the assets thereof, or (ii) more than 5% of
     the voting shares of a savings institution or holding company thereof which
     is not a subsidiary.  Under certain circumstances, a registered savings and
     loan holding company is permitted to acquire, with the approval of the
     Director of OTS, up to 15% of the voting shares of an under-capitalized
     savings institution pursuant to a "qualified stock issuance" without that
     savings institution being deemed controlled by the holding company.  In
     order for the shares acquired to constitute a "qualified stock issuance,"
     the shares must consist of previously unissued stock or treasury shares,
     the shares must be acquired for cash, the savings and loan holding
     company's other subsidiaries must have tangible capital of at least 6 1/2%
     of total assets, there must not be more than one common director or officer
     between the savings and loan holding company and the issuing savings
     institution and transactions between the savings institution and the
     savings and loan holding company and any of its affiliates must conform to
     Sections 23A and 23B of the Federal Reserve Act.  Except with the prior
     approval of the Director of OTS, no director or officer of a savings and
     loan holding company or person owning or controlling by proxy or otherwise
     more than 25% of such company's stock, may also acquire control of any
     savings institution, other than a subsidiary savings institution, or of any
     other savings and loan holding company.

          The Director of OTS may only approve acquisitions resulting in the
     formation of a multiple savings and loan holding company which controls
     savings institutions in more than one state if:  (i) the multiple savings
     and loan holding company involved controls a savings institution which
     operated a home or branch office in the state of the institution to be
     acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire
     control of the savings institution pursuant to the emergency acquisition
     provisions of the Federal Deposit Insurance Act; or (iii) the statutes of
     the state in which the institution to be acquired is located specifically
     permit institutions to be acquired by state-chartered institutions or
     savings and loan holding companies located in the state where the acquiring
     entity is located (or by a holding company that controls such state-
     chartered savings institutions).

          The OTS has recently amended its regulations to permit federal savings
     institutions to branch in any state or states of the United States and its
     territories.  Except in supervisory cases or when interstate branching is
     otherwise permitted by state law or other statutory provision, a federal
     savings institution may not establish an out-of-state branch unless (i) the
     federal savings institution qualifies as a "domestic building and loan
     institution" under

                                       32
<PAGE>
 
     (S)7701(a)(19) of the Internal Revenue Code and the total assets
     attributable to all branches of the savings institution in the state would
     qualify such branches taken as a whole for treatment as a domestic building
     and loan association and (ii) such branch would not result in (a) formation
     of a prohibited multi-state multiple savings and loan holding company or
     (b) a violation of certain statutory restrictions on branching by savings
     institution subsidiaries of banking holding companies.  Federal savings
     institutions generally may not establish new branches unless the savings
     institution meets or exceeds minimum regulatory capital requirements.  The
     OTS will also consider the savings institution's record of compliance with
     the Community Reinvestment Act of 1977 in connection with any branch
     application.

          The Bank Holding Company Act of 1956 authorizes the Federal Reserve
     Board to approve an application by a bank holding company to acquire
     control of any savings institution.  Pursuant to rules promulgated by the
     Federal Reserve Board, owning, controlling or operating a savings
     institution is a permissible activity for bank holding companies, if the
     savings institution engages only in deposit-taking activities and lending
     and other activities that are permissible for bank holding companies.  In
     approving such an application, the Federal Reserve Board may not impose any
     restriction on transactions between the savings institution and its holding
     company affiliates except as required by Sections 23A and 23B of the
     Federal Reserve Act.

          A bank holding company that controls a savings institution may merge
     or consolidate the assets and liabilities of the savings institution with,
     or transfer assets and liabilities to, any subsidiary bank which is a
     member of the BIF with the approval of the appropriate federal banking
     agency and the Federal Reserve Board.  The resulting bank will be required
     to continue to pay assessments to the SAIF at the rates prescribed for SAIF
     members on the deposits attributable to the merged savings institution plus
     an annual deposit growth increment.  In addition, the transaction must
     comply with the restrictions on interstate acquisitions of commercial banks
     under the Bank Holding Company Act.

                                    TAXATION
     General

          The Company and its subsidiaries will file a consolidated federal
     income tax return on a June 30 fiscal year basis.  Consolidated returns
     have the effect of eliminating intercompany distributions, including
     dividends, from the computation of consolidated taxable income for the
     taxable year in which the distributions occur.

     Federal Taxation

          Savings institutions are subject to the provisions of the Internal
     Revenue Code of 1986, as amended (the "Code"), in the same general manner
     as other corporations.  However, institutions such as Illinois Guarantee
     which meet certain definitional tests and other conditions prescribed by
     the Code may benefit from certain favorable provisions regarding their
     deductions from taxable income for annual additions to their bad debt
     reserve.  For purposes of the bad debt reserve deduction, loans are
     separated into "qualifying real property loans," which generally are loans
     secured by interests in certain real property, and nonqualifying loans,
     which are all other loans.  The bad debt reserve deduction with respect to
     nonqualifying loans must be based on actual loss experience.  The amount of
     the bad debt reserve deduction with respect to qualifying real property
     loans may be based upon actual loss experience (the "experience method") or
     a percentage of taxable income determined without regard to such deduction
     (the "percentage of taxable income method").  Illinois Guarantee has
     elected to use the method which results in the greatest deduction for
     federal income tax purposes which historically has been the percentage of
     taxable income method.

          Legislation that is effective for tax years beginning after December
     31, 1995 would require savings associations to recapture into taxable
     income the portion of the tax loan reserve that exceeds the 1987 tax loan
     loss reserve.  The Bank will no longer be allowed to use the reserve method
     for tax loan loss provisions, but would be allowed to use either the
     experience method or the specific charge-off method of accounting for bad
     debts.

                                       33
<PAGE>
 
          Under the percentage of taxable income method, the bad debt reserve
     deduction for qualifying real property loans was computed as a percentage,
     which Congress had reduced from as much as 60% in prior years to 8.0% of
     taxable income, with certain adjustments, for taxable years beginning after
     1986.  The allowable deduction under the percentage of taxable income
     method (the "percentage bad debt deduction") for taxable years beginning
     before 1987 was scaled downward in the event that less than 82% but more
     than 60% of the total dollar amount of the assets of an institution
     qualified within certain designated categories.  The Tax Reform Act of 1986
     (the "1986 Act") eliminated this scale down provision, and for all years
     after 1986 an 8% percentage bad debt deduction could be taken as long as
     not less than 60% of the total dollar amount of the assets of an
     institution falls within such categories.  In the event the percentage of
     assets in the designated categories fell below 60%, the institution was
     required to recapture, generally over a period of up to four years, its
     existing bad debt reserve, although net operating loss carryforwards could
     be used to offset such recapture.

          The bad debt deduction under the percentage of taxable income method
     was limited to the extent that (i) the amount accumulated in reserves for
     qualifying real estate loans did not exceed 6.0% of such loans outstanding
     at the end of the taxable year and (ii) the amount when added to the bad
     debt reserve for losses on nonqualifying loans, equaled the amount by which
     12.0% of total deposits or withdrawable accounts of depositors at year-end
     exceeded the sum of surplus, undivided profits and reserves at the
     beginning of the year.  The percentage bad debt deduction under the
     percentage of taxable income method was reduced by the deduction for losses
     on nonqualifying loans.

          Earnings appropriated to Illinois Guarantee's bad debt reserve and
     claimed as a tax deduction are not available for the payment of cash
     dividends or for distribution to shareholders (including distributions made
     on dissolution or liquidation), unless Illinois Guarantee includes the
     amount in taxable income, along with the amount deemed necessary to pay the
     resulting federal income tax.  As of June 30, 1996, Illinois Guarantee had
     approximately $181,000 of accumulated earnings for which federal income
     taxes have not been provided.

          Illinois Guarantee's federal income tax returns have not been audited
     in the last five years.

          For additional information regarding federal income taxes, see Notes A
     and J of Notes to Consolidated Financial Statements.

     State Taxation

          The State of Illinois has a corporate income tax which subjects the
     Company's Illinois taxable income to a 4.8% tax and a Personal Property
     Replacement tax of 2.5%.  However, by virtue of statutory provisions
     relative to a calculations of taxes assessed against corporations, such
     corporations do not pay state income tax in years in which income on United
     States Government securities exceeds taxable income.

          For additional information regarding taxation, see Note J of Notes to
     Consolidated Financial Statements.

                                   EMPLOYEES
                                   ---------

          At June 30, 1996, Illinois Guarantee had 17 full-time and three part-
     time employees.  The Company has no separate employees, except those of the
     Bank.  None of Illinois Guarantee's employees is represented by a
     collective bargaining agreement.  Illinois Guarantee believes that it
     enjoys good relations with its personnel.

     Executive Officers of the Company and the Bank

          The Bank has made significant changes in its management personnel.
     For more information, see "Changes in Key Management Personnel."  The
     current management of the Bank is described below.

          John H. Leonard has been in the financial institutions industry for
     more than 21 years and currently serves as Senior Vice President and Chief
     Credit Officer, a position he has held since May 1996.  Prior to that time,
     Mr.

                                       34
<PAGE>
 
     Leonard was Assistant Vice-President/Commercial Loan Officer of Citizens
     Bank of Illinois in Effingham, Illinois.  He is a Director for the
     Effingham Chamber of Commerce and a Director for the Effingham Family YMCA.

          Gerald E. Ludwig is owner of Ludwig Medical, Inc., a manufacturer of
     plastic disposable medical devices.  Mr. Ludwig was elected Chairman of the
     Board and Chief Executive Officer of the Bank on April 18, 1995.  Mr.
     Ludwig also serves as Chairman of the Company.

          Douglas A. Pike has been in the financial institutions industry for
     more than 11 years and joined the Bank in February 1995 as Vice President
     of Lending.  Mr Pike was appointed President and Chief Operating Officer of
     the Bank on June 20, 1995.  Prior to joining the Bank, he served as loan
     officer of Effingham State Bank and, prior to that, as consumer loan
     officer of First National Bank of Effingham, both in Effingham, Illinois.
     Mr. Pike is a Commissioner for the Effingham City Council, and a Director
     for the Effingham County Community Development Corporation.  Mr. Pike also
     serves as President of the Company.

          Ronald R. Schettler has been in the financial institutions industry
     for more than 28 years, and currently serves as Senior Vice President of
     the Bank in charge of administration and investments, a position he has
     held since joining the Bank in June 1995.  Prior to that time, Mr.
     Schettler was Vice President of Effingham State Bank in Effingham,
     Illinois.  He is a member of the United Methodist Church, the Scottish
     Rite, the Effingham Chamber of Commerce and the Master Masons.  Mr.
     Schettler also serves as director of the Company.

     Item 2.  Description of Property
     --------------------------------

          The following table sets forth certain information at June 30, 1996
     regarding Illinois Guarantee's office facility, which is owned by Illinois
     Guarantee, and certain other information relating to this property at that
     date.  As noted below, Illinois Guarantee also holds title to property
     adjoining the main office in Effingham, Illinois.


                             Year Completed   Square Footage  Net Book Value
                             --------------   --------------  --------------
     Main Office:

      210 E. Fayette Avenue
      Effingham, Illinois           1970           2,940          $233,000


               At June 30, 1996, the net book values of Illinois Guarantee's
     computer equipment and other furniture, fixtures and equipment totalled
     $284,000.  For more information, see Note F of Notes to Consolidated
     Financial Statements.

               During 1995, the Bank also purchased, for $375,000, land on which
     it would construct its new branch office.  This office is expected to open
     in the fourth calendar quarter of 1996.  The total cost of the new branch
     office is currently estimated to be $1.4 million.  See "Item 1. --
     Description of Business -- New Business Strategies."

     Item 3.  Legal Proceedings
     --------------------------

               Although Illinois Guarantee, from time to time, is involved in
     various legal proceedings in the normal course of business, there are no
     material legal proceedings to which Illinois Guarantee or its subsidiary is
     a party or to which any of their property is subject.

     Item 4.  Submission of Matters to a Vote of Security-Holders
     ------------------------------------------------------------

               No matters were submitted to a vote of security holders during
     the fourth quarter of the fiscal year ended June 30, 1996.

                                       35
<PAGE>
 
                                      PART II

     Item 5.  Market for the Registrant's Common Stock and Related Stockholder
     -------------------------------------------------------------------------
     Matters
     -------

               The information contained under the section captioned "Market
     Information" in the Annual Report to Stockholders for the Fiscal Year Ended
     June 30, 1996 (the "Annual Report") is incorporated herein by reference.
     For information regarding restrictions on the payment of dividends see Item
     1.  "Business -- Regulation -- Dividend Limitations."

     Item 6.  Management's Discussion and Analysis or Plan of Operation
     ------------------------------------------------------------------

               The information contained in the section captioned "Management's
     Discussion and Analysis of Financial Condition and Results of Operations"
     in the Annual Report is incorporated herein by reference.

     Item 7.  Financial Statements
     -----------------------------

               The consolidated financial statements contained in the Annual
     Report which are listed under Item 14 herein are incorporated herein by
     reference.


     Item 8.  Changes in and Disagreements with Accountants on Accounting and
     ------------------------------------------------------------------------
     Financial Disclosure
     --------------------

               Not applicable.


                                    PART III

     Item 9.  Directors and Executive Officers of the Registrant; Compliance
     -----------------------------------------------------------------------
     with Section 16(a) of the Exchange Act
     --------------------------------------

               The information contained under the section captioned "Proposal I
     -- Election of Directors" in the Company's definitive proxy statement for
     the 1996 Annual Meeting of Stockholders (the "Proxy Statement") is
     incorporated herein by reference.

               For information regarding delinquent filers and the disclosure
     required pursuant to Item 405 of Regulation S-K, reference is made to
     "Voting Securities and Principal Holders Thereof" in the Proxy Statement
     which information is incorporated herein by reference.  [To be revised, if
     no delinquent filers.]


     Item 10.  Executive Compensation
     --------------------------------

               The information contained under the section captioned "Proposal
     I--Election of Directors -- Executive Compensation the Proxy Statement is
     incorporated herein by reference.


     Item 11.  Security Ownership of Certain Beneficial Owners and Management
     ------------------------------------------------------------------------

     (a) and (b) The information required by this item is incorporated herein by
                 reference to the sections captioned "Proposal I - Election of
                 Directors" and "Voting Securities and Principal Holders
                 Thereof" of the Proxy Statement.

                                       36
<PAGE>
 
     (c)       Management knows of no arrangements, including any pledge by any
               person of securities of the Bank, the operation of which may at a
               subsequent date result in a change in control of the registrant.


     Item 12.  Certain Relationships and Related Transactions
     --------------------------------------------------------

          The information required by this item is incorporated herein by
     reference to the section captioned "Proposal I -- Election of Directors" of
     the Proxy Statement.


                                    PART IV

     Item 13.  Financial Statement Schedules, and Reports on Form 8-K
     ----------------------------------------------------------------

     (a)  1.   Independent Auditors' Report (incorporated by reference to the
               Annual Report)

               Consolidated Financial Statements (incorporated by reference to
               the Annual Report)

               (a)  Consolidated Statements of Financial Condition at June 30,
                    1996 and 1995

               (b)  Consolidated Statements of Earnings for the Years Ended June
                    30, 1996 and 1995

               (c)  Consolidated Statements of Stockholders' Equity for the
                    Years Ended June 30, 1996 and 1995

               (d)  Consolidated Statements of Cash Flows for the Years Ended
                    June 30, 1996 and 1995

               (e)  Notes to Consolidated Financial Statements.

          2.   All schedules have been omitted as the required information is
               either inapplicable or included in the Notes to Consolidated
               Financial Statements.

          3.   Exhibits and Index to Exhibits

                                       37
<PAGE>
 
               (a)    Exhibits
               The following exhibits are either attached to or incorporated by
               reference in this Annual Report on Form 10-KSB.

 
                                                                 Page No.
                                                                 in Sequentially
 No.                         Description                         Numbered Copy
---------------------------  ----------------------------------  -------------
 
(3a)                         Articles of Incorporation of          *
                             Illinois Community Bancorp, Inc.
 
(3b)                         Bylaws of Illinois Community          *
                             Bancorp, Inc.
 
(4)                          Common Stock Certificate of           *
                             Illinois Community Bancorp, Inc.
 
(10a)                        Illinois Community Bancorp, Inc.      *
                             Stock Option Plan
 
(10b)                        Illinois Community Bancorp, Inc.
                             Management
                             Recognition Plan                      *
 
(10c)                        Retirement Plan for Non-employee      *
                             Directors
 
(10d)                        Profit Sharing Plan                   *
 
(10e)                        Employment Agreement between the      *
                             Bank and Douglas A. Pike
                             dated January 16, 1996

(10f)                        Employment Agreement between the 
                             Bank and Ronald R. Schettler
                             dated January 16, 1996                *

(10g)                        Employment Agreement between the 
                             Bank and John H. Leonard
                             dated May 13, 1996

(13)                         Annual Report to Stockholders for 
                             the Fiscal Year Ended June 30,
                             1996

(21)                         Subsidiaries of the Registrant

(27)                         Financial Data Schedule

----------------
*           Incorporated by reference to the Corporation's Registration
            Statement on Form S-4 (333-3322) filed with the Securities and
            Exchange Commission on April 9, 1996.


(b)         During the last quarter of the fiscal year ended June 30, 1996, the
            Bank did not file any Current Reports on Form 8-K.

(c)         All required exhibits are filed as attached.

(d)         No financial statement schedules are required.
            

                                       38
<PAGE>
 
                                  SIGNATURES


          Pursuant to the requirements of Section 13 or 15(d) of the Securities
     Exchange Act of 1934, the registrant has duly caused this report to be
     signed on its behalf by the undersigned, thereunto duly authorized.

                                        ILLINOIS COMMUNITY BANCORP, INC.

     Date:    September 30, 1996  By: /s/ Gerald E. Ludwig
                                      -----------------------------------------
                                          Gerald E. Ludwig
                                          Chairman of the Board and Chief
                                          Executive Officer
                                          Duly Authorized Representative

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


     By: /s/ Gerald E. Ludwig                         Date: September 30, 1996
         -------------------------------------
         Gerald E. Ludwig
         Chairman of the Board and Chief
         Executive Officer
         (Principal Executive Officer)


     By: /s/ Michael F. Sehy                          Date: September 30, 1996
         -------------------------------------
         Michael F. Sehy
         Vice Chairman of the Board


     By: /s/ Douglas A. Pike                          Date: September 30, 1996
         -------------------------------------
         Douglas A. Pike
         Director and President (Principal
         Financial and Accounting Officer)


     By: /s/ Milton Hinkle                            Date: September 30,1996
         -------------------------------------
         Milton Hinkle
         Director


     By: /s/ Frederick C. Schaefer                    Date: September 30, 1996
         -------------------------------------
         Frederick C. Schaefer
         Director


     By: /s/ Ernest E. Garbe                          Date: September 30, 1996
         ------------------------------------- 
         Ernest E. Garbe
         Director


     By: /s/ Garrett M. Andes, II                     Date: September 30, 1996
         -------------------------------------
         Garrett M. Andes, II
         Director
<PAGE>
 
                           INDEX TO EXHIBITS



               (3a)   Articles of Incorporation of Illinois Community Bancorp,
                      Inc.
               (3b)   Bylaws of Illinois Community Bancorp, Inc.
               (4)    Common Stock Certificate of Illinois Community Bancorp,
                      Inc.
               (10a)  Illinois Community Bancorp, Inc. Stock Option Plan
               (10b)  Illinois Community Bancorp, Inc. Management
                      Recognition Plan
               (10c)  Retirement Plan for Non-employee Directors
               (10d)  Profit Sharing Plan
               (10e)  Employment Agreement between the Bank and Douglas A. Pike
                      dated January 16, 1996
              (10f)   Employment Agreement between the Bank and Ronald R.
                      Schettler dated January 16, 1996
               (10g)  Employment Agreement between the Bank and John H. Leonard
                      dated May 13, 1996
               (13)   Annual Report to Stockholders for the Fiscal Year Ended
                      June 30, 1996
               (21)   Subsidiaries of the Registrant
               (27)   Financial Data Schedule